SCN needs to be set aside when issued without due application of mind

[CA Bimal Jain]

The Hon’ble Calcutta High Court in the case of DIAMOND BEVERAGES PRIVATE LIMITED & ANR. VERSUS THE ASSISTANT COMMISSIONER OF CGST & CX, TALTALA DIVISION II KOLKATA SOUTH COMMISSIONERATE & ORS. [2023 (12) TMI 1097 - CALCUTTA HIGH COURT] held that submissions made by appellants in their reply to pre-show cause notice appeared to have been considered. However, except extracting the reply given by the appellants, the authority has not dealt with the contentions, which were placed by the appellants in the reply to the pre-show cause notice. Thus, this would be sufficient to hold that the show cause notice has been issued without due application of mind. Hence, Show Cause Notice was set aside and subsequently, the matter was remanded back the matter to the Adjudicating Authority at the level of pre-show cause notice and the writ petition was allowed.

Facts:

M/s. Diamond Beverages (P.) Ltd. (“the Petitioner”) was issued the Show Cause Notice dated August 16, 2023 (“the Impugned SCN”), alleging that the Petitioner had availed/utilized input tax credit (“ITC”) arising out of debit notes by the suppliers, who had not filed FORM GSTR-3B returns and whose registration was canceled retrospectively. The Petitioner replied within 30 days as permitted by law and submitted their reply placing the necessary information. Thereafter, the authority issued a pre-show cause notice in Part A of Form GST DRC-01A dated March 31, 2023 (“the Impugned pre-SCN”).  The Petitioner also submitted their reply to the Impugned pre-SCN dated April 11, 2023, and sought an opportunity for the personal hearing. However, the Revenue Department (“the Respondent”) issued the order dated September 25, 2023 (“the Impugned Oder”) under section 73(1) of the Central Goods and Services Act, 2017 (“the CGST Act”) without considering the contentions of the Petition.

Thus, aggrieved by the Impugned Order and Impugned SCN, the Petitioner filed the writ petition in the Calcutta High Court and contended that the Respondent has to investigate or inquire into the matter by taking note of the relevant details at the supplier's end. If that is not done, the true facts will not emerge and consequently, the issuance of any SCN will be a fait accompli. In the instant case, the Respondent has not conducted any such investigation and proceeded to issue the Impugned SCN. 

Issue:

Whether Show Cause Notice can be set aside if issued without due application of mind?

Held:

The Calcutta High Court in DIAMOND BEVERAGES PRIVATE LIMITED & ANR. VERSUS THE ASSISTANT COMMISSIONER OF CGST & CX, TALTALA DIVISION II KOLKATA SOUTH COMMISSIONERATE & ORS. [2023 (12) TMI 1097 - CALCUTTA HIGH COURT]  held as under:

• Observed that, the submissions made by the appellants in their reply to the Impugned pre-SCN appear to have been considered. However, on closer scrutiny of the Impugned SCN, it is seen that except extracting the reply given by the appellants, the authority has not dealt with the contentions, which were placed by the appellants in the reply to the Impugned pre-SCN. Thus, this would be sufficient to hold that the Impugned SCN has been issued without due application of mind.
• Noted that, the Impugned SCN was issued without due application of mind, without considering the reply to the Impugned pre-SCN, and without conducting any inquiry or investigation at the supplier's end, the Impugned SCN would call for interference.
• Directed that the Respondent shall, first inquire/investigate the matter from the supplier's end, collect the necessary information, afford an opportunity to the Petitioner to put forth further submission on such and allow the personal hearing and then proceed to decide as to whether the Impugned SCN under Section 73(1) of the CGST Act has to be issued or otherwise.
• Held that, both appeal and writ petition were allowed. The matter was remanded back the matter to the Respondent to the stage of the Impugned pre-SCN. Hence, the impugned SCN was set aside.

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