Clipped from: https://taxguru.in/income-tax/show-notices.html
Does Demand or Coercive Action sustain without a notice and without the personal hearing
Show cause notice means a Court order that requires a party to appear before the court and explain why a certain course of action should not be taken against it. If the party cannot convince the court or fails to appear, that course of action is taken.
There have been lot of Notices being issue by Gst department off late, with respect to Payment of Interest u/s 50 of CGST Act, non matching of Gst E way bills with Gst 1’s, non matching of Gst ITC with respect to the input invoices. Demand is being determined without any personal hearings and the amount of interest demanded is on the E mails/ SMSs of the businesses without explaining any interest calculations, without giving the basis of calculations. The issue of demands were on the basis of advisories issued vide F. No. CBEC-20/16/07/2020-GST dated 10th February 2020 with respect to Section 50(1) , Section 75(12).
After directions from the Central Board of Indirect Taxes and Customs (CBIC) to recover goods and services tax (GST) interest, totalling Rs46,000 crore, field officials are busy sending notices for recoveries which, sometimes, are in single digits. One such client in equity information services has been asked to deposit Rs5, after rounding off the liability as interest, another Rs2. The government has discovered a new revenue stream to make up for the shortfall in GST collection and is looking to collect Rs.46,000 crore as interest on late payment of tax
These notices are without serving any Show Cause Notice (called SCN) and without legal and proper adjudication by the Adjudicating Authority. The due process of demand and adjudication need to be followed and principles of natural justice with opportunity of being heard to be given. However, the despite being fully aware of the settled principle of law just to augment revenues in a hurry, the Department is adopting the practice of straightaway sending the notices of recovery. Many a time, the Department takes a view that the amount sought to be recovered is an admitted amount and there is no defence available with the assessee for the same.
The legal mechanism, as provided under Section 73 (for normal period of limitation) and Section 74 (for extended period of limitation) of the Goods & Service Tax Act, 2017
(hereinafter called the CGST Act), set the tone for issuance of SCN for seeking to recover (i) tax (ii) penalty (iii) interest (iv) fine or any other sums under different situations.
Various Rulings and Judgements are listed which support that Issuance of Show Cause Notices is a Must and Personal Hearing is a Must
GST – Petitioner, a dealer, was entitled to claim the Input Tax Credit for the GST paid by the sub-contractors while filing its GST returns – Since some of the sub-contractors had not uploaded the invoices and filed their returns, ITC to which the petitioner was entitled to was not being tallied – The third respondent, Superintendent, addressed an e-mail seeking clarification of availments of ITC and it was alleged that there was an excess availment of ITC to the tune of Rs.2,62,48,383/- – The petitioner pointed out that the ITC differential credit is not pertaining to the petitioner, relating to the tax period in question – The petitioner has been levied tax on the unpaid tax without issuing Show Cause Notice and thereafter, the Demand Notice has been issued claiming the tax amount of Rs.13,63,864/- and interest amount of Rs.81,29,684/- payable by the petitioner – The third respondent vide its letter dated 07.05.2019 has sought for attachment of the bank account of the petitioner – In the said background, the petitioner is before the Karnataka High Court challenging the action of the respondents in quantifying the interest and attaching the bank account without issuing Show Cause Notice as contemplated under Section 73 of the Act.
Held: Issuance of Show Cause notice u/s 73 of the Act is sine qua non to proceed with the recovery of interest payable thereon under Section 50 of the Act and penalty leviable under the provisions of the Act or the Rules – Undisputedly, the interest payable under Section 50 of the Act has been determined by the third respondent without issuing Show Cause Notice, which is in breach of principles of natural justice – It is trite law that any order passed by the quasi-judicial authorities in contravention of the principles of natural justice, cannot be sustained – Similarly, after determination of the interest liable to be paid by the petitioner, no notice has been issued before attaching the bank account of the petitioner – There is a lapse on the part of the third respondent – The notion of the third respondent that Section 75(12) of the Act empowers the authorities to proceed with recovery without issuing Show Cause Notice is only misconceived – The said Section is applicable only to the self-assessment made by the assessee and not to quantification or determination made by the Authority – it is ex-facie apparent that action of the third respondent is perverse and illegal and the same deserves to be set aside – Orders dated dated 04.03.2019 as well as dated 07.05.2019 are quashed with liberty to the third respondent to proceed in accordance with law – Petition alowed: High Court [para 5 to 7]
– Petition allowed : KARNATAKA HIGH COURT
2. In ‘Metal Forgings V. Union of India’ – 2002 (11) TMI 90 – SUPREME COURT OF INDIA the Supreme Court held that show cause notice is a mandatory requirement for raising demands and that communications, orders, suggestions or advices from department cannot be deemed to be a show cause notice.
3. Hon’ble Punjab & Haryana High Court in the case of B.K. Khosla vs. State of Punjab:
It is a settled principle of law that even if an amount has been paid to an employee wrongly or under mistaken belief, the same can only be recovered after issuance of show cause notice. Even if the rules do not permit so but rules of natural justice stand violated in case the recovery is done without giving any opportunity of hearing.
4. Hon’ble Supreme Court in S.L. Kapoor vs Jagmohan, MANU/SC/0036/1980 has discarded the contention that it would not have made any difference if natural justice would have been observed. The Court further observed that non- observance of natural justice is itself prejudice to any man and proof of prejudice is unnecessary.
5. Supreme Court in Gokak Patel Vokkart Ltd. Vs. CCE MANU/SC/0400/1987, has held that the provisions of Section 11A(1) & (2) (equivalent to Section 73 and 74 of CGST Act) of Central Excises and Salt Act, 1944 make it clear that a notice of show cause has to be issued and the reply to SCN has to be considered by the adjudicating authority and then only, the amount has to be determined/adjudicated under Order-in- Original. The scheme is in consonance with the rules of natural justice. An opportunity to be heard is intended to be afforded to the person who is likely to be prejudiced when the order is made before making the order. Notice is thus a condition precedent.
6. Further, in the Master Circular No. 1053/02/2017-CX: MANU/EXCR/0002/2017 dated 10/03/2017, the Board has clarified that in case where duty and interest is demanded, it is quite clear that limitation prescribed in Section 11A applies. Further it may be noted that in cases where duty has been paid belatedly and interest has not been paid, interest needs to be demanded and recovered following the due process of demand and adjudication.
Demand of duty from the assessee is made by way of issue of a Show Cause Notice (SCN in short) indicating therein charges of violations of provision of law requiring the assessee to explain as to why the duty not levied/not paid or short levied/ short paid should not be recovered from the noticee with interest and penalty, if applicable. Similarly, a show cause notice can also be issued for recovery of refund erroneously paid by the Government to the taxpayer. 2.1 Show Cause notice (SCN): Show Cause Notice (SCN) is the starting point of any legal proceedings against the party. It lays down the entire framework for the proceedings that are intended to be undertaken and therefore it should be drafted with utmost care. Issuance of SCN is a statutory requirement and it is the basic document for settlement of any dispute relating to tax liability or any punitive action to be undertaken for contravention of provisions of Central Excise Act and the rules made thereunder. A SCN offers the noticee an opportunity to submit his oral or written submission before the Adjudicating Authoritiy on the charges alleged in the SCN. The issuance of show cause notice is a mandatory requirement according to the principles of natural justice which are commonly known as audi alteram partem which means that no one should be condemned unheard.
7. Show Cause Notice is the Foundation : In The Comm Of Central Excise V Tata Tech Limited 2008 – SC has held that the show cause notice is the foundation in the matter of levy and recovery of duty, penalty and interest and if the point is not raised in the show cause notice, it cannot be raised at the appellate stage.
8. The Supreme Court in JK Lakshmi Cements Ltd Vs. CTO MANU/SC/1011/2016 and also in Rantan Melting and Wire Ind Vs. CCE MANU/SC/4587/2008 has held that circulars are instructions are binding upon the Department.
9. Dharampal Satyapal Ltd vs Delhi 2 on 9 January, 2020 CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL NEW DELHI. Excise Appeal No. 50118 of 2017 Arising out of order-in-original No. 208/INT/DGCEI/HQ/2015 /9291 dated 29.07.2016 passed by the Additional Director General, DGCEI, New Delhi
Even clause 2.3 of the CBEC instructions /clarifications requires that the Revenue should convey the allegations and quantification to the assessee and the assessee upon understanding the allegations may, without any dispute accept such allegation and waive the requirement of written show cause notice and opt for closure /settlement by depositing the tax interest and reduced penalty. Thus, even the circular prescribes for a free and informed consent on the part of the appellant, which is totally missing in the facts of the present case.
10. Master Circular on Show Cause Notice, Adjudication and Recovery-regd – 10.03.2017- Ministry of Finance : MANU/EXCR/0002/2017, inter-alia, reads as under:-
Waiver of SCN: The issue of waiver of SCN has been dealt with in circular issued vide F. No. 137/46/2015-Service tax dated 18.08.2015. The crux of the clarification given is that on receipt of written request of the assessee, the requirement of written SCN may be waived and the charges along with duty payable may be explained orally. This clarification was given in the context of closure of cases on payment of duty, interest and penalty. However, where the issue is likely to be litigated at a later date by the assessee, it would be appropriate that a written SCN be issued. This would hold true in particular for offences of serious nature or where the duty involved in high. Conclusion of proceedings may be approved by an officer equal in rank to the officer who is competent to adjudicate such cases.
11. The Supreme Court in a landmark judgment of M S Gill. Vs. CEC MANU/SC/0209/1977 has observed as under:-
In order to impose procedural safeguards, this Court has read the requirement of natural justice in many situations when the statute is silent on this point. The approach of this Court in this regard is that omission to impose the hearing requirement in the statute under which the impugned action is being taken does not exclude hearing – it may be implied from the nature of the power – particularly when the right of a party is affected adversely. The justification for reading such a requirement is that the Court merely supplies omission of the legislature.
IS PERSONAL HEARING A MUST
12. The Madras High Court in LG Electronics India Pvt. Ltd. Vs. CCE,: MANU/TN/0694/2020, where petitioner was issued with the two deficiencies memos pertaining to case of refund of Customs Duty. The petitioner gave its reply and requested for processing of refund claim for refund of Custom Duty. The respondent scrutinized the refund claims and on noticing the discrepancies pointed out in the respective deficiencies memos were not removed, the respondent rejected the respective refund claims vide respective orders impugned herein. The order was passed in violation of principle of natural justice. The court observed that there is violation of principle of natural justice though the petitioner failed to remove the deficiencies pointed out in the respective memos. The Court gave opportunity to file reply to SCN and thereafter personal hearing to the assessee.
13. The Madras High Court in Sanmina-SCI India Pvt. Ltd. Vs. STO:MANU/TN/9356/2019, where pursuant to the VAT Audit Inspection, AO issued notice and petitioner filed replies. The AO passed the assessment orders without giving an opportunity of personal hearing. AO has also chosen to impose penalty under Section 27(3) of the Tamil Nadu Value Added Tax, Act. The High Court held that the order imposing penalty is bad in law as the same being in violation of principal of natural justice.
14. The Division Bench of Bombay High Court in My Country Mobile Pvt. Ltd. vs. UOI: MANU/MH/3515/2019, while dealing with a case where impugned order dated 29th June, 2018 has disposed off two show cause notices dated 9th June, 2017 and 9th April, 2018 by holding that the Petitioner is liable to pay service tax on Reverse Charge Mechanism on import of services. The Commissioner admittedly given no personal hearing to the Petitioner before he has confirmed the demand sought to be raised under show cause notice dated 9th April. The High Court quashed the demand and gave a liberty to file an appeal before CESTAT and observed that CESTAT shall decide the appeal on merits without raising an issue of limitation.
15. The Supreme Court of India in Chamoli District Co- Operative Bank Ltd. Vs. Raghunath Singh Rana MANU/SC/0627/2016 has held that even where there are no specific statutory rules regarding the observations of rules of natural justice, still due hearing is to be given to an employee/person, in case order causes prejudice to him/her.
16. The Madras High Court in V N Mehta & Co Vs. CCE 2019(112) Taxman.com 376 has held that proceedings under Section 79 of the CGST Act for attachment of bank account on the premise that the authorized signatory made a statement that the amount is payable, cannot be issued without issuance of SCN as the words “amounts payable by the party” would mean that the amount payable by the party after adjudication. Furthermore, no proceedings under Section 62,63,64, 73 and 74 were also pending against the party and hence order of attachment of bank account was quashed by the High Court.
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