REPLYING TO SHOW CAUSE NOTICE (SCN)

[Dr. Sanjiv Agarwal]

Show cause notice is the first stage in any investigation in tax laws. In service tax, how cause notice is issued to assessees or service providers under section 73 of the Finance Act, 1994 before any penalty is levied or demand is raised. SCN is also required to be issued while taking action under section 73A for payment of service tax collected from any person which has not been deposited with the Central Government.

According to section 73(1), Central Excise Officer may within a period of one year from the relevant date, serve SCN on a person chargeable with the service tax which has not been paid or which has been short levied or short paid or the person to whom service tax refund has been erroneously made requiring him to show cause why he should not pay the amount specified in the notice. Such SCN can be served within a period of five years (instead of one year) in cases of fraud, collusion, willful misstatement or suppression of facts. Such SCN's issued by the Department are infact the initiating points of dispute between the department and the assessee and its is imperative on the part of assessee to draft a proper reply with utmost care so that not only the tax liability if wrongly mentioned in SCN is contested but such reply is also not used against the assessee in adjudication proceedings.

How to handle a SCN

Following points are important to note while handling any show cause notice -

(1)                Date of notice and date of receipt of notice could be different. While acknowledging the SCN, always remember to put date and time over the acknowledgement copy.

(2)                Don't avoid the receipt of SCN. If a SCN is being served, there is no point in avoiding to receive it. It has to be received and then contested / replied. Non receipt is considered as a service.

(3)                If the service of notice is time barred, it could be suitably replied with substantiating evidence.

(4)                If the SCN is beyond one year, it will have to be proved that there was no suppression etc. on assessee's part so that department cannot invoke the provision of five years. SCN has to prove suppression.

(5)                In case you are contemplating any SCN, and you feel that service tax has to be paid, it would be advisable to pay service tax before SCN is issued. SCN cannot be issued for the amounts already paid.

(6)                Whenever SCN is intended to enhance the liability of assessee or reduce the amount of refund, an opportunity of being heard is necessary and it can not be denied by the revenue.

(7)                You can challenge the validity and legality of SCN served on you on the basis of facts, time or even jurisdiction.

(8)                SCN is always issued in writing. There is nothing like oral SCN in service tax.

(9)                SCN must mention amount demanded any SCN without amount is not valid. Also, amount of proposed penalty should be mentioned.

(10)            SCN is to be issued for a particular period. If a demand is raised, admitted and paid, SCN would still be required to be served for subsequent period.

(11)            Department cannot go beyond what is mentioned in SCN and adjudicate an issue which s not a subject matter of SCN.

(12)            SCN is required to be replied within the stipulated time mentioned in the notice and must be replied accordingly .

(13)            While efforts must be made to comply with the same, it would be advisable to seek extension of time or adjournment which is normally granted.

(14)            Try to provide reply or explanation to all points covered in SCN and wherever necessary, substantiate the reply with documentary evidences.

(15)            Detailed reply may be submitted alongwith earlier decided case laws.

(16)            A list of evidences on which you are relying must also be submitted.

(17)            Even where you have submitted a detailed and convincing reply to SCN, you should seek the opportunity of personal hearing and carve to alter or amend or modify your reply to show cause at any stage during adjudication proceedings.

(18)            Where penalty is levied or demand is confirmed or refund is revoked, you can always seek remedial measures for relief under section 80 pleading that there was a reasonable cause which prevented you from compliance of provisions.

(19)            Orders issued against show cause notice are appealable.

(20)            If you are not in a position to represent your case personally, better hire a professional to assist you in drafting a reply to SCN and represent your case at adjudication stage.

(21)            SCNs have to be properly defended and argued for this stage builds the foundation for further actions.

It is felt that the above points if borne in mind by the assessees and service providers shall help them in appropriately replying to the show cause notice issued by the Department.