In the legal landscape, a notice serves as a formal communication or warning, often delivered in writing. When it comes to taxation, the concept of a Show Cause Notice (SCN) becomes pivotal. Defined as a legal notification, SCN is a document issued by GST authorities, prompting individuals or organizations to explain why certain actions should not be taken against them. This article delves into the nuances of SCN under GST, focusing on its significance, issuance criteria under Sections 73 and 74, and verification parameters for its validity.
The definition of a notice, as stated in Black’s Law Dictionary, is “A legal notification or warning that is delivered in a written format or through a formal announcement.” Thus, a notice or announcement is what is meant to be understood when one uses the term “Notice.”
SCN is a document that the GST department authorities issues to an individual or organization, requesting an explanation as to why certain action against them should not be taken. In legalese, it is essentially the same as what we refer to as a “opportunity of being heard.” Show cause notice was a requirement under the previous service tax regime, the GST, and all other laws enacted for making demands. SCN cannot be applied to any other letter or correspondence. A notice that is issued in accordance with all relevant legal provisions and important components is deemed proper show cause notice.
The first stage in the process by which authorities build their case for recovery—that is, tax duties, interest, and penalties—is the show cause notice. As a result, it is a crucial and fundamental component of the GST legal processes. The requirements for the issuance of show cause notices are found under GST in numerous places, but in this case, we’ll primarily be looking for notices issued under sections 73 and 74. However, in other circumstances, the fundamental approaches to handling show cause notice will essentially stay the same.
Learnings from this article will bifurcate into three parts as following.
A. Overview of Section 73-74 under CGST Act
B. Verification parameters for validity of show cause notice
C. Key Points to be taken into consideration while replying SCN
Introduction:
Typically, a show-cause notice is sent to the chargeable individual during an audit, assessment, or inquiry demand. The chargeable individual will be required to provide a defense reply to an adjudicating authority within a defined time frame after receiving such notice.
Following the submission of the reply or representation, the adjudicating authority passes an order taking into account both the submission and the representation. The person who is not aggrieved with the order may pay the demand and end the process, while the person who is aggrieved with it may go for appeal.
A. Overview of Section 73-74 of CGST Act:-
Show cause notice under governing section 73 & 74 get issued by proper officer to registered person under any of the following circumstances:
- When tax has not been paid; or
- There is a short payment of tax; or
- Erroneous refund is granted; or
- Input tax credit is wrongly availed or utilized.
By any reason,
- Other than fraud/ wilful mis-statement/ suppression of facts. (Section 73); or
- Reason of fraud/ wilful mis-statement/ suppression of facts. (Section 74) Explanation 1- “suppression” shall mean
- Non-declaration of facts or information which a taxable person is required to declare in the return, statement, report or any other document furnished under this Act or the rules made thereunder; or
- Failure to furnish any information on being asked for, in writing, by the proper officer.
B. Verification parameters for Validity of Show cause Notice:
In the first phase of the adjudication, it is necessary to raise questions about the ineffective service of any notice, order, or communication in order to determine the legitimacy of the assessment proceedings.
According to Section 160(2) of CGST Act 2017, Once a taxpayer acts in response to a specific notice, order, or communication, the assessment proceedings will not be deemed invalid.
To ascertain the validity of the show-cause notice, we will now look at the various parameters which are important to examine:
1. Time Frame for Issuance of Order and Show Cause Notice (SCN):
a. Normal Situation:
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- Time limit for issuance of Order: 3 years from the due date of the annual return.
- Time limit for issuance of SCN: At least 3 months prior to the time limit for the issue of the order.
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b. Fraud Situation:
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- Time limit for issuance of Order: 5 years from the due date of the annual return.
- Time limit for issuance of SCN: At least 6 months prior to the time limit for the issue of the order.
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According to section 73(2)/74(2) read with section 73(10)/74(10) of the CGST Act, the noticee shall raise a limitation claim if the SCN is issued after the time limit specified by statute.
2. SCN issued without Document Identification Number (DIN):
It may be argued that a SCN issued without a DIN is invalid under Circular No. 122/41/2019-GST dated 05.11.2019 as read with Circular No. 128/47/2019-GST dated 23.12.2019.
3. Pre-Show Cause Notice consultation:
According to master Circular No. 1053/2/2017-CX. dated 10.03.2017 issued by CBIC and F.No.1080/11/DLA/CC conference/2016 dated 28th June 2016, Pre-SCN is mandatory if demand claim is more than Rs.50 lakhs
4. Show Cause Notice Must be Issued Along with a Summary:
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- In accordance with Rule 142(1) (a), the proper officer must electronically deliver the notice together with a summary using Form GST DRC-01.
- Following Rule 142(5), it is required to electronically upload the order summary in FORM GST DRC-07, which includes the prescribed amounts of tax, interest, and penalty.
Case Law Source:
M/s Shyam Baba Edible Oil vs Chief Commissioner in W.P. No. 16131 of 2020 dated 19/11/2020.
C. Key Points to be taken into consideration while replying to show cause notice (SCN) issued under GST law:
- Examine the adjudication notice in its entirety, making sure to address any potential common grounds for the appeal.
- Compile the necessary documentation and information. After all points, documentation, and figures are available, start drafting the defense response.
- Ensure all annexures are annexed and the annexure being submitted with the reply should be appropriate and same should not go against the chargeable person.
- Do not mention those facts which may spoil case of chargeable person.
- A proper index should be included with the response as it helps a lot in presenting the case before the authorities.
- A tabular summary of these arguments should be presented prior to a discussion of the grounds in depth.
- All the Grounds stated in reply should be supported with statutory provisions and while referring such provisions the same should be reproduced in reply for ready reference.
- Grounds taken in submission must be supported with relevant case laws/notifications/circulars.
- Maximum possible grounds for each allegations should be taken and no allegations should be missed in the reply.
Conclusion: In conclusion, understanding the intricacies of Show Cause Notices is essential for individuals and organizations dealing with GST. From exploring the legal framework under Sections 73-74 to verifying the validity of the notice and crafting a strong response, each step is pivotal in navigating the GST legal landscape effectively. Stay informed, respond strategically, and ensure compliance with GST regulations to navigate the complexities seamlessly.
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F.No.1080/11/DLA/CC Conference/2016/2096 to 2148
DIRECTORATE OF LEGAL AFFAIRS
CENTRAL BOARD OF EXCISE & CUSTOMS
4th FLOOR, RAJENDRA BHAWAN, 210, DEEN DAYAL UPADHY MARG
NEW DELHI-110 002
Dated : 13th October, 2016.
INSTRUCTION
To,
The Chief Commissioner (Alp/Principal Commissioner (Zone),
Customs, Central Excise and Service Tax,
Webmaster cbec.gov.in
Madam/Sir,
Subject : Pre-Show Cause Notice Consultation in cases other than those detected by Preventive/Anti-Evasion and amount involved being more than Rs. 50 lakhs. — reg.
Please refer to the instruction issued vide F.No.1080/11/DLA/CC Conference/2016 dated 28th June, 2016, wherein it has been clarified that the pre – show cause notice consultation with the assessee concerned shall be done by the adjudicating authority..
2.0 Certain doubts have been further expressed with regard to this. As per Circular No. 985/09/2014-CX dated 22.09.2014 Audit Commissionerate has been made responsible to issue the show cause notices, wherever necessary, after the audit objections are confirmed in the MCMs. Such show cause notices are answerable to and adjudicated by the Executive Commissioner or the subordinate officers of the Executive Commissionerate as per the adjudication limits. In such cases, show cause notice issuing authority and adjudicating authority are different.
3.0 Hence, it is clarified that in cases where show cause – notice issuing authority/Commissionerate and adjudicating authority/Commissionerate are different, pre-show cause notice consultation with the assessee concerned shall be done by the Commissioner of show cause notice issuing authority/Commissionerate.
4.0 In cases, where the SCN issuing authority is from the Executive Commissionerate, the Pre-SCN consultation shall be done by the concerned Commissioner.
5.0 All cases of Pre-SCN consultation which leads to closure of case without issue of SCII, either in part or whole, the file shall be submitted to the relevant reviewing authority for case of such nature to keep the reviewing authority informed of the decision.
Yours faithfully,
(Sanjiv Srivastava)
Commissioner. DLA.
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