How to Give an Effective Response to GST Show Cause Notices (SCN)

Table of Contents

1. Introduction to SCN
2. Authorization to issue SCN
3. Manner of Service
4. Essential Particulars of SCN
5. Adjudicating officer of SCN
6. Importance of RUDs & non-RUDs
7. Drafting the reply to the submission
8. Submitting the reply to the SCN
9. Personal Hearing

1. Introduction to SCN

Latin Maxim: “audi alteram partem”

• No one should be condemned unheard

Principles of Natural Justice

• To hear the other party

Sec 75(4) & 76(5) of the CGST Act

• Opportunity of hearing is the pre-requisite before passing an adverse order

Now, the question is what are the allegations? And against whom? Which legal provisions violated? What is the demand?

SCN is the foundation of any indirect tax litigation

• The SCN is the foundation on which the department has to build up its case

CCE v. Brindavan Beverages (P.) Ltd. [2007] taxmann.com 728 (SC)

• Allegations in SCN must be specific and not vague
• If the allegations in the SCN are not specific and are on the contrary vague, lack details and/or unintelligible that is sufficient to hold that the noticee was not given proper opportunity to meet the allegations indicated in the SCN

Brindavan Beverages (supra)

SCN should not be issued on assumptions and presumptions

“Inference drawn by the authorities only on the basis of entries in the ledger would be insufficient”

Oudh Sugar Mills Ltd. v. UOI 1978 (2) ELT 172 (SC)

SCN should not be biased and should not demonstrate pre determined mind set

“4. It is well settled that a quasi-judicial authority, while acting in exercise of its statutory power must act fairly and must act with an open mind while initiating a show cause proceeding.”

Oryx Fisheries (P.) Ltd. UOI 2011 (266) E.L.T. 422 (SC)

• The time limits for issuing SCN have been prescribed for sections 73 & 74 only
• No specific time limits have been prescribed under other provisions
• As per decisions of the Supreme Court, where no time limit has been prescribed, the notices have to be issued within reasonable time
• The reasonable time is to be decided on case to case basis
• The time limit of 3 to 5 years have been considered to be reasonable
• The said time limits are also consistent with the provisions of the CGST Act

2. Authorization to issue SCN

• ‘The Proper officer’ has powers to issue SCN under the CGST Act. “Proper officer” is defined under S 2(91) of the CGST Act
• Sections 3 and 4 empower the Central Government and the Board respectively to appoint officers for the purpose of CGST Act. Section 5 empowers officers to exercise powers and discharge duties under the CGST Act
• Both Government and the Board have issued notifications and circulars fixing territorial, functional and monetary limits
• Some of the officers, like posted in DGGI have all India jurisdiction and authorised to issue SCN
• Whether such officers issuing SCN are ‘the’ Proper officer or ‘a’ Proper officer

Canon India (P.) Ltd. v. CC [2021] 125 taxmann.com 188 (SC)

3. Manner of Service

• Manner of service has been prescribed under Section 169 of the Act
• Rule 142(1) provides that along with a SCN, a summary thereof shall be provided electronically in Form GST DRC 01

• Every decision, order, summons, notice or any communication shall be deemed to have been served on the date on which it is tendered or published or a copy thereof is affixed in the manner provided in sub-section (1)
• When such decision, order, summons, notice or any communication is sent by registered post or speed post, it shall be deemed to have been received by the addressee at the expiry of the period normally taken by such post in transit unless the contrary is proved
• SCN can only be issued electronically on the common portal

Shri Shyam Baba Edible Oils v. Cheif Commissioner [2023] 151 taxmann.com 139 (MP)

New Hanumat Marbles v. State of Punjab (2023) 149 taxmann.com 82/97 GST 859/74 GSTL 74 (Punj. & Har.)

• Notice should be available on the common portal in the “View Notices” tab, rather than the “Additional Notices” tab

Sabari Infra (P.) ltd. v. Assistant Commissioner (ST) [2023] 154 taxmann.com 147 (Mad.)

• Service of SCN on the Accountant is not a valid form of service

Maa Mahamaya Alloys (P.) Ltd. v. State of U.P. [2023] 150 taxmann.com 158/97 GST 1086/73 GSTL 612 (All)

4. Essential Particulars of SCN

• Introduction of the case
• Factual statement and appreciation of evidences with RUD
• Discussion on legal framework and statement of charges
• Discussion on limitation and grounds for invoking extending period
• Calculation of tax and any other amount due
• Designation and address of the authority to adjudicate
• Time period for reply

Important points – Section 75

• Where any Appellate Authority or Appellate Tribunal concludes that SCN is not sustainable under section 74(1) as extended period was not invokable, the Proper officer shall determined as the notice was issued under section 73(1)
• The Proper officer shall set out relevant facts and basis of his decision in the order
• The amount of tax, interest and penalty in the order shall not be in excess of the amount specified in the SCN
• No demand shall be confirmed on the grounds other than the grounds specified in the SCN
• The interest on the tax not paid or short paid shall be payable whether or not specified in the order
• The adjudication proceedings shall be deemed to be concluded, if the order is not issued within time specified in 73(10) or 74(10)
• Where any penalty is imposed under section 73 or 74, no penalty for the same act or omission shall be imposed on the same person under any other provision of the act
• Only a summary of the SCN issued is not proper and hence quashed

Sidhi Vinayak Enterprises v. State of Jharkhand [2023] 148 taxmann.com 416/97 GST 619 (Jharkhand)

Juhi Industries (P.) Ltd. v. State of Jharkhand [2022] 141 taxmann.com 416/64 GSTL 406/93 GST 521 (Jharkhand)

• Amount of demand should be determined in SCN

Hatsun Agro Product Ltd. v. Dy. Commissioner (ST) [2023] 152 taxmann.com 453/98 GST 945/76 GSTL 43(Mad.)

• SCN failed to provide any provisions of the Act which were allegedly violated, liable to be quashed

Singla Exports v. Central Board of Indirect Taxes and Customs [2023] 154 taxmann.com 73/77 GSTL 206/99 GST 840 (Delhi)

• SCN issued without DIN, can be contended to be invalid

Circular No. 122/41/2019-GST dated 05.11.2019 read with Circular No. 128/47/2019-GST dated 23.12.2019

• Signatures are mandatory – Digital Signature is Essential to Authentication

Rule 26: Method of Authentication

Railsys Engineers (P.) Ltd. v. Addll. CCG & ST [2022] 141 taxmann.com 527/65 GSTL 159/94 GST 51 (Delhi)

Marg ERP Ltd. v. Commissioner of Delhi GST [2023] 151 taxmann.com 345/78 GSTL 232 (Delhi)

Ramani Suchit Malushte W.P.(C) No. 9331 of 2022, Sep. 21, 2022 (Bombay)

• Uploading of SCN on portal is manner of service, not a substitute for digital signatures

5. Adjudicating officer of SCN

• Same officer who conducts search, and seizure, cannot adjudicate the SCN

Swastik Plastics v. Commissioner of DGST [2023] 156 taxmann.com 316 (Delhi)

Mohammed Bilal v. Assistant Commissioner of Commercial Tax & C.EX., Kerala 2018 (16) GSTL 549 (Ker)

6. Importance of RUDs & non RUDs

Relied upon documents to be provided, might not be asked by the Taxpayer

Lari Almira House v. State of U.P. [2023] 149 taxmann.com 476/98 GST 414/74 GSTL 434 (All.)

Vishkarma Industries v. State of Jharkhand [2023] 150 taxmann.com 140/73 GSTL 468/97 GST 1071 (Jharkhand)

Cross Examination of witnesses relied upon in SCN

Rajputana Stainless Ltd. [2021] 133 taxmann.com 109 (Guj.)

Mahek Glazes (P.) Ltd. v. UOI [2013] 34 taxmann.com 232/40 STT 209 (Guj.)

• Expressly state that a reply to the SCN cannot be prepared without non-relied-upon documents

Parmarth Iron v. UOI [2014] 51 taxmann.com 315/48 GST 721 (All.)

7. Drafting the reply to the submission

• First & foremost representation to department and hence, holds paramount importance
• Carefully record the manner & date of receipt of SCN. The envelop and the Speedpost tracking sheet must be preserved
• Verify DIN and signatures on SCN. Uploading on portal is not a substitute for signatures
• Examine that all RUDs and referred to in the SCN have been made available. If not, immediately write a letter seeking RUDs not supplied
• Also ask for non relied upon documents. Such documents might have information in your favour.
• Expressly state in the letter that reply to the SCN cannot be prepared with such documents
• Verify the facts carefully – errors are frequent and deliberate
• Any incorrect fact mentioned in the SCN and not countered could be treated as an admission
• Higher courts may not allow submission of additional facts or evidence
• Examine facts with evidence presented – whether corroboration is correct and relevant to the facts of the case
• Ask for cross examination of the witnesses examined and relied upon by in the SCN. The request for cross examination should be clear and with reasons as it is not a matter of statutory right
• Make a specific request for personal hearing
• Saying No to personal hearing while seeking extension of time for submission of reply is for that occasion only

Arati Behera (Orissa)

• Submission on jurisdiction – Canon India
• Computer generated notice – Proper officer has not applied his mind
• Submission on facts
• Submission on merits
• Submission on limitation
• Submission on computation of tax
• Submission on cum-tax effect
• Submission on penalty
• Submissions on manner of service of notice

8. Submitting the reply to the SCN

• Notice received on the common portal – reply to be submitted on the common portal
• However, portal has its own limits in terms of number of attachments & size of documents
• Physical copy of the reply must be submitted to the officer
• In case officer refuses to acknowledge the same, reply must be sent through speed post
• Important to keep the tracking number of speed post in records to ensure proper delivery

Submission on fraud/suppression

• Onus is on the department to establish fraud or suppression of facts – Amba Lal vs Union of India (SC)
• Mere non-payment of tax is not suppression – Northern Operating System (SC)
• The words ‘fraud, wilful misstatement or suppression of facts to evade tax’ are strong words
• Mere inaction on part of taxpayer is not enough to establish suppression etc.
• Some deliberate and positive action is must to establish suppression
• Suppression of facts not applicable where interpretation of law is involved
• Suppression not applicable where question of law decided by the SC or clarified by the CBIC
• Suppression of facts is not applicable in case of revenue natural cases
• SCN must clearly make out case for extended period

9. Personal Hearing

• Section 75(4) mandates opportunity of hearing, where request is received in writing or an adverse decision is to be made against the taxpayer
• More than three adjournments cannot be granted to the person for hearing
• Additional submissions can be made during the hearing
• Personal hearing is to be mandatorily afforded

Bharat Mint and Allied Chemicals v. CCT [2022] 136 taxmann.com 275/59 GSTL 394/92 GST 61 (All.)

S.A. Traders v. State of U.P. [2023] 156 taxmann.com 132 (All.)

• If no reply has been furnished, 75(4) is not attracted & hence opportunity of hearing is not required

Modern Steel v. Addll Commissioner [2023] 156 taxmann.com 452 (All.)