SCN lacking reasons is liable to be set aside

[CA Bimal Jain]

The Hon’ble Telangana High Court, in the case of M/S. NICE ENTERPRISES VERSUS THE DEPUTY COMMISSIONER ST STUI - 2024 (9) TMI 98 - TELANGANA HIGH COURT 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 Telangana High Court, in the case of M/S. NICE ENTERPRISES VERSUS THE DEPUTY COMMISSIONER ST STUI - 2024 (9) TMI 98 - TELANGANA HIGH COURT 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 VERSUS DEPUTY STATE TAX OFFICER - 2024 (9) TMI 235 - TELANGANA HIGH COURT wherein the Hon’ble Telangana High Court further relied on the case of CANARA BANK AND ORS. VERSUS SHRI DEBASIS DAS AND ORS. - 2003 (3) TMI 664 - SUPREME COURT, RAJESH KUMAR AND OTHERS VERSUS DEPUTY COMMISSIONER OF INCOME-TAX AND OTHERS - 2006 (11) TMI 135 - SUPREME COURT,  M/S. SRI AVANTHIKA SAI VENKATA JV VERSUS DEPUTY STATE TAX OFFICER - 2024 (2) TMI 416 - TELANGANA HIGH COURT and M/S. S.B. TRADERS VERSUS THE SUPERINTENDENT, HYDERABAD, THE PRINCIPAL COMMISSIONER OF CENTRAL TAX, HYDERABAD, THE UNION OF LNDIA, REPRESENTED BY ITS SECRETARY - 2022 (12) TMI 553 - TELANGANA HIGH COURT 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. VERSUS UNION OF INDIA  -  1996 (7) TMI 146 - SUPREME COURT  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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