Introduction: The recent judgment by the Allahabad High Court in the case of M/s. Associated Switch Gears and Projects Ltd. v. State of Uttar Pradesh [Writ Tax No. 276 of 2020 dated January 25, 2024] sheds light on the importance of adhering to the grounds mentioned in the Show Cause Notice (SCN) by GST Authorities. This article provides an in-depth analysis of the case, exploring its implications and legal reasoning.
The Hon’ble Allahabad High Court held that no other ground can be raised apart from the grounds mentioned in the Show Cause Notice (“SCN”). The Authorities must adhere to the grounds mentioned in the SCN. It is not merely a procedural formality, but a mandatory requirement, beyond the scope of which no action can be taken. The Court also emphasized the fundamental safeguard against arbitrary exercise of power, ensuring that Authorities remains bound to the principles of justice and the rule of law. Hence, the Court directed the Respondents to refund the penalty paid by the Petitioner and further, the writ petition was allowed.
Facts:
M/s. Associated Switch Gears and Projects Ltd. (“the Petitioner”) filed an appeal challenging the penalty order dated July 24, 2018 before the first Appellate Authority (“the Respondent”). The Respondent passed an Order dated August 20, 2019 (“Impugned Order”). The Petitioner found that at the time of detention of vehicle, a plea was taken in the SCN that the destination where the vehicle was traveling was not mentioned in the invoice. The said plea was accepted by the Respondent. However, they passed the Impugned Order imposing penalty on different ground that the e-way bill had expired without giving the opportunity to the Petitioner to defend themself.
Hence, aggrieved by the Impugned Order, the present writ petition was filed by the Petitioner.
Issue:
Whether GST Authorities can raise new grounds or arguments that are not part of the SCN?
Held:
The Allahabad High Court Writ Tax No. 276 of 2020 held as under:
- Observed that, the significance of adhering to the SCN lies in upholding the rule of law and preventing arbitrary exercises of powers. Any action taken by an authority beyond the scope defined in the notice, risks the boundaries of legality and procedural fairness. Such overreach not only undermines the legitimacy of the authority but also compromises the rights of the individuals or entities involved, potentially leading to legal challenges and erosion of public trust. Moreover, the issuance of a SCN imposes a duty on the part of the authority that outlines the specific allegations for its issuance. This requirement advances transparency and accountability, as the recipient is entitled to a clear understanding of the charges, which enables it to formulate an informed response. Any attempt by the authority to introduce new allegations beyond those mentioned in the notice would violate this principle of specificity, depriving the recipient of a fair opportunity to address the accusations leveled against it. Hence, by issuing a SCN, an authority acknowledges the principle of audi alteram partem, or “hear the other side”, ensuring fairness and due process in its proceedings.
- Relied on Ramlala v. State of Uttar Pradesh and Ors. [2023 SCC OnLine All 2479], while placing reliance on the Board of High School and Intermediate Education, Uttar Pradesh v. Kumari Chitra Srivastava [(1970) 1 SCC 121] where it was held that the reason to not allow the authorities to go beyond the SCN is that a person must be given a chance to put up his case with regard to the SCN.
- Opined that, the issuance of a SCN represents a crucial stage in administrative proceedings, which demarcates the boundaries within which any authority can exercise its powers. By adhering to the confines of the notice, authorities uphold principles of fairness, accountability, procedural regularity, and legal certainty essential for the legitimacy and effectiveness of governance systems. Any attempt to transcend these limits not only violates the rights of the individuals or entities involved but also undermines the rule of law and public trust in the institutions tasked with upholding it. Thus, adhering to the SCN is not merely a procedural formality, but a mandatory requirement, beyond the scope of which, no action can be taken. Adherence to the SCN is a fundamental safeguard against arbitrary exercises of power, ensuring that authority remains bound to the principles of justice and the rule of law.
- Relied on the Supreme Court Cases like Commissioner of Customs, Mumbai v. Toyo Engineering Ltd., [(2006) 7 SCC 592], Commissioner of Central Excise, Bhubaneshwar v. Champdany Industries Ltd., [(2009) 9 SCC 466], Commissioner of Central Excise, Chandigarh v. Shital International (2011) 1 SCC 109 and Jitendra Kumar v. State of Uttar Pradesh and Anr. [2023 SCC OnLine All 2837], wherein it was clearly established that the authorities cannot raise new grounds or arguments that were not part of the SCN.
- Held that, the SCN is teeth of the principles of natural justice, namely, the principle of audi alteram partem and directed the Respondent to refund the amount to the Petitioner within 4 weeks from the date of the order and consequential reliefs were allowed.
- Hence, the writ petition was allowed.
Our Comments:
In Pari Materia case, the Hon’ble Jharkhand High Court in M/s. CJ Darcl Logistics Limited v. Union of India [W.P.(T) No. 215 of 2022 dated February 9, 2023] quashed and set aside the Impugned SCN and the consequent orders because the Impugned SCN mentioned a different allegation and only after submissions of Petitioner’s reply, the Order-In-Original (“OIO”) was passed on the grounds which were never part and parcel of the Impugned SCN. The Court held that it is settled principle of law that if an allegation or ground is not made at the time of issuance of SCN, the authority cannot go beyond the scope of SCN to create new ground at the later stage of adjudication.
Section 129 of the Central Goods and Service Tax Act, 2017 (“the CGST Act”), talks about “Detention Seizure and Release of goods and conveyances in transit. According to Section 129(4) of the CGST Act, no penalty can be levied without giving the person opportunity of being heard.
Conclusion: In conclusion, the Allahabad High Court’s ruling underscores the importance of procedural fairness and adherence to the principles of natural justice in administrative proceedings. By restricting authorities to the grounds mentioned in the SCN, the court reaffirms the rights of individuals and entities involved and maintains the integrity of the adjudicatory process.
This judgment serves as a reminder to GST Authorities to exercise their powers judiciously and within the confines of the law. It emphasizes the need for transparency, accountability, and adherence to due process, safeguarding the rights of taxpayers and upholding the rule of law.
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(Author can be reached at info@a2ztaxcorp.com)
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