M/S Saumya Agrotech PVT LTD vs. Union Of INDIA And Ors.

Held

The Court allowed the writ petition, setting aside the impugned show-cause-cum-demand notice dated 11th October 2021. The Court held that the notice was set aside solely on the grounds of violation of the principles of natural justice and the specific mandate of paragraph 4 of Circular No. 1076/02/2020-CX dated 19th November 2020. The respondents failed to demonstrate that any order was passed on the petitioner's prayer for adjournment of the pre-show-cause-notice consultation, nor could they prove that the subsequent Circular dated 11th November 2021 was retrospective. The Court directed the respondents to issue a fresh notice for pre-show-cause-notice consultation within ten days and to decide on it in accordance with the law. The Court clarified that it had not examined the merits of the demand notice itself. The ratio decidendi is that a mandatory pre-show-cause-notice consultation, as stipulated by a binding circular, must be conducted fairly, including proper consideration of adjournment requests, to uphold natural justice and the intent of the circular.

Facts

The petitioner, M/s. Saumya Agrotech Private Limited, challenged a show-cause-cum-demand notice dated 11th October 2021, issued by the CGST, Kolkata, Audit-I. The petitioner argued that the notice was issued without considering their prayer for adjournment of a pre-show-cause-notice consultation, which was mandatory for demands exceeding Rs. 50 lakhs as per Circular No. 1076/02/2020-CX dated 19th November 2020. The petitioner had requested adjournment on 5th October 2021 due to puja vacation, but no order was passed on this request, nor was the fate of the consultation communicated before the impugned notice was issued. The respondents could not satisfy the Court regarding any order passed on the adjournment request or any decision taken on the pre-show-cause-notice consultation.

Key Issues

1. Whether the impugned show-cause-cum-demand notice dated 11th October 2021 was issued in violation of the principles of natural justice and Circular No. 1076/02/2020-CX dated 19th November 2020, by failing to consider the petitioner's prayer for adjournment of the pre-show-cause-notice consultation. Petitioner's Arguments: The petitioner contended that the issuance of the show-cause-cum-demand notice without considering their adjournment request and without passing any formal order on the pre-show-cause-notice consultation, particularly in light of the mandatory nature of such consultations for demands above Rs. 50 lakhs as per the 19th November 2020 Circular, violated their right to benefit from the Circular and breached the principles of natural justice. They relied on paragraph 4 of the 19th November 2020 Circular. Revenue's Arguments: The respondents argued that the petitioner was not entitled to the benefit of the 19th November 2020 Circular because a subsequent Circular No. 1079/05/2021-6 dated 11th November 2021 stated that pre-show-cause-notice consultation was not mandatory. However, they could not demonstrate that this subsequent Circular was retrospective in nature.