MODE OF SERVICE OF SHOW CAUSE NOTICE

[K Balasubramanian]

Revenue had the practice of uploading show cause notices in the GST portal and took the stand that it is in line with provisions contained in Section 169 (1) (d). High Courts have held in various cases that it may be compliance with serving of notice but it is not EFFECTIVE servicing of show cause notice. The legislature has provided for five different modes and also provided sixth mode when the first five modes do not work. What the tax officials fail to notice is when they adjudicate a show cause notice without affording a reasonable opportunity of personal hearing, they violate the provisions contained in section 75 (4).

This is not a new issue and almost all high courts in India have uniformly held that EFFETIVE serving of show cause notice as well as personal hearing are basic requirements and accordingly remanded several cases where the taxpayer approached the high court by way of writ.

The Madras High Court has recently come across one such case and has set aside the order passed by the adjudicating authority and remanded the case for fresh consideration in line with the judgement. But the court has made very strong observations even though no cost is imposed on revenue.

In the matter of ALAGAPPAN PALANIAPPAN PROPRIETOR VETRI MEDICALS VERSUS THE DEPUTY STATE TAX OFFICER, CHENNAI, THE BRANCH MANAGER CENTRAL BANK OF INDIA - 2025 (5) TMI 1889 - MADRAS HIGH COURT has made very valid as well as vital observation in para 7 which are furnished in one of the subsequent paras.

The dealer was under composition scheme and was regular in filing the GST returns. There were no issues till third week of March 2025 when the bank of M/s. Vetri Medicals informed the account holder about their freezing of the account in line with instructions from GST Authorities.

It was later explained that ITC was availed to the tune of 11,97,000 and in order to recover the same, the account was frozen. Aggrieved, and having no options as even if he closes the business and disposes the medical shop itself, he will not be in a position to pay 11,97,000 considering the fact that he is a composition dealer and the demand is not only ITC but includes huge interest as well as penalty, approached the high court of Madras by way of Certiorarified Mandamus.

1. Show Cause Notice was not in the knowledge of the taxpayer
2. Order being passed adjudicating the show cause notice was not in the knowledge of the taxpayer.
3. The adjudication order is to be effectively served on taxpayer to facilitate him as to whether he is preferring any appeal with the first appellate authority after paying 10% of the disputed tax as pre deposit.
4. A minimum period of three months is required ( after effective serving of order confirming demand) to go for coercive recovery.

Revenue directly proceeded for bank attachment, which is commented in para 7 of the order which is reproduced below.

7. Assuming that sending notices by uploading in the portal is sufficient service, when the Officer who was sending the repeated reminders, received no response from the petitioner, he ought to have applied his/her mind and explored diligently the possibility of sending notices by other modes prescribed in Section 169 of the GST Act. Mere uploading notice repeatedly without ensuring their receipt by the petitioner cannot be considered as effective service. Such mechanical compliance does not serve any useful purpose and the same will only lead to multiplicity of litigations, wasting not only the time of the Officer concerned, but also the precious time of the Appellate Authority / Tribunal and this Court as well. Thus, when there was no response from the tax payer to the notice uploaded in the portal, the Officer should have sent the notice through RPAD, which would have served the purpose.

In case CBIC comes out with a circular to field formation on para 7 of the above order, situation may improve a little bit in future as normally field formation listen only to their BOARD.