Case Title, Court & Classification

Case: Gulati Enterprises v. Central Board of Indirect Taxes & Customs & Ors.
Court: High Court of Delhi
Petition No.: W.P.(C) 5407/2020
Date of Judgment: 18 May 2022
Relevant Provisions: Section 74 of the CGST Act, Rule 142(1A) of the CGST Rules (pre-15.10.2020 mandatory version), Section 50, Section 122
Category: Procedural – Pre-Show Cause Notice Consultation; Validity of SCN
Core Issue: Non-issuance of pre-SCN consultation under Rule 142(1A) (mandatory at the time of SCN dated 21.05.2020)

FACTS (Paras 1–6.1)

The petitioner, a proprietorship firm engaged in trading activities, was issued a show cause notice (SCN) dated 21.05.2020 proposing tax demand under the proviso to Section 74(1) along with interest under Section 50 and penalties under Section 74 and Section 122. The SCN also proposed penalty on the authorised signatory (Tarun Gulati).

The petitioner challenged the SCN primarily on the ground that the mandatory statutory requirement of pre-show cause notice consultation—as it existed under Rule 142(1A) prior to its amendment on 15.10.2020—had not been followed. The petitioner argued that the consultation had to be conducted using Form GST DRC-01A, which required crystallisation of demand, quantification, period of dispute, and factual grounds, none of which were served upon it before issuance of SCN.

The Revenue contended that the form was not activated on the portal at the relevant time and that a voluntary statement recorded from the authorised signatory during investigation substituted the need for formal pre-SCN consultation.

QUESTIONS / ISSUES (Paras 7–12.1)

1. Whether pre-show cause consultation under Rule 142(1A) (pre-amendment) was mandatory for SCNs issued under Section 73/74?

2. Whether a voluntary statement recorded during investigation can substitute a formal consultation in GST DRC-01A?

3. Whether non-activation of the DRC-01A form on the GST portal could justify non-issuance of pre-SCN consultation notice?

COURT’S OBSERVATIONS (Paras 7–12.1)

Mandatory nature of Rule 142(1A) prior to 15.10.2020

The Court noted that the unamended Rule 142(1A) used the expression “shall”, making pre-SCN consultation compulsory before issuance of notices under Section 73(1) or 74(1). The amendment substituting “shall” with “may” from 15.10.2020 was held irrelevant because the impugned SCN was issued on 21.05.2020.

Portal non-availability not a defence

The Court held that merely because Form DRC-01A had not been activated online, it did not relieve Revenue of its duty. The form could have been served manually. Administrative inconvenience cannot override statutory mandates. (Para 11.1)

Voluntary statements cannot replace consultation

Referring to Omaxe New Chandigarh Developers Pvt. Ltd. and Back Office IT Solutions Pvt. Ltd., the Court reaffirmed that:

• Consultation requires deliberation and exchange, not a one-way statement.

• Statements recorded under summons do not qualify as pre-SCN consultation. (Paras 11.2 & 12)

The Court emphasised that statutory consultation and investigative statements are conceptually distinct: the former involves participatory engagement, whereas the latter is unilateral.

JUDGMENT / VERDICT (Paras 13–14)

The Court set aside the SCN dated 21.05.2020 for non-compliance with mandatory pre-show cause consultation under Rule 142(1A).

However, the Court granted liberty to the Revenue to issue a fresh pre-SCN consultation in Form DRC-01A and thereafter proceed in accordance with law.

The writ petition was disposed of accordingly.

TABLE – Cases Referred & Court’s Reliance

Between Fine Lines (Practical Takeaways for Trade/Industry)

This judgment strengthens taxpayer rights by clearly holding that, before issuance of any SCN under Section 74 for fraud/suppression cases, the department must first issue DRC-01A Part A as a mandatory pre-consultation step (for the period before 15.10.2020). Failure to do so renders the SCN vulnerable. Further, investigative statements or portal limitations cannot replace the statutory requirement. This equips taxpayers to challenge SCNs issued without formal pre-SCN consultation.

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