SHOW CAUSE NOTICE AND ITS REPLY FOR ADJUDICATION

[Dr. Sanjiv Agarwal]

Adjudication proceedings in any assessment or penal proceedings is a very important aspect of tax administration. It provides an opportunity to the assessee to be heard and show cause before any action is taken in proceedings relating to him. Issue of show cause notice is a pre-condition to a proper adjudication which is an intimation to assessee of the proposed action by the department. The adjudicating officer adjudicates the show cause notice by considering the reply to show cause notice and other available or produced evidences by the noticee. A SCN should follow certain principles to be legally sustainable.

Adjudication under GST Law

Section 73(1) provides for :

(a) Service of notice by proper officer;

(b) Notice shall be served on the person who is chargeable with tax, who has –

• Not paid or short paid the tax;
• Received the erroneous refund;
• Wrongly availed or utilized input tax credit;

(c)  Such amounts as mentioned above shall be required to be determined along with the applicable interest as per Section 50 and penalty leviable under the provisions of this Act or the rules made thereunder.

Section 74(1) provides for –

(a) Service of notice by proper officer;

(b) Notice shall be served on the person who is chargeable with tax, who has –

• Not paid or short paid the tax;
• Received the erroneous refund;
• Wrongly availed or utilized input tax credit;

(c) Such amounts as mentioned above shall be required to be determined along with the applicable interest as per Section 50 and penalty equivalent to the tax specified in the notice.

How to reply to SCN

Whenever a show cause notice (SCN) is issued to an assessee, it has a purpose because the law does not allow the revenue authorities to confirm any demand of tax, penalty, fees or any other amount without adjudication. Adjudication is a quasi-judicial process involving exercise of judicial powers to decide or adjudicate any issue after allowing the other party to defend himself and provide opportunity of being heard for the same.

The opportunity to the assessee is provided through a SCN issued to him which has to be responded in any one or more of the following manners :

1. Reply to SCN
2. Availing opportunity of personal hearing
3. Additional written submissions / documents as the time of personal hearing or thereafter but before the adjudications order is issued.

The SCN is issued with specific directions to the assessee to show cause as to why what is proposed in the SCN should not be confirmed.

Generally, the SCN contains the following paras:

• The taxpayer is required to furnish their written reply to this show cause notice on the date mentioned above. They are also directed to produce at the time of showing cause, all evidences, and documentary or otherwise, upon which they intend to rely in support of their defence.
• If no cause is shown against the action proposed to be taken within stipulated date or if the taxpayer or their legal / authorized, representative does not appear before the adjudicating authority on the date and time fixed for personal hearing, the case would be decided ex-parte on the basis of evidences available on record without any further reference to him.
• The show cause notice is issued without prejudice to any other action that may be taken against the recipient of the notice or any other person concerned with the case under the Act and Rules as mentioned in this notice or any other law for the time being in force in India.

Therefore, it is important that SCN should invariably be replied and it should:

1. be in writing
2. be complete detailed and comprehensive
3. be duly supported by documentary evidences such as copies of invoices / contracts / agreements / ledgers / financial statements / third party evidences etc
4. be backed by judicious interpretation of statutory provisions
5. be supported by judicial pronouncements to be relied upon
6. Contain a clause for adding / altering the reply on grounds of defence at later point of time
7. be addressed to the adjudicating officer mentioned in the SCN
8. be property indexed and page numbered
1. be signed and dated

Contents of SCN reply

The body of SCN reply should generally contain the following: 

1. Summary of allegations made in the SCN- allegations on which grounds of defence will be prepared.
2. Statement of facts – This can be taken from the SCN itself. If facts are at a variance with those mentioned in the SCN, assessee can include the correct facts. If it is felt that some relevant facts have been left out in the SCN which may have a bearing on the adjudication, same may also be added.
3. Submissions of assessee- This is the most crucial part of the SCN reply and it contains the grounds on which assessee would like to defend the allegations made.

The reply may have more than one ground of defence depending on case to case. The main grounds can be drafted and also adequately explained in the reply with basic, reasoning, factual matrix, interpretation of law and judicial pronouncements.

Once the main grounds which are specific to the case are explained, there could be certain grounds which may be common in most of the SCN’s. These could be one or more of the following:

1. Valuation not considered on cum-tax value basis where tax has not been collected.
2. Levy of interest on non-sustainable demand
3. Involving of extended period of limitation
4. Making out a case for suppression etc with the intent to evade payment of tax, as a general rule
5. Levy of different penalties

4. Further documents to be submitted – As a prudent assessee, reply to SCN should invariably contain a para for taking the liberty for further documents to be submitted to ensure that demand is not confirmed for want of any document. This para may be drafted as follows:

The Noticee submits and confirms that in case any other information or documents or record or explanation is further considered necessary for adjudication of the SCN, it shall submit the same at the earliest so as to ensure proper and fair adjudication of the proposed SCN. The Noticee further submits and prays that no demand should be confirmed for want of documents / explanation from Noticee’s side. 

5. Para wise reply to SCN- This contains the reference to the detailed SCN reply and is related to the para-wise allegations made in the SCN.

6. Prayer - To conclude the reply to SCN, a para containing prayer should be added which may be as follows:

“In view of the foregoing, it is respectfully prayed that the proceedings initiated in the above SCN may kindly be dropped.  In any case, we should be given an opportunity of personal hearing before a final decision is taken in the matter.”

It should be ensured that personal hearings are attended to by the assessee or his authorized representative and submissions made.

Discussions to this article

[MANOHARAN ARUMUGAM]

Dear Sir,

Really valuable information and vital points. Regarding the Sections 73(1) & 74(1), the wordings are similar to each other. What is the difference between these 2 sections?

Thanks,

[raghunandhaanan rvi]

Nice article.. explained everything in detail and simple language. Thanks

[Dr. Sanjiv Agarwal]

Dear Mr. Raghu,

Thanks, If you found contents useful.

[Dr. Sanjiv Agarwal]

Dear Mr. Manoharan,

Section 73 deals with 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 facts.

On the other hand, Section 75 deals with determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts.

I hope the difference is clear.