Voluntary Statement Made Before The Revenue Authorities Cannot Substitute A Statutory Pre-Show Cause Consultation Notice: Delhi High Court

The Division Bench of Justices Rajiv Shakdher and Tara Vitasta Ganju dismissed the contentions of the revenue department that because the petitioner's authorized representative gave a voluntary statement before the concerned officer, the need for issuing a pre-show cause consultation notice was waived.

The petitioner Gulati Enterprises filed a writ petition before the Delhi High Court against the show cause notice issued to it seeking to recover GST under Section 74 of the CGST Act, 2017, along with interest and penalty.

The petitioner submitted before the High Court that the mandatory requirement of pre-show cause notice consultation, as provided in Rule 142 (1A) of the CGST Rules, 2017, as it stood at the relevant point in time, i.e., when the show cause notice was issued, was not adhered to.

The petitioner averred that no pre-show cause consultation notice, as required in the statutory form GST DRC-01A, was served on the petitioner. The petitioner added as per the statutory form GST DRC-01A, the revenue department was required to crystalize the tax and cess components, and also specify the period for which it was claimed. The petitioner added that the revenue department was also required to furnish the grounds and specify the quantification of the goods or services, based on which tax and cess was claimed.

The revenue department submitted that a pre-show cause consultation notice could not be issued because the statutory form was not activated on the web portal when the show cause notice was issued to the petitioner.

The revenue department contended that because the authorised signatory of the petitioner gave a voluntary statement before the concerned officer, the need for issuing a pre-show cause consultation notice was waived.

The Court observed that though, with effect from 15.10.2020, Rule 142 (1A) has been amended and the requirement of holding a pre-show cause notice consultation has ceased to be mandatory, but since the said show cause notice was issued prior to 15.10.2020, the amendment would not impact the case of the petitioner.

Hence, the Court ruled that a pre-show cause notice consultation was mandatory under the unamended Rule 142 (1A).

The Court refuted the contentions of the revenue department that since the said statutory form was not activated on the web portal maintained by the revenue department hence, the pre-show cause consultation notice could not have been issued. The Court ruled that the revenue department could have manually served the statutory form on the petitioner.

The Court observed that a Coordinate Bench of the Delhi High Court in the case of Omaxe New Chandigarh Developers Pvt. Ltd. versus Union of India & Ors. (2021) had held that "voluntary statements" recorded before the Senior Intelligence Officer cannot constitute pre-show cause notice consultation as envisaged in a 2017 Master Circular, which also had a provision for pre-show cause notice consultation.

Hence, the Court ruled that a voluntary statement cannot substitute a statutory notice, which is contemplated under Rule 142(1A) of the CGST Rules, 2017.

Therefore, the Court set aside the show cause notice and allowed the writ petition.

Case Title: Gulati Enterprises versus Central Board of Indirect Taxes and Customs & Ors.

Citation: 2022 LiveLaw (Del) 604

Dated: 18.05.2022

Counsel for the Petitioner: Mr Vineet Bhatia, Advocate

Counsel for the Respondent: Mr Harpreet Singh with Ms Suhani Mathur, Advocates.

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