SCN lacking reasons is liable to be set aside

The Telangana High Court has ruled that a Show Cause Notice (SCN) must provide specific factual details to the assessee, not just quote legal provisions. Simply repeating Section 29(2)(e) of the CGST Act without adequate information prevents the assessee from filing an effective reply, violating natural justice. Consequently, such vague SCNs are liable to be set aside, as demonstrated in the case of M/s. Nice Enterprises v. Deputy Commissioner ST.

The Hon'ble Telangana High Court, in the case of M/s. Nice Enterprises v. Deputy Commissioner ST [Writ Petition No.20080 of 2024 dated July 30, 2024] held that the Department should not issue the Show Cause Notice ("SCN") merely to the Assessee by simply mentioning the provisions of Section 29(2)(e) of the Central Goods and Services Act, 2017 ("the CGST Act"). The SCN should contain sufficient factual and elementary details so as to enable the Assessee to file effective reply, such notices violate the principle of natural justice. Hence, the Impugned SCN was set aside.

Facts:

M/s Nice Enterprises ("the Petitioner") were served an SCN on May 24, 2024 ("the Impugned SCN"). The Petitioner states that the Impugned SCN is inadequate due to its lack of crucial details. Instead of specific allegations, it simply repeats the provisions of Section 29(2)(e) of the CGST Act.

Therefore, the absence of the necessary information prevents the Petitioner from submitting the effective reply, making the Impugned SCN ineffective and invalid. Consequently, the Petitioner's GST registration was also suspended due to the vague SCN.

Hence, aggrieved by the Impugned SCN, the Petitioner had filed the writ petition before the Hon'ble High Court.

Issue:

Whether the department can issue the SCN on merely reproducing insufficient factual and elementary details?

Held:

The Hon'ble TelanganaHigh Court, in the case of Writ Petition No.20080 of 2024 held as under:

· Observed that, the Impugned SCN violated the principle of natural justice by failing to provide the Petitioner the grounds for the Impugned SCN and prevented the Petitioner from submitting the reply to the Impugned SCN.

· Relied upon, M/s Rayees Metals v. Dy. STO [Writ Petition No. 17400 of 2024 dated July 8, 2024] wherein the Hon'ble Telangana High Court further relied on the case of Canara Bank v. Debasis Das [(2003) 4 SCC 557], Rajesh Kumar v. CIT [287 ITR 91 (SC)], Sri Avanthika Sai Venkata v. Deputy State Tax Officer [83 GSTL 311 (Telangana)] and S.B. Traders v. The Superintendent [96 GST 13 (Telangana)] held that due to the absence of the factual basis and necessary details, the SCN was declared vague.

· Held that, due to the lack of essential factual details required to invoke Section 29 of the CGST Act, and simply repeating the offending clause or enabling provisions does not give justification for the approval of the SCN. The mere reproduction of the offending clause or enabling provision cannot be a reason to give stamp of approval to a SCN which lacks basic essentials. Hence, the Impugned SCN was set aside. Therefore, the Court permits the Respondents to proceed against the Petitioner under the law. Hence, the writ petition was allowed.

Our Comments:

In the Pari Materia case of Raj Bahadur Narain Singh Sugar Mills Ltd. v. Union of India[(1997) 6 SCC 81] and Collector of Central Excise v. H.M.M. Limited [1995 (76) E.L.T. 497 (SC)]wherein the Hon'ble Supreme Court has reaffirmed that for natural justice to be upheld, the SCN must allege any collusion, willful misstatement, or suppression of facts necessary to justify invoking the extended five-year period and that the notice must clearly state which specific acts of omission or commission warranted the extension of the limitation period; otherwise, the Assessee would not have the opportunity to respond adequately.

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