Can a Show Cause Notice be considered to be Vague if it doesn't specify allegations to the Assessee?

[Abhishek Raja]

Can GST Registration be cancelled without issuing specific contraventions in Show Cause Notice?

Can a Show Cause Notice be considered to be Vague if it doesn't specify allegations to the Assessee?

Allahabad High Court answer this issue in the case of DM Traders (21-Oct-2022)

SCN was issued on 18-Aug-22 where it has been called upon to explain why proceedings for cancellation of registration be not initiated against him.

The Notice also records that the registration has been suspended wef same day i.e. 18-Aug-22

Reasons for suspension of registration or proposed cancellation were not communicated in the Notice.

High Court held that the Notice lacks in all material details to enable the Petitioner to submit a proper reply.

M/S D.M. TRADERS VERSUS UNION OF INDIA AND ANOTHER - 2022 (10) TMI 1001 - ALLAHABAD HIGH COURT

Supreme Court in COMMISSIONER OF C. EX., BANGALORE VERSUS BRINDAVAN BEVERAGES (P) LTD. - 2007 (6) TMI 4 - SUPREME COURT. P. 273 has earlier also held that "Where allegations in the show-cause notice are not specific as to the role of the assessee in an alleged fraud on the Revenue, is the recovery proceeding are not valid",

Similarly, CESTAT New Delhi has observed that Adjudication beyond the scope of show cause notice is not permissible. M/S DEEPAK AND CO VERSUS COMMISSIONER OF CENTRAL EXCISE, NEW DELHI - 2014 (8) TMI 233 - CESTAT NEW DELHI

An interesting judgement of CESTAT Bangalore can also be considered where Show Cause Notice (SCN) was not issued. CESTAT held that the show-cause notice is a foundation of the adjudication and without service of show-cause notice defence is denied. That manes adjudication fatal. M/S NARAYANA COACHING CENTRE VERSUS COMMISSIONER OF CENTRAL EXCISE, GUNTUR - 2015 (1) TMI 488 - CESTAT BANGALORE

Delhi High Court earlier held that Show Cause Notice must be specific. In this case, Notice under DVAT Act was issued that reproduces the mere words of the Law without specifying the specific ground on which the Department proposes to revise the earlier order. COMMUNICATION WORLD VERSUS COMMISSIONER, TRADE AND TAXES AND ANR. - 2016 (8) TMI 25 - DELHI HIGH COURT

In my View

A Valid Show Cause Notice must contain the followings:

1. Details of the Period for which the Notice is issued
2. Extracts of Relevant Law provisions (including Sections, Rules, Notifications, Circulars etc)
3. Foundational Facts of the case
4. Material to reach such foundational facts
5. Allegation/Violation of law in light of the foundational facts
6. Show Cause against such allegations
7. What actions do they ultimately want (i.e increasing tax liability, reducing ITC, suspension/cancellation of registration)
8. Action Proposed in case of non-reply
9. Details of the Officer issuing the Notice along with the Designation
10. Details of approval if Officer issuing Notice needs approval from Senior Authority

Notice is the Foundation of the Litigation it cannot be a mere formality. Without disclosure of allegations as in this case, the Notice becomes a formality. If the allegations in the show cause notice are not specific and are on the contrary vague, lack details and/or are unintelligible that is sufficient to hold that the notice was not given the proper opportunity to meet the allegations indicated in the show cause notice.

A show cause notice should be clear and concise. The purpose of the show cause notice is to allow the Recipient an opportunity to explain their conduct or actions. If the allegations in the show cause notice are not specific, it can make it difficult for the recipient to understand what they are being accused of and makes it more difficult to prepare a response. In this case, the allegations in the show cause notice are vague and lacked details, it would be difficult for the recipient to understand what they were being accused of and prepare a response. In those cases, Courts favour the Assessee that the notice was not given the proper opportunity to meet the allegations indicated in the show cause notice.

If you have been served with a show cause notice, it is important to seek legal advice as soon as possible.  Do not take any Notice lightly. Without proper legal guidance, you may be at risk.

I wish and hope you will find this useful.