Quick Summary: The Bombay High Court canceled the notices asking several petitioners, including Abhyudaya Co-Operative Bank, to explain themselves because the necessary pre-consultation process was not followed. This decision highlights the importance of following procedures outlined in official guidelines for tax demands over Rs. 50 lakhs.
This case involved multiple petitions, including those from Abhyudaya Co-Operative Bank Ltd. against the Union of India and various tax authorities. The main issue was whether pre-consultation notices were required before sending notices asking for explanations under Section 73 of the Finance Act, 1994.
According to Circular No. 1053/02/2017-Cx and Circular No. 1076/02/2020-Cx, a pre-consultation notice is required for tax demands over Rs. 50 lakhs. This step is crucial for promoting easier trade and voluntary compliance, reducing the need to issue notices asking for explanations.
"A pre-show cause notice consultation with the taxpayer, before issuing the notice in case of demands of duty is above Rupees 50 Lakhs...is mandatory."
The court, led by Justices M.S. Sonak and Advait M. Sethna, noticed that the Revenue Department did not send the required pre-consultation notices. The court referenced multiple past decisions, including those from the Delhi and Gujarat High Courts, supporting the required nature of these consultations.
The Revenue argued that pre-consultation was not required and that its absence did not make the notices invalid. However, the court disagreed, stating that the official guidelines are binding on the department.
"Circulars issued by the CBDT or the CBEC are binding upon the department."
The court canceled the notices asking for explanations but allowed the Revenue to start a pre-consultative process within a specified timeframe. The period from the initial pause to the canceling of notices was excluded from the time limit to prevent unfairness against the Revenue.
This judgment emphasizes the necessity for tax authorities to strictly follow procedural requirements. It highlights the court's role in ensuring that administrative actions comply with established rules and regulations.
The court's decision to cancel the notices due to missing pre-consultation highlights the importance of following proper procedures in tax matters.
