GST | Show Cause Notice Must Contain Foundation Of Case On Which Action Is Necessitated: Allahabad High Court

The Allahabad High Court has held that show cause notice must contain the foundation of the case based on which action is being necessitated. In case, the show cause notice is sufficient, assessee has remedy of filing reply/objections before the concerned authorities.

A bench comprising of Justices Siddhartha Varma and Arun Kumar Singh Deshwal held that there are two primary requirements of principles of natural justice to be followed while issuing a show cause notice:

“(I) a show cause notice contains the material/ground which, according to the department necessitates an action;

(II) the particular penalty/action which is proposed to be taken. Even if it is not specifically mentioned in the show cause notice but it can be clearly and safely discerned from the reading thereof that would be sufficient to meet this requirement.”

Petitioner was issued a show cause notice under Section 74 of the Uttar Pradesh Goods and Services Tax Act, 2017 on grounds that Input Tax Credit was wrongly by the Petitioner based on purchases shown from a bogus firm. Petitioner was required to show cause as to why tax and penalty should not be levied upon him.

Counsel for Petitioner contended that the show cause notice was vague and bad in law. It was merely based on the Special Investigation Branch’s report.

Counsel for the Department argued that proceedings were yet to be initiated and this was merely a show cause notice to which the Petitioner has the remedy to file reply/objections. Further, it was argued by that proceedings in pursuance of the show cause notice could be initiated only if it "appeared" to the proper officer that tax had not been paid or short paid or erroneously refunded or where Input Tax Credit had been wrongly availed or utilized by reason of fraud or any wilful statement or suppression of fact. The writ petition was premature and thus, liable to be dismissed.

Relying on Gorkha Security Services Vs. Government (NCT of Delhi) [(2014) 9 SCC 105] the Court held that a show cause notice must clearly contain the charges against the person who is being proceeded against in show cause proceedings to fulfil the requirements of principles of natural justice.

“Purpose of the show cause proceeding is meant to give a person proceeded against a reasonable opportunity of making his objection against the proposed charges as indicated therein as observed by the Hon'ble Supreme Court in the case of Khem Chand Vs. Union of India AIR 1958 SC 300. This judgement was also considered by the Apex Court in Oryx Fisheries P. Ltd. Vs. Union of India reported in (2010) 13 SCC 427,” held the Court.

The Court observed that the show cause notice was not illegal merely because the Petitioner was only asked to show cause as to why tax and penalty should not be imposed upon him instead seeking reply on merits of the allegations. The show cause notice issued under Section 74 (1) of the 2017 Act was sufficient and contained all necessary details and grounds for issuing the same. Hence, it cannot be quashed under Article 226 of the Constitution of India.

Accordingly, the petition was disposed of directing the petitioner to submit reply/objections before concerned authorities along with the evidence of the disputed transactions within a period of month.

Case Title: M/S Abhay Traders vs. Commissioner Commercial Tax U.P. Lucknow And Another 2023 LiveLaw (AB) 230 [ WRIT TAX No. – 1265/2022]

Case Citation: 2023 LiveLaw (AB) 230

Counsel for Petitioner: Aloke Kumar

Counsel for Respondent: Ankur Agarwal, Gopal Verma

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