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Officers of Director General of GST Intelligence are empowered to issue show cause notices: HC
Famina Shopping Mall (P.) Ltd. v. Assistant Commissioner of GST & Central Excise - [2024] 163 taxmann.com 72 (Madras)
The petitioner was running a departmental store. There was a search and seizure operation in the petitioner's premises, followed by which, the petitioner was issued with the pre-show cause notice. It filed writ petition to challenge the pre-show cause notice and contended that the notice was issued by the officer who was not proper officer.
The Honorable High Court noted that the officers of Director General of GST Intelligence are empowered to issue show cause notices as per the Circular No.31/05/2018-GST dated 09.02.2018 issued by the Central Board of Indirect Taxes and Customs. The Court further noted that the impugned proceedings was only a pre-show cause notice and it had been issued in Form GST DRC 01A in order to afford an opportunity to the petitioner to resolve the dispute by depositing the tax and interest at pre-show cause notice stage. Thus, the Court held that there was no infirmity in the impugned proceedings and the petition was liable to be dismissed.
Department Cannot Travel Beyond Show Cause Notice
Introduction
In taxation law, issuance of show cause notice is sine qua non to afford an opportunity to the tax payer as per the principles of natural justice so as to represent and defend his case and submit all his arguments with documentary evidence if any, in support of his case.
In GST law, provisions of sections 73 and 74 mandates issuance of show cause notices before initiating proceedings specified therein. Recently the honorable Allahabad HC has delivered an important judgment in the case of Samsung India Electronics (P.) Ltd. v. State of UP [2024] 161 taxmann.com 205/[2024] 17 Centax 131 (All.) on the issue whether it is open for the department to travel beyond show cause notice and create a new ground in later stages of adjudication.
This article discusses the significance and principles emerging out of this judgment.
Facts
In this case the petitioner is a company engaged in export of information technology design and software development services to its overseas holding company. For providing IT services to its overseas holding company in Korea it procures various inputs, input services and capital goods and avails ITC of these inputs. The petitioner filed a claim for refund of unutilized ITC of CGST, SGST and IGST for the period of April 2019 to June 2019 which was sanctioned by the department. Thereafter the petitioner filed another claim for refund for the period July to Sept 2019 and Oct to Dec 2019. For these refund claims the department issued deficiency memos and show cause notices. The petitioner filed his reply, attended personal hearing and after due consideration the department partially sanctioned the refund and rejected a portion of it stating that the specific goods were not inputs but were capital goods.
The petitioner filed appeal against these orders which was dismissed. Aggrieved by the rejection orders, the petitioner filed writ petition before the honorable HC.
Judgments, arguments and findings
The petitioner argued that the department has adopted an inconsistent approach while dealing with same facts and circumstances of the case which is grossly incorrect. It was also argued that the department cannot travel beyond the scope of show cause notice. If the allegation or ground is not made at the stage of show cause itself, it is not permitted for the authorities to create a new ground. In support of its contention, the petitioner relied upon judgments of the honorable Supreme Court in the case of Birla Corporation Ltd. v. CCE 2005 (186) E.L.T. 266/2005 taxmann.com 1293, Indian Oil Corporation Ltd. v. Collector of Central Ex. 2006 (202) E.L.T. 37/2006 taxmann.com1514 (SC) and Boving Fouress Ltd. v. CCE 2006 (202) E.L.T. 389 (SC).
The honorable court found the petitioner's averment to be correct that the department has adopted an inconsistent approach while dealing with same facts of the case. The court held that the sudden change in the department's approach or stand is not only inconsistent but also irrational. The department must remain uniform on identical facts and circumstances. The Court observed that factual and legal circumstances surrounding the refund claims for the period July to September 2019 and October to December 2019 are no different from the earlier periods for which refund claims were sanctioned.
It was also held that the principle of consistency is sacrosanct in tax matters. Further the department is not permitted to travel beyond the confines of the show cause as the purpose of show cause is to provide a fair opportunity of being heard to the concerned tax payer. Travelling beyond show cause would defeat the very purpose of principles of natural justice. Therefore adherence to show cause is not merely a procedural formality but a mandatory requirement.
Principles coming out
1. When the facts and circumstances of the case are identical or similar, department should adopt a consistent approach and no authority can be permitted to take contrary view,
2. It is incumbent upon the department to clearly lay down the specific allegations or concerns against the recipient,
3. In no case, the department can be allowed to traverse beyond the confines of the show cause notice as doing so will trample upon the tax payer's right to fair defense.
Analysis and conclusion
The significance of show cause notice cannot be over emphasized. It is beyond doubt that show cause notice serves as an opportunity of being heard to the tax payer and state his case. Even from the department's point of view, it lays down the very foundation for department's case against the assessee.
The court is more likely to strike down the order if there was a discrepancy between the show cause notice and the later order. It is trite law that the causes and substance of the offences must be explicitly stated in the Show Cause itself adequately and clearly so that the parties have a sufficient chance to refute them. The same is essential to guaranteeing appropriate justice in administrative proceedings.
The honorable Apex Court in the case of CCE v. Champdany Industries Ltd. [2010] 3 taxmann.com 321/2009 (241) E.L.T. 481, has held that it is well settled that unless the foundation of the case is made out in the show cause notice itself the revenue cannot argue a case not made out in the show cause notice. Similar view was expressed in CCE v. Ballarpur Industries Ltd. 2007 (215) E.L.T 489 (SC).
It would be pertinent to cite CCE v. Shital International [2010] 1 taxmann.com 413/2010 (259) E.L.T. 165 (SC), in which the Supreme Court decided that the show cause notice should serve as the case's foundation and noted the following:
The Revenue is not allowed to build up a new case against the assessee until the basis for the case is established in the show-cause notice. Revenue can't be allowed to raise a fresh plea and to take a contrary stand in relation to same assessee.
The honorable Allahabad HC judgment in the instant case is further testimony of the fact that the department cannot travel beyond show cause notice so as to enlarge the scope of it at later stages of adjudication. If certain allegation cannot be made at the stage of show cause itself, it cannot be adduced in the adjudication order. The assessee is entitled to fair and reasonable opportunity of being heard for which law has provided specific mechanism in the form of show cause notice.
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