An order cannot go beyond the SCN

The Delhi High Court has ruled that an order must stay within the boundaries of the original Show Cause Notice (SCN). In this case, the petitioner was issued an SCN regarding incorrect Input Tax Credit (ITC) claims due to a supplier's cancelled registration. However, the subsequent order introduced new allegations, including that goods were not actually received. The court found this expansion beyond the SCN's scope to be a violation of natural justice, stating that orders must provide sufficient reasoning and cannot introduce new grounds.

The Hon'ble Delhi High Court in the case APN Sales and Marketing v. Union of India [W.P. (C) No. 9536 of 2024 dated August 09, 2024]held that an order which does not provide sufficient reasons is not legally sustainable as it is in violation of principles of natural justice and the allegations mentioned in the Show Cause Notice were not mentioned in the Order.

Facts:

M/s APN Sales and Marketing("the Petitioner") were issued a Show Cause Notice dated September 26, 2023 ("the Impugned SCN") whereby, the Petitioner was called upon to show cause why a demand for tax aggregating ₹17,43,356/- along with interest and applicable penalty not be raised. The Petitioner's FORM GSTR-09 for the financial year 2017-18 were examined, which stated that the Input Tax Credit ("ITC") availed by the Petitioner was not correct as the supplier's GST registration was cancelled.

Pursuant to the Impugned SCN, an Order dated December 29, 2023 ("the Impugned Order") was passed by the Adjudicating Authority under Section 73 of the CGST Act, whereby, the demand of ₹18,30,522/- was raised on account of tax for the period July, 2017 to March, 2018 along with interest and penalty.

The Impugned SCN referred to Section 16(2)(c) of the CGST Act, which posits that registered persons are entitled to avail ITC on supply of goods or services subject to the condition that the tax charged on such supply has been paid to the Government either in cash or through utilization of admissible ITC. The Impugned SCN had alleged that the taxpayer had not correctly availed ITC on the inward supplies on re-conciliation of the turnovers reflected in the FORM GSTR-09.

The Impugned SCN included a tabular statement, which indicated the reason for alleging that the Petitioner had incorrectly availed ITC as under 'supplier registration cancelled before date of invoice'. The Impugned SCN, further indicated that the proposed demand was on the basis that the Petitioner had availed supplies from a dealer namely 'Modern Traders' during the month of March, 2018. However, the registration of the said dealer was cancelled with effect from July 01, 2017.

Hence, aggrieved by the Impugned Order, the Petitioner filed the present writ petition.

Issue:

Whether an order can go beyond the scope of SCN?

Held:

The Hon'ble Delhi High Court in W.P. (C) NO. 9536 OF 2024held as under:

• Observed that, the Impugned SCN did not allege that the Petitioner had not received the goods from the dealer in question. The Impugned SCN is premised on Section 16 (2)(c) of the CGST Act which, according to the Revenue, disentitles a taxpayer from availing ITC in respect of supplies, if the actual tax on the said supplies has not been deposited by the supplier. However, the Impugned Order does not indicate that the Adjudicating Officer had finally concluded that the dealer in question i.e. Modern Traders had not paid the taxes due on the supplies made to the Petitioner.
• Directed that, to furnish such further documents including documents to substantiate that it had, in fact, received the supply from the named supplier i.e. Modern Traders during the relevant period or any other material that the Petitioner considers relevant. This is considering the allegation that the invoices produced by the Petitioner are "Good-less invoices", that is, no goods had been supplied by the supplier against those invoices during the relevant tax period (Financial Year 2017-18).
• Held that, the Petitioner has a remedy of preferring an appeal against the Impugned Order, considering that the Impugned Order is unreasoned. The Petitioner had also challenged the Notification dated March 31, 2023 issued under Section 168A of the CGST Act, which was not examined.

Our Comments:

The Hon'ble Apex Court in the case of Commissioner of Customs, Mumbai v. Toyo Engineering India Limited [Writ No.2532 of 2001 dated August 31, 2006] held that the Department cannot travel beyond the SCN.