Pre-Consultative Process under Central Excise Act is Mandatory Except in Cases of Intention to Evade Tax: Madras HC [Read Order]

In a recent ruling related to the Pre-consultation process, the Madras High Court has held that the process under Central Excise Act is mandatory except in the cases of intention to evade the taxes. In such cases, pre-consultation is not mandatory.

Dr. Justice Anita Sumanth and Justice Mummineni Sudheer Kumar observed that the tax department cannot take a unilateral view of not providing the pre-consultation assuming that matter involves fraud or intention to avoid tax, which requires evidence investigation and also question of fact.

In the batch of 30 matters, comprising 21 Writ Appeals and 9 Writ petitions, the court considered whole cases together. And the 29 cases belonged to Tamil Nadu Generation and Distribution Corporation Limited (Tangedco).

The parties, specifically the petitioners, submitted an earlier decision of the Bombay High Court in Rochem Separation Systems (India) Pvt. Ltd. V. The Union of India, where it was ruled that ‘the requirement of pre-consultation process cannot be dismissed as an empty formality and would have to be held to be mandatory.’

The Central board of indirect Taxes and Customs ( CBIC ) has issued a master circular No.1053/02/2017-CX dated March 10, 2017, and November 19, 2020, stipulating a pre-consultative, to settle the disputes without going to the huge litigative process. The court itself viewed it as an alternate dispute resolution. Therefore the bench says that after issuing such a master circular, it cannot eschew it.

Additionally, with regards to the content of the master circular No.1053/02/2017-CX, it has clearly provided that the pre-consultative process need not to mandatory in cases where “show cause notices/proceedings had been issued/completed for recovery of duties or taxes not levied or paid, or short levied or short paid, or erroneously refunded by reason of fraud, collusion, wilful mis-statement, suppression of facts or contravention of any of the provisions of the Central Excise Act, 1944 or Chapter V of the Finance Act, 1994 or connected rules, with an intent to evade payment of duties or taxes”

From the above statement itself it is clear that the board is mandating pre-consultation for the rest of the issues, said the court.

Additionally, the parties listed cases including Back Office IT Solutions Pvt. Ltd. V. Union of India, Dharamshil Agencies and Union of India, K.P.Varghese V. Income Tax Officer, Ernakulam and Anr,..etc where it was ruled that CBIC circulars are binding upon the authority.

Further, the high court is going to the depth of the case a little more than that. It says that invocation of extended limitation is not automatic or unilateral. To extend the limitation, the department must prove that there is fraud or misstatement of intention to evade tax must be proved.

According to the bench it is not possible without going into the question of facts or adducing the evidence. Also by the time, it is open for the assessee to approach before the court and object that there is no fraud or misstatement happened.

Therefore, the bench was saying that the department cannot unilaterally assume that pre-consultation is not necessary. Unless and until the fraud and intention to evade is not proven beyond reasonable doubt, the department is obligated to issue a pre-consultation notice.

The bench quashed impugned assessment orders and show cause notices. Also, the proceedings were resuscitated from the stage of pre-consultation.

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