Reply to a Show Cause Notice in GST

Introduction:

Before resorting to the assessment, the GST authorities shall issue a show cause notice proposing the tax due to the department basing on the information submitted in compliance to the assessment notification. The GST authorities shall call for the objections, if any, and then the registered taxable person, in reply to the show cause notice has to file its objections in GST CMP 06 (Annexure at the end of the article) accompanying with the additional information, records, documents etc. in support of the contentions contrary to the proposal made by the GST authorities.

1. What is meant by Show Cause Notice:

Show Cause means:

Show Cause Notice issued by the GST Authorities questioning the registered taxable person or taxable person, why the additional tax or penalty should not be levied or interest should not be charged; summing up the show cause = asking the registered taxable person to show the reason why the additional tax/penalty/interest should not be levied or charged.

Show Cause Notice is the first stage of litigation under any fiscal laws.

It can be issued by the GST Authorities under the following circumstances;

I. Section 73 of CGST Act, 2017

• Tax is not deposited or short deposited;
• Tax is erroneously refunded;
• Input tax credit wrongly availed or adjusted or utilized;
• Any nature of demand, fee, penalty or interest is to be proposed as a result of inquiry/investigation/inspection/audit etc.
• For reasons other than fraud or willful misstatement or suppression of facts with an intention to evade tax.

II. Section 74 of CGST Act, 2017

• Tax is not deposited or short deposited;
• Tax is erroneously refunded;
• Input tax credit wrongly availed or adjusted or utilized;
• Any nature of demand, fee, penalty or interest is to be proposed as a result of inquiry/investigation/inspection/audit etc.
• By reason of fraud or willful misstatement or suppression of facts with an intention to evade tax.

Explanation 2: to Section 74: For the purposes of this Act, the expression "suppression" shall non-declaration of facts or information which is a taxable person is required to declare in the return, statement, report or any other document furnished under this Act or the rules made thereunder, or failure to furnish any information on being asked for, in writing, by the proper officer.

"You may never know what results come of your action, but if you do nothing there will be no result " – Mahatma Gandhi.

2. Drafting of reply to Show Cause Notice:

While venturing to draft a reply to the show cause notice, three components should bear in mind:

• Analysis of Show Cause Notice;
• Evidence or information and Grounds to issue Show Cause Notice;
• Identifying the missing points in the Show Cause Notice.

3. Time Limit for filing the reply of objections or compliance to show cause notice:

For any show cause notice, to submit objections in reply to show cause notice, an opportunity shall be provided to the registered taxable person. Allowing time to file the objection is affording an opportunity, to satisfy the principles of natural justice, or otherwise it shall be treated as denial of the opportunity. Audi Alteram Partem principle should be followed. The legislature had provided under the CGST Act, 2017 as three months prior to issuance of order [(u/s. 73(10)] and six months prior to issuance of order [(u/s. 74(10)].

An opportunity of hearing shall be granted on receipt of a request in writing. The GST authorities can adjourn the personal hearing if sufficient cause is shown and for reasons to be recorded in writing, subject to maximum of three adjournments.

Where no notice is required to be issued:

For such periods other than those covered in the Notice u/s. 74(1) on the person chargeable with tax, along with a summary in Form GST DRC-02. This notice issued in place of a detailed notice for the period other than the ones covered in the notice issued as per Section 74(1).  

Certain Points to be noted carefully before submitting reply of objections to the show cause notice:

• After receiving the show cause notice, one should read the show cause notice like a student reads the question paper in the Examination Hall;
• One should understand the contents of the show cause notice and note down the contents and jot down the point wise to enable to write the reply;
• Ensure that all the points covered under the reply to the show cause notice, because the reply of the show cause notice is heart to the litigation. The authorities cannot go beyond the show cause notice.
• It is most important, that the show cause notice is served on registered taxable person’s registered email id.
• Reply of objections should be written in simple and lucid language, don’t use any argumentative words or language.
•  The details should be given in a tabulated format: If possible, provide the details point by point in a tabulated format, for easy understanding and saving of the precious time of authorities.

Reference or reliance on case laws:

If registered taxable person is confident and believe in the case laws, then the relevant case law/s may be cited in the reply to the show cause notice. Before citing the case law/s one should think twice. Irrelevant case law/s should not be quoted or referred or mentioned in the reply, otherwise the same may cause loss to the registered taxable person.

Few case laws on the subject:

1. Santogen Silk Mills vs. CCE (2000) 157 ELT 208 – CESTAT, Mumbai
2. Uma Nath Pandey & Ors vs. State of U.P. AIR 2009 SC 2375
3. PGO Processors P. Ltd. vs. CE (2000) 122 ELT 26 – Raj HC
4. Basudevi Garg vs. CC (2017) 48 STR 427 - Del HC
5. Jet Airways (P) Ltd. vs. CST, Mumbai (2016) 8 TMI 989- CESTAT
6. CST, Mumbai vs. Traffic Manager, Mumbai Port Trust (2015) 37 STR 993 (Tribunal)
7. Paradip Port Trust vs. CCE, BBSR-1 (2018) 11 TMI 1158, CESTAT, Kol.
8. Subham Electricals vs. CST & ST, Rohtak – CESTAT (PB), New Delhi

(Order No.51964/2015 dated 16-06-2015)

The above points are illustrative but not exhaustive; the reply may change on case to case basis and completely depending upon the factual situations.

Disclaimer: The contents of this article are for the educative information and does not constitute or purport to be an advice or opinion in any manner. The information provided is not intended to create an attorney – client relationship and is not for advertising or soliciting. The author does not intend in any matter to solicit work through this piece. He is not responsible for any error or mistake or omission in this piece of information or for any action taken or not taken based on the contents of this material.

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