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INTRODUCTION

Show cause notice which is usually termed as SCN is a notice issued by the proper officer to the registered tax payer to explain or justify the claim of input tax credit or tax not paid and has violation of GST Law for a particular period. Normally SCN issued in the prescribed format are providing an opportunity for the tax payer to give evidence of proof in support of their contention. Goods and services tax (GST) authorities have issued demand notices to the worth of ₹1.45 lakh crore in December over discrepancies in annual returns and claims for input tax credit for financial year 2018. The large number is because the last date for serving notices for 2017-18 was extended to December 31, 2023. This shows that the government is taking action against non-compliance and it is high time that businesses start taking GST litigation seriously.

A show cause notice is a formal and written request issued by the tax authorities to an individual or business, thus giving an opportunity to provide a satisfactory explanation or justification for a certain action or behaviour. In the context of Indirect Taxation in India, a show cause notice under GST may be issued by the GST authorities to a business or individual for various reasons, such as non-compliance with GST laws and regulations, evasion of tax, or other suspected offences, for which the business houses has to give their relevant and related information and documents in support of their contention, proving that they have fulfilled the conditions as per law and there is no violation of law in any situation. Show Cause Notice is the foundation on which the department has to build up its case-CCE Bangalore V Brindavan Beverage P Ltd [2007 (213) ELT 487

The SCN which is not generated through online which is not bearing the Din no is not valid and the finance minister told that without Din Number, no need to give importance. Normally the proper officer will give first fifteen days for responding to the notice and the dealers has to file their explanation in writing with documentary evidence. If the dealers could not file within the stipulated time, they will be given another opportunity of 15 days thus they are totally given a period of 30 days for filing their reply. If required a personal hearing on any working day will also be given to the dealer by the proper officer. Issuance of a second SCN invoking extended period after the first SCN invoking extended period of time has been issued is legally not tenable. However, the second SCN, if issued would also need to establish the ingredients required to invoke extended period independently. For example, in cases where clearances are not reported by the assessee in the periodic return, second SCN invoking extended period is quite logical whereas in cases of wilful mis-statement regarding the clearances made under appropriate invoice and recorded in the periodic returns, second SCN invoking extended period would be difficult to sustain as the department comes in possession of all the facts after the time of first SCN. Therefore, as a matter of abundant precaution, it is desirable that after the first SCN invoking extended period, subsequent SCNs should be issued within the normal period of limitation. If the dealers have neither filed reply nor produced documents in person, the proper officer will proceed further and pass orders as proposed in the Show Cause Notice. The burden of Proof is on the taxing authorities to show that the particular case or item in question is taxable in the manner claimed by them.”-Union of India and Others V. Garware Nylons and Others.

A show cause notice and the documents relied upon in the Show Cause Notice needs to be served on the assessee for initiation of the adjudication proceedings. The documents/records which are not relied upon in the Show Cause Notice are required to be returned under proper receipt to the persons from whom they are seized. Show Cause Notice itself may incorporate a clause that unrallied upon records may be collected by the concerned persons within 30 days of receipt of the Show Cause Notice. The designation and address of the officer responsible for returning the relied upon records should also be mentioned in the Show Cause Notice. This would ensure that the adjudication proceedings are not delayed due to non-return of the non-relied upon documents.

Show Cause Notice –Related sections under GST

Where SCN is required to be issued under CGST Act, 2017:

  • Section 10 – Wrongful availment of Composition scheme
  • Section 21 – recovery of credit distributed in excess by ISD
  • Section 35 – failure to record supply of goods or services
  • Section 50 – Interest on delayed payment
  • Section 51 – Tax deduction at source in default
  • Section 52 – Tax collection at source in default
  • Section 63 – Discrepancy found in scrutiny of returns
  • Section 65 – Detection of tax not paid or short paid during Audit
  • Section 66 – Detection of tax not paid or short paid during special Audit

As per the CGST Notification no 96/1 /2017 dated 19.1.2017 A SCN should ideally comprise of the following parts, though it may vary from case to case:

  • Introduction of the case
  • Legal frame work
  • Factual statement and appreciation of evidences d). Discussion, facts and legal frame work,
  • Discussion on Limitation
  • Calculation of duty and other amounts due
  • Statement of charges
  • Authority to adjudicate.

The Show Cause Notice will generally contain the following information:

  • Show Cause Notice Number and Date of Issuance
  • The name and address of the recipient
  • The GST registration number of the recipient
  • The Nature of defect, allegation and error found in the returns filed by the dealers
  • The nature of provisions of law which the dealers have violated either under section 73 or 74 by substantiating his allegations
  • The adjudication officer should quantify the tax that has been evaded by the dealers should be specifically mentioned and the notice which does not contain the quantum is not a valid notice.
  • The time granted for furnishing the reply should be specifically mentioned in the notice and the adjudication officer should have signed in the SCN with date.
  • The adjudication officer should also specify in the case if the dealers have not filed reply with proof what will be penal action that will be initiated should also be clearly mentioned in the SCN.

When SCN is issued by the adjudication officer

  • SCN is issued under various occasion by the adjudication officer and the following are some of the major items for which show cause notices are normally issued.
  • SCN may be issued if the taxpayer is found to be non-compliant with the GST laws, such as failed to furnish the Returns in GSTR1 3B and other returns prescribed for every dealers under respective type, nonpayment of required tax to be paid, filing returns belatedly every month, and not maintaining proper books of accounts.
  • SCN may be issued if the GST authorities suspect that the taxpayer is attempting to evade taxes by misrepresenting the nature of their supplies or by claiming ineligible input tax credits or claiming exemptions.
  • SCN may be issued if the GST authorities suspect that the taxpayer has malafide intention to evade tax by issue of bogus invoice and thus leading others to claim and avail wrong input tax credit thus violating the provisions of law under section
  • SCN may be issued if the adjudication officer finds and suspect that the dealers are indulging in fraudulent activity of claiming wrong input tax credit
  • SCN may be issued if the GST authorities find that the taxpayer is supplying goods or services without proper documentation, such as invoices or E-way bill/ delivery challan

The authority issuing the SCN should clearly lay down the legal provisions in respect of which the person shall be put to notice. While specifying the provisions, care should be taken to be very accurate in listing all the provisions and the law in respect of which the contraventions are to be alleged in the SCN. Notice should spell out the exact nature of deficiency. The extract of the show cause notice does not seem to challenge inadequacy of the documents. It could be that such inadequacy could be inferred there from but the notice, which is meant to put the recipient on notice, must always spell out the exact charge. A notice, which is ambiguous or capable of interpretation, cannot be the ground for sustaining an order based on the inference drawn from the show cause notice- Mehta Pharmaceuticals vs Commissioner Of Cus. And C. Ex. On 4 April, 2003-Equivalent citations: 2003 (157) ELT 105 Tri Mumbai

The facts relating to act of omission and commission pertinent to the initiation of the proceedings against the noticee need to be stated in a most objective and precise manner. All evidences in form of documents, statements and material evidence resumed during the course of enquiry/investigation should be organised serially in a manner so as to establish the charges against the noticee. While discussing the facts and evidences, care should be taken to be precise and succinct in expression so that unnecessary details are avoided.

The circumstances under which normally Show cause notices are issued by the officer.

  • Delay in filing GSTR-1 and GSTR-3B consecutively for more than 6 months
  • Mismatches with reference to GSTR2B and,3B and GSTR 1
  • Difference between GSTR1 and E- Way bill.
  • Failed to get GST registration as required under the provisions of the act.
  • The dealers have not paid the tax dues or made short
  • Wrongly availed ITC/ Refund wrongly claimed
  • Anti-profiteering cases
  • Non-furnishing of information return, within the given time limit
  • Non-Compliance with E-invoicing
  • E-invoice and E-way bill amount does not tally.

It is important for businesses and individuals to take show cause notices under GST seriously and respond to them promptly and appropriately. Ignoring or failing to respond to a show cause notice can result in serious consequences, including financial penalties, legal action, and damage to the business’s reputation. The GST authorities have wide-ranging powers to issue SCNs and to take further action if the taxpayer is unable to provide a satisfactory explanation. Some common actions that may be taken include:

> Imposing a penalty: The GST authorities may impose a penalty on the taxpayer if they are found to be non-compliant with the GST laws or if they are found to have evaded taxes.

> Initiating legal proceedings: The GST authorities may initiate legal proceedings against the taxpayer if they are found to be involved in fraudulent activities or if they fail to provide a satisfactory explanation in response to the SCN.

> Disqualifying the taxpayer from availing ITCs: The GST authorities may disqualify the taxpayer from availing ITCs if they are found to be misusing ITCs or if they fail to provide a satisfactory explanation in response to the SCN.

Show Cause Notice Under GST Regime- A Comprehensive Analysis

How to handle a Show Cause Notice Under GST issued by the authorities:

The dealers on receipt of SCN should react immediately and any delay will lead to complications. The following are the general caution looked into

  • The dealers should read the notice carefully and understand the reasons stated for the issuance of the notice with the help of GST Practioner, auditor and accountants.
  • Determine whether the allegations made in the notice are correct or not. If you believe that the allegations are incorrect, the dealers should prepare a detailed reply along with proof of documents.
  • The dealers should collect all relevant documents and records that support his response to the show cause notice. This may include invoices, receipts, bank statements, and any other supporting evidence.
  • The response should be in writing and, addressing each of the allegations made in the notice. The dealers have to ensure himself sure to provide a clear and concise explanation for each point, and provide supporting evidence wherever necessary.
  • The reply should be submitted to the GST authorities within the time specified in the notice. It is better to have a consultancy with tax practioners and advocate in drafting in case if the dealers could not draft it correctly.
  • If the dealers are not satisfied with the outcome of the show cause notice and found that the notice is not correct the dealers can prefer the option to go for a legal remedy by filing an appeal before the Appellate forum and if necessary, writ appeal can also be preferred.
  • It is important to note that failure to respond to a show cause notice or to comply with the terms of the notice can result in penalties, fines, and other consequences under GST laws. Therefore, it is important to take the show cause notice seriously and to seek professional advice if necessary.

What is the procedure for issuing a Show Cause Notice under GST?

The procedure for issuing a Show Cause Notice under GST is as follows:

> The tax authorities conduct an investigation or departmental audit to determine whether a taxpayer has violated any GST laws or evaded taxes.

> If the tax authorities find evidence of non-compliance or evasion, they may issue a Show Cause Notice to the taxpayer.

> The Show Cause Notice can be sent to the taxpayer via e-mail or on the official portal. It can also be sent via registered post or delivered a physical copy.

> The Show Cause Notice includes the details of the alleged violation of the provision of the GST Act or the rules and regulations of the act, and the action that the tax authorities propose to take against the taxpayer.

> The taxpayer is given a specified period of time, usually 15-30 days, to respond to the Show Cause Notice and provide an explanation for the alleged violation.

> The taxpayer can either accept the allegations and offer to pay the taxes and penalties as per the Show Cause Notice, or contest the allegations and provide an explanation for their actions.

> The tax authorities consider the response of the taxpayer and decide whether to accept the explanation and close the case or to proceed with the proposed action.

Section 73: Covers determination of tax not paid or short paid or erroneously refunded or ITC availed wrongly or utilized for any reason other than fraud, wilful misstatement or suppression of facts.

Section 74: Covers determination of tax not paid or short paid or erroneously refunded or ITC availed wrongly or utilized by reason of fraud, wilful misstatement or suppression of facts.

The circumstances where the adjudication officer initiate proceedings under section 73 or 74.

♦ The taxpayer fails to comply with the notice issued by the adjudication officer u/s 61 or explanation given is not found satisfactory to the notices issued by him

♦ The taxpayer has violated the conditions prescribed for availing composition scheme under the CGST ACT2017

♦ There are other cases of tax not paid/short paid/erroneously refunded/ITC wrongly availed or utilized

♦ The input service distributor has distributed excess credit or distributed credit in contravention to the provisions of the Act

♦ With reference to Section 51 of the CGST ACT the Tax deduct at source authorities would not have made TDS deduction.

♦ The case where GST audit under section 65 of the CGST has been taken by the department.

♦ Cases where special audit under section 66 of the CGST act has been initiated.

♦ If survey has been conducted by the authorities as under section 67 of the CGST act and recommended.

Important rulings under GST on issue of SCN:

In the Following instances the Show cause notices were squashed by the Hon’ble high court

  • Cases where the Constitutional vires of the very enactment under which the proceedings are initiated is under challenge;
  • Cases where the proceedings have been initiated or concluded in total violation of the principles of natural justice; and
  • Where the orders impugned are totally without jurisdiction or where private and public wrongs are so inextricably mixed up or where prevention of public injury and the vindication of public justice demands that recourse the Article 226 of the Constitution be taken.

Cases

♦ Special director v Mohd. Ghulam Ghouse [2004 (164) E.L.T. 141 (S.C.) – writ petition should not be entertained by High Court unless issuance of notice was totally non est in eye of law

♦ Kirloskar Computer Service Ltd. Vs. Union of India [1998 (98) E.L.T 355 (Kar.)

♦ Indian Cardboard Industries Limited v. Collector of Central Excise, [1992 (58) E.L.T. 508 (Cal.)]

GST Registration Can’t be Cancelled Merely Stating a Firm as Bogus. The Allahabad High Court held in M/s Apparent Marketing Private Limited.

The department surveyed the petitioner’s business premises and issued a notice proposing the cancellation of registration. The department proposed the cancellation as the petitioner was found bogus during the inspection. The department could cancel the registration only if the assessee found one of the five conditions of Section 29(2). Since the statute has not used the word ‘bogus’, the Court ruled that registration under the Act cannot be cancelled by merely describing the firm as bogus.

The Court ruled that the notice seeking to cancel the petitioner’s GST registration remained defective as the reason for cancellation does not fall under Section 29(2) of the GST Act. Hence, the High Court allowed the petition and set aside the order passed by the Assistant Commissioner, State-Tax, cancelling the petitioner’s GST registration. (in favour of assessee)

ITC can’t be denied merely because registration of supplier was cancelled with retrospective effect

The Hon’ble Calcutta High Court in M/s Gargo Traders v/s Joint Commissioner, Commercial Taxes (State Tax) W.P.A. 1009 OF 2022 JUNE 12, 2023.

The Petitioner claimed credit of input tax against supply made from a supplier – The Said claim was rejected by respondent-revenue on ground that supplier from whom petitioner claimed to have purchased goods were, all fake and non-existing. The petitioner’s claim of input tax credit was rejected due to supplier’s fraudulent activity, since petitioner had paid amount of purchased articles as well as tax on same through bank and not in cash and without proper verification, it could not be said that there was any failure on the part of petitioner, order rejecting said claim was to be set aside. (in favour of assesee)

Dept. can’t expect from buyer to verify that seller obtained GST registration by producing fake documents or not THE Hon’ble ANDHRA PRADESH HC in the case of ARHAAN FERROUS AND NON-FERROUS SOLUTIONS PVT. LTD. V/s DEPUTY ASSISTANT COMMISSIONER-1 (ST) decided on 3-8-2023.

What is the responsibility of Purchaser if Seller obtained GST registration by producing fake documents? Responsibility of purchaser would be limited to the extent of establishing that he bonafide purchased goods from the seller for valuable consideration by verifying GST registration of the seller available on the official web portal; the purchaser needed not aware of credentials and business activities of the seller or about the fact that the seller obtained GST registration by producing fake documents.

Maya Appliances (P.) Ltd. v. Assistant Commissioner, Circle 8, Chennai – [2021] 131 taxmann.com 163 (Madras)

The petitioner was a manufacturer & supplier of LPG stoves, wet grinders etc. and registered tax payer under the Goods and Services Tax. The Competent Authority issued show-cause notice to petitioner and provided all details regarding allegations and asked to submit within 30 days its representations/defence or documents to defend its case by availing opportunity. The petitioner filed writ petition praying to quash impugned show-cause notice

The Hon’ble High Court observed that writ against a show cause notice may be entertained only if it is established that authority issued show cause notice has no jurisdiction to issue such or allegation of mala fides are raised against official concerned. The petitioner had not established any acceptable ground for the purpose of entertaining the writ Petition. Thus, the petition to be dismissed and the petitioner would be expected to defend case before competent authority by submitting explanations/defence statements and thereafter, the authorities would be bound to consider the materials available on record as well as the grounds raised by the petitioner in their defence statement and pass speaking order. (in favour of Revenue)

Sahibabad Printers vs. Additional Commissioner CGST (Appeals) and Others 2020-TIOL-2164-HC-ALL-

GST refund filed by the petitioner was rejected for non-filing of reply to the Show Cause Notice (SCN). The rejection was also upheld by the first appellate authority. The Allahabad High Court observed that the SCN issued by the adjudicating authority merely mentioned the reason as “others” for the rejection of refund. Further, the reasons for rejection of refund should be specifically contained and communicated to the taxpayer. The Court, therefore, held that there was a violation of principles of natural justice and remanded the matter to the lower authority for fresh adjudication.(in favour of assessee).

The Gujarat High Court in M/S Virani Metal Industries v. State of Gujarat (SCA No.13233 of 2022 decided on 30.11.2022) held that the SCN issued without reasons and vague is bad in law and liable to be set aside.

On 19.08.2021, a search was conducted at the premises of the Petitioner under Section 67(2) of the SGST Act. Panchama was drawn and documents were seized. On 06.09.2021, once again the spot verification was carried out and the Petitioner received a SMS regarding the blocking of its Input Tax Credit (hereinafter referred as “ITC”). The Petitioner requested the Assistant Commissioner (State Tax), Surat to provide reasons for blocking of ITC by communication dated 28.09.2021 On 01.11.2021, summons were issued to the Petitioner by the Directorate General of GST Intelligence. The Petitioner filed a reply to the SCN on 08.10.2021 and further filed an application seeking revocation of suspension of registration. The Assistant Commissioner (State Tax), Surat vide Order dated 26.10.2021 cancelled the registration of the Petitioner effective from 01.10.2021. The Petitioner further filed an application dated 27.10.2021 seeking revocation of cancellation. The Assistant Commissioner (State Tax), Surat issued a communication dated 24.11.2021 asking the Petitioner to appear in person on 26.11.2021.e (hereinafter referred as the “DGGI”), Vadodara Regional Unit to appear in person on 11.10.2021. The High Court observed that the SCN dated 28.09.2021 provided only one day time to the Petitioner to file the reply. Moreover, in the cancellation of registration order dated 26.10.2021, the demand payable by the Petitioner is nil.

The Court opined that the suo-moto initiation of proceedings for cancellation of registration is bad in law as no such liberty was granted by the Commissioner (Appeals). Moreover, there was no specific reason for the initiation of cancellation of registration proceedings and the SCN dated 17.05.2022 does not state any reasons and is vague. The Court relied on Aggarwal Dyeing and Printing Works vs. State of Gujarat &Ors. (SCA No.18860 of 2021) and held that the SCN dated 17.05.2022 is vague and without reasons and was quashed and set aside and the Impugned Order was also quashed and set aside. The Court provided the liberty to the Assistant Commissioner (State Tax), Surat to issue any fresh SCN with reasons and after providing the opportunity of being heard to the Petitioner and to decide the case on merits and disposed of the petition.

Summary Notice under DRC-01 is not a substitute for proper SCN required to be issued under Section 74: HC Sidhi Vinayak Enterprises v. State of Jharkhand [2023] 148 taxmann.com 416 (Jharkhand)

The department has conducted search operation in the business premise of the petitioner for wrong availment of input tax credit. The department has issued to summary SCN in pursuance of the search conducted by them in DRC 01. The dealers have submitted reply which was rejected and the adjudication officer has issued summary order imposing tax and penalty. The assessee has filed writ petition against the notice & order and contended that both show cause notice as well as summary have to be issued. The department submitted that the petitioner participated in the proceedings by furnishing a reply in Form GST DRC-06 and therefore, there was no denial of principles of natural justice.

The Hon’ble High Court noted that even though petitioner submitted reply, the department has not taken the provisions of the said action as such the summary of show cause notice cannot be considered as show cause notice as mandated under section 74(1). In the instant case, the proceeding suffered from material irregularity and hence not sustainable being contrary to section 74(1) and subsequent proceedings/impugned orders cannot sanctify same. Therefore, it was held that the summary of show cause notices issued in Form GST DRC-01 as well as impugned orders were liable to be quashed.

There is no liability of interest if the petitioner himself has reversed ITC before it is being utilised.-HC Grundfos Pumps India (P.) Ltd. v. Joint Commissioner of GST & Central Excise [2023] 150 taxmann.com 176 (Madras)

The petitioner was an assessee under the erstwhile Central Excise regime and migrated into the regime of GST. The unutilized credit was carried forward as transitional credit on introduction of GST by the petitioner. The said credit was not reflected in the Electronic Credit Ledger (ECL), and the petitioner has taken credit as the same is available ITC in Form GSTR-3B return. The audit wing of GST department during audit demanded interest on ITC which was claimed in GSTR-3B.

The petitioner submitted that when ITC without explanation, came to be reflected in ECL, such credit was reversed without set off/utilization against output tax liability at any point of time. However, the department passed demand order levying interest. It filed writ petition against the levy of interest.

The Hon’ble High Court held that the liability to interest arises only in case of actual utilisation of credit by assessee. By virtue of amendment in 2022 with retrospective effect from 2017, interest liability was attracted only when ITC wrongly availed and utilized with revenue impact. However, in present case, original error of non-maintenance of ECL was admittedly attributable to department. Moreover, the petitioner did not utilise credit and reversed the same. Thus, it was held that there was no liability to interest and the impugned order to extent to which it levied interest under section 50(3) was to be set aside.

Gauhathi HC stayed operation of demand-cum-show cause notice issued by dept. without issuing Form GST ASMT-10 PepsiCo India Holdings (P.) Ltd. v. Union of India [2023] 157 taxmann.com 428

The petitioner company was served with a demand-cum-show cause notice under section 73(1) alleging that there was an un-reconciled ITC amount as reflected in GSTR-9C for financial year 2017-18 and petitioner was liable to reverse wrongly availed and utilized ITC along with applicable interest and penalty. Writ petition was filed against the demand cum SCN and the main contention was that before invoking section 73(1) of the CGST ACT mandatorily that Form GST ASMT 10 should be issued which was not issued in the present case.

The Hon’ble High Court Gaugathi has noticed that in instant case, Form GST ASMT-10 was not issued to petitioner. Therefore, prima facie the act of issuance of impugned Demand-cum-Show Cause Notice under Section 73(1) by proper officer was without compliance of mandatory provisions of Section 61 read with Rule 99. Thus, the Court held that the operation of impugned Demand-cum-Show Cause and stayed the proceedings.

The Hon’ble Calcutta High Court in the case of M/s. Diamond Beverages (P.) Ltd. v. Assistant Commissioner of CGST & CX [M.A.T. No. 1948 of 2023 and I.A. No. CAN of 2023 dated December 15, 2023]

M/s. Diamond Beverages (P.) Ltd. was issued with a Show Cause Notice dated August 16, 2023 alleging that the Petitioner had availed/utilized input tax credit (“ITC”) arising out of debit notes issued by the suppliers, who have not filed FORM GSTR-3B returns and whose registration were cancelled retrospectively. The dealers have replied with necessary documents and evidence within the stipulated time. Despite that the authority have issued a pre-show cause notice in Part A of Form GST DRC-01A dated March 31, 2023. The Petitioner also submitted their reply to the Impugned pre-SCN dated April 11, 2023, and requested a personal hearing. The adjudication officer has passed assessment order on 25.9.23 as per the provisions of section 73(1) of the CGSTS ACT 2017 without considering the contentions of the petitioner. Aggrieved against the orders the petitioner filed WP in the High Court of Calcutta. The court have directed that the adjudication officer has to investigate or inquire into the matter by taking relevant details at the supplier’s end. If it is not done the true facts will not emerge and consequently the issuance of SCN will be an un accomplished fact. In the instant case, the Respondent has not conducted any such investigation and proceeded to issue the Impugned SCN. it was Held that, both appeal and writ petition were allowed. The matter was remanded back the matter to the Respondent to the stage of the Impugned pre-SCN. Hence, the impugned SCN was set aside.

Durge Metals v. Appellate Authority and Joint Commissioner State Tax – [2023] 150 taxmann.com 333 (Madhya Pradesh)

The petitioner has filed writ petition before the High Court and contended that show cause notice issued to petitioner was vague and does not contain any relevant details. The dealers were not able to respond to same and therefore, all consequential actions of passing of order and rejection of appeal were illegal. The Hon’ble High Court noted that Section 75 of CGST Act itself prescribes for affording reasonable opportunity and it is incumbent upon revenue to afford same to assessee and any deficiency in that regard vitiates end result. In the instant case, the SCN was vague in nature as it neither contained the material and information nor the statement containing details of ITC transaction under question. However, the petitioner didn’t specifically raise the said ground before the Appellate Authority but the fact would remain that mandatory provisions of Section 74 of GST Act make it incumbent upon the Revenue to ensure the show cause notice to be speaking enough to enable the assessee to respond to the same. Therefore, the impugned orders and show cause notice were to be quashed with a liberty to competent authority to proceed in matter in accordance with law.

Monetary Limit for issuance of show cause notices and passing of orders: Department has issued Circular no. 31/05/2018- GST dated 09.02.2018 where monetary limit for issuance of SCN & passing or orders is notified:

Sl. No.

Officers of Central Tax Monetary limit of the amount of central tax (including cess) not paid / short-paid / erroneously refunded etc. Monetary limit of the amount of integrated tax (including cess) not paid/ short-paid/ erroneously refunded etc. Monetary limit of the amount of central tax and integrated tax (including cess) not paid/ short- paid/ erroneously refunded etc.
1. Superintendent of Central Tax Not exceeding INR 10 lakhs Not exceeding INR 20 lakhs Not exceeding INR 20 lakhs
2. Deputy or Assistant Commissioner of Central Tax Above INR 10 Lakhs and not exceeding INR 1 Crore. Above INR 20 lakhs and not exceeding INR 2 Crores Above INR 20 lakhs and not exceeding INR 2 crores
3. Additional or Joint Commissioner of Central Tax Above INR 1 Crore without any limit Above INR 2 crores without any limit Above INR 2 Crores without any limit

Conclusion:

Show cause notice is mandatory requirement for raising any demand under GST act 2017 except payment of interest u/s 50 and assessment of non-filer of returns u/s 62 of the act. SCN is the foundation on which adjudicating authority has to build up the case. It is the document served on the taxable person asking him to explain with reason as to why a particular course of action should not be taken against him. It must be speaking and well-reasoned. Issuance of show cause notice should be with open mind. Taxable person should be of clear view that it is only proposal and his reply will be considered before taking any decision. It is very important for all taxpayers that, all SCNs received are issued within due time & penalty is correctly demanded.

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