Customs to approach businesses before issuing formal show cause notice

Customs officials will now hold consultations with businesses to inform them about outstanding taxes and interest before issuing them a formal show cause notice, according to the new rules notified by the Finance Ministry.

The notification, according to experts, is aimed at reducing tax litigation and encouraging amicable settlement of tax issues.

The assessee who is liable to pay customs duty or interest would be given 15 days time to respond to the communication of pre-notice consultation and submit his response to the tax officer, the new regulations said.

"Before the (show cause) notice is issued, the proper officer shall inform, in writing, the person chargeable with duty/interest of the intention to issue the notice specifying the grounds ... on which such notice is proposed to be issued," said the Pre-notice Consultation Regulations, 2018.

The regulation was notified by the Central Board of Indirect Taxes and Custom (CBIC).

The assessee to whom pre-notice consultation is issued would have to indicate in response whether he wants to be heard by tax officials.

The regulations further said that in case the response to pre-notice consultation is not received from the assessee within the specified time, the tax officer will serve a formal show cause notice to him without any further communication.

After the consultation, the tax officer, if satisfied with the response of the assessee, can communicate to him that he does not intend to proceed with the formal notice.

The consultation process, the regulations said, has to be completed within 60 days of the date of issuance of communication for pre-notice consultation.

The word 'consultation' has been defined in the regulation as communication of the grounds known to the officer for issuance of notice to the person chargeable with duty or interest in order to elicit the response of the person concerned.

AMRG & Associates Partner Rajat Mohan said pre-consultation notice is a step towards trade facilitation, voluntary compliance and it may go a long way in reducing the tax terrorism.

"Taxpayers should appreciate that tax officer would be working on a short leash and hence they should proactively take part in pre-consultation process, to cut down on litigation," he said.

Deloitte India Partner M S Mani said this would lead to a significant reduction in customs litigation over a period of time.