SCN issued without reasons/allegations violates Principles of Natural Justice

Surender Kumar Jain Vs Principal Commissioner & Anr. (Delhi High Court)

The Hon’ble Delhi High Court in Surender Kumar Jain v. Principal Commissioner & Anr. [W.P.(C) 17700/2022 dated January 25, 2023] set aside the Show Cause Notice (“SCN”) and consequential order cancelling the GST registration of the assessee. Held that, a SCN must clearly state the allegations that the concerned noticee has to meet, being the essence of a SCN, any notice that does not qualify this criterion, cannot be considered as a SCN, which are not meant to be issued mechanically to comply with a formality, but to serve the principles of natural justice and to enable the concerned authority to take an informed decision. Further held that, the entire purpose of the SCN is to enable the noticee to respond to the allegations on the basis of which an action is proposed.

Facts:

Surender Kumar Jain (“the Petitioner”) has challenged the SCN dated October 6, 2022 (“the Impugned SCN”) and the consequential order dated October 21, 2022 (“the Impugned Order”) cancelling the GST Registration of the Petitioner, on the ground that the reason for cancelling its Registration was not disclosed and therefore could not be addressed by the Petitioner.

The Petitioner contended that the only reason stated in the SCN for cancellation of the registration is “others”.

The Revenue Department (“the Respondent”) contended that the drop-down menu on the GST common portal were not appropriate. Therefore, the concerned officer had selected the option “others”, while issuing the Impugned SCN.

Issue:

Whether the SCN not disclosing the reason for cancellation of GST Registration is sustainable?

 Held:

The Hon’ble Delhi High Court in W.P.(C) 17700/2022 held as under

• Observed that, it is well settled that SCNs are not meant to be issued mechanically to comply with a formality, but the same are issued to serve the principles of natural justice and to enable the concerned authority to take an informed decision.
• Stated that, a physical SCN may be issued, if the purpose is not served electronically and the Respondent is unable to communicate the allegations.
• Held that the SCN must clearly state the allegations that the concerned noticee has to meet, being the essence of a SCN, any notice that does not qualify this criterion, cannot be considered as a SCN.
• Further held that, the entire purpose of the SCN is to enable the noticee to respond to the allegations on the basis of which an action is proposed.
• Set aside the Impugned SCN and the Impugned Order.
• Permitted the Respondent to issue a fresh SCN and take an appropriate decision in accordance with law, after affording the petitioner a reasonable opportunity to be heard.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. The petitioner has filed the present petition, inter-alia, impugning a Show Cause Notice dated 06.10.2022 (hereafter ‘impugned SCN’) calling upon the petitioner to show cause why its registration under the Goods and Services Tax Act, 2017 not be cancelled. The petitioner also impugns an order dated 21.10.2022 (hereafter ‘the impugned order’) cancelling the petitioner’s registration pursuant to the said Show Cause Notice.

2. The petitioner has assailed the impugned SCN on the ground that it does not disclose any reason or ground for proposing cancellation of its registration and therefore none that could be addressed by the petitioner.

3. It is necessary to refer to the impugned SCN, which indicates that the only reason for which the petitioner’s registration was proposed to be cancelled was stated as, “others”.

4. Clearly, the impugned SCN fails to disclose any reason for the proposed action, and is incapable of eliciting a meaningful response from the petitioner. It is well settled that Show Cause Notices are not meant to be issued mechanically to comply with a formality; the same are issued to serve the principles of natural justice and to enable the concerned authority to take an informed decision. The entire purpose of the Show Cause Notice is to enable the noticee to respond to the allegations on the basis of which an action is proposed. Tested on the aforesaid anvil, the impugned SCN does not qualify to be considered as a Show Cause Notice at all.

5. The petitioner had responded to the impugned SCN by a letter dated 18.10.2022, inter-alia, stating that the notice was issued without providing proper information.

6. According to the respondent, the portal of the concerned officer issuing the impugned SCN reflected the reason in the remarks column which does not form a part of the impugned SCN communicated to the petitioner.

7. Mt Atul Tripathi, learned counsel appearing for the respondent submitted that the concerned officer has to select a reason for issuance of the Show Cause Notice, drop down menu in the GST common portal. Since none of the reasons in the drop down menu were considered apposite, the concerned officer had selected the option “others”. However, in the remarks column uploaded by the concerned officer, he had stated that the registration is proposed to be cancelled on the basis of a letter dated 22.09.2022 and the said letter was also uploaded.

8. It is seen that the impugned SCN as issued to the petitioner does not have any remarks referring to a letter dated 22.09.2022. It also does not mention the contents of the said letter, which would enable the petitioner to discern the allegations against it.

9. The submissions that the concerned officer had no option but to choose from a drop down menu, is clearly not the answer to the challenge laid by the petitioner to the impugned SCN. In the event, the GST portal cannot be adopted to include further explanation as to the reasons for which the proposed action is contemplated, show cause notices – such as the impugned SCN – would be rendered meaningless and would fail to serve the purpose of issuing a show cause notice, at all. If the concerned authorities find that they are unable to communicate the allegations in respect of which the response is elicited by way of a show cause notice, by selecting the options as available on the electronic system; the concerned authorities may consider issuing a physical show cause notice.

10. The show cause notice must clearly state the allegations that the concerned noticee has to meet. This being the essence of a show cause notice, any notice that does not qualify this criterion, cannot be considered as a show cause notice.

11. In view of the above, the impugned SCN dated 06.10.2022 and, consequentially, the impugned order dated 21.10.2022 are set aside.

12. This order does not preclude the concerned officers to issue a show cause notice afresh and take an appropriate decision in accordance with law after affording the petitioner a reasonable opportunity to be heard.

13. The petition is allowed in the aforesaid terms.

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