Fresh SCN should be issued in case department want to modify tax proposal

Fresh SCN should be issued in case department want to modify tax proposal in the light of assesse’s reply.

In the matter of Vela Agencies vs. Assistant Commissioner ST FAC in Writ Petition No. 11030/2024, dated 26^th April, 2024, the Hon’ble Madras High Court held that if the respondent intended to modify the tax proposal in light of the petitioner’s reply, a fresh show cause notice (SCN) should have been issued.

In the aforesaid matter, an adjudication order dated 23.06.2023 is assailed on the ground that the said order proceeds on a completely different basis from the SCN. The petitioner received intimation dated 24.11.2022 and SCN dated 29.12.2022. The petitioner replied to the intimation on 28.12.2022 by stating that the petitioner was a distributor of Aircel Limited (Aircel) and that the petitioner was unable to conduct business after 28.02.2018 due to the closure of the business of Aircel. Petitioner was called upon to show cause as to why tax liability of Rs.8,27,252/- should not be imposed with regard to sales suppression, which was estimated on the basis of the Input Tax Credit availed of by the petitioner. Basically, tax liability of Rs.14,97,072/- was imposed under the impugned order dated 23.06.2023 by comparing the petitioner’s GSTR 3B return and the GSTR 2A. Petitioner also points out that a reversal was made of Input Tax Credit from the electronic credit ledger of the petitioner to the extent of Rs.7,52,047/- on 15.02.2024. Therefore, he submits that the matter requires reconsideration.

The Hon’ble High Court held that on perusal of the intimation and SCN, it is evident that the petitioner was called upon to show cause with regard to a sum of Rs.8,27,252/-, which was arrived at on the assumption that there was sales suppression. By contrast, the impugned order imposes tax liability of Rs.14,97,072/- and an equal amount by way of penalty. It is also clear that the impugned order does not proceed on the basis of sales suppression. If the respondent intended to modify the tax proposal in light of the petitioner’s reply, a fresh show cause notice should have been issued. It is also noticeable that the petitioner’s electronic credit ledger was debited to the extent of Rs.7,52,047/-. In these circumstances, the impugned order cannot be sustained. Therefore, impugned order dated 23.06.2023 is set aside by leaving it open to the respondent to initiate fresh proceedings by issuing a show cause notice to the petitioner.

The judgment in Vela Agencies vs. Assistant Commissioner ST FAC sets a significant precedent in ensuring fair treatment of assessees in tax matters. By mandating the issuance of a fresh SCN when tax proposals are modified in response to an assesse’s reply, the court has reinforced the principles of natural justice and procedural fairness. This ruling not only protects the rights of taxpayers but also promotes a transparent and accountable tax administration system. Tax authorities must now be diligent in adhering to these principles, thereby fostering trust and compliance among taxpayers.

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