S.73 CGST Act| ‘No Reasonable Opportunity Granted To Respond’, MP High Court Quashes Show Cause Notice Against Raymond

Madhya Pradesh High Court has recently quashed a show cause notice and order of demand issued against Raymond Limited by observing that a minimum of 30 days must be given to afford ‘reasonable opportunity’ for the noticee to respond as per Section 73 of CGST Act.

“Though no time period is stipulated in Section 73 for the noticee to respond but it is obvious that the statute contemplates affording of reasonable opportunity to reply to show cause notice”, the Division Bench of Justice Sheel Nagu and Justice Amar Nath observed in the order while also adding that such a concept of ‘reasonable opportunity’ generally means affording at least a time period of 15 days to respond.

The court also pointed out that since Section 73(8) of CGST Act grants a period of 30 days for making the payment of tax, interest and penalty specified in the show cause notice, therefore, the ‘reasonable period’ within which the show cause notice must be responded to can also be treated as 30 days.

Section 73 of Central Goods and Services Act talks about ‘Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful misstatement or suppression of fact’.

The show cause notice in this case was issued on 03.09.2022 whereas the order of demand was issued merely after 8 days, i.e., on 12.09.2022. Subsequently, the court found this time period as ‘desperately short of satisfying the concept of reasonable opportunity of being heard’.

The court further found the show cause notice to be lacking in material particulars that could have allowed Raymond Limited to respond satisfactorily. About the impugned show cause notice not containing sufficient foundational material which would have enabled the company to respond effectively, the court opined as follows:

“In this regard, this Court merely observes that any show cause notice whether u/S.73 or otherwise can withstand the test of judicial scrutiny only when the same contains enough and adequate material which motivated the notice issuing Authority to take a prima facie view against the noticee. If the contents of impugned show cause notice are lacking in material particulars or are vague in regard to any of the entries contained therein then such show caused notice becomes vulnerable to judicial review”.

The court has also imposed a cost of Rs 10,000/- to be paid by the respondent authorities towards the account of the petitioner company. The court has also instructed that a compliance report be filed within 60 days, failing which the matter will be listed under the caption of "Direction" as PUD for execution qua cost.

Previously, on 01.12.2022, the court had restricted the respondents from taking any coercive steps against Raymond pursuant to the impugned show cause notice and order of demand.

“Consequently, the impugned show cause notice dated 03.09.2022 (Annexure P/2) and impugned order of demand dated 12.09.2022 (Annexure P/3) both passed u/S.73 of CGST Act are set aside with liberty to the Revenue to issue fresh legal and valid show cause notice and thereafter proceed in the matter if so advised after affording reasonable and sufficient opportunity of being heard to petitioner”, the bench sitting at Jabalpur concluded while allowing the petition filed under Article 226 of the Constitution by Raymond.

Advocates Gopal Mundhra, Ginita Badhani and Rohan Harne appeared for Raymond Limited. Advocate Darshan Soni represented the respondent state authorities.

Case Title: Raymond Limited V. Union of India Represented By Secretary, Department of Revenue & Ors.

Case No: Writ Petition No. 26693 of 2022

Citation: 2023 LiveLaw (MP)

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