Summary of Show Cause Notice under GST: section 73,74 and 76
|S.No||Section 73||Section 74||Section 76|
|1||No allegation of fraud, wilful mis-statement or suppression.||Allegation of fraud, wilful mis-statement or suppression.||Collection of amount by way of tax and not paying to the Government is sufficient to invoke this section|
|2||Show cause notice shall be issued within 2 years and 9 months from the due date of filing of annual return. This is so even for those taxpayers for whom filing of annual return was made optional.||Show cause notice shall be issued within 4 years and 6 months from the due date of filing of annual return. This is so even for those taxpayers for whom filing of annual return was made optional.||No time limit is prescribed for issuance of SCN.|
|3||The final order needs to be passed within the time limit of 3 years from the due date of filing of annual return or refund of input tax credit||The final order can be passed within the time limit of 5 years from the due date of filing of annual return or refund of input tax credit||The final order needs to be passed within 1 year from the date of issuance of SCN.|
|4||Statement of demand in lieu of show cause notice can be served||Statement of demand in lieu of show cause notice can be served||Only SCN is prescribed. No statement of demand.|
|5||Option for zero penalty is available when the disputed amount is other than self- assessed tax or any amount collected as tax.||No question of zero penalty||No question of zero penalty|
|6||Penalty is 10% of tax liability or Rs.10,000/- whichever is higher||Penalty will be imposed at 15%, 25%, 50% and also upto 100% of tax liability.||100% of tax will be imposed as penalty|
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How Show Cause Notice Under GST is served?
Section 169 of the CGST Act, 2017 contains the provisions relating to service of notice.
Any decision, order, summons, notice or other communication under the CGST Act 2017 or the Rules made thereunder shall be served by any one of the following methods. It is pertinent to note that, the proper officer is free to follow ‘any one’ method:
1.by giving or tendering it directly or by a messenger including a courier to
- the addressee or
- the taxable person or
- to his manager or
- authorised representative or
- an advocate or
- a tax practitioner
- a person holding authority to appear in the proceedings on behalf of the taxable person or
- to a person regularly employed by him in connection with the business, or
- to any adult member of family residing with the taxable person; or
2.by registered post or speed post or courier with acknowledgement due, to
- the person for whom it is intended or
- his authorised representative, if any,
at his last known place of business or residence; or
3.by sending a communication to his e-mail address provided at the time of registration or as amended from time to time; or
4.by making it available on the common portal; or
5.by publication in a newspaper circulating in the locality in which the taxable person or the person to whom it is issued is last known to have resided, carried on business or personally worked for gain; or
6.if none of the modes aforesaid is practicable then –
- by affixing it in some conspicuous place at his last known place of business or residence and if such mode is not practicable for any reason,
- by affixing a copy thereof on the notice board of the office of the concerned officer or authority who or which passed such decision or order or issued such summons or notice
- Every decision, order, summons, notice or any communication shall be deemed to have been served on the date on which it is tendered or published or a copy thereof is affixed in the manner provided above.
- When such decision, order, summons, notice or any communication is sent by registered post or speed post, it shall be deemed to have been received by the addressee at the expiry of the period normally taken by such post in transit unless the contrary is proved.
- Care must be taken to ‘object’ to any notice that is improperly served. Section 160(2) makes it clear that where a notice or other proceedings is not properly served and taxpayer
- attends to it on merits or
- omits to question the validity of service at the earliest opportunity, then such questions (although legally very significant) cannot be raised in subsequent proceedings. This is also known as the principle of acquiescence. And examining ‘validity of service’ is the first step in acceptance of SCN and any other communication from the tax Department.
Service includes service of a
- valid notice
- under valid section
- by Proper Officer and not merely communicating the broad nature of the demand without the required degree of specificity required in the law.
After all, taxpayers rights are affected by SCN and this cannot be done lightly or without regard to the time-tested principles of natural justice.
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What to do after Receipt of Show Cause Notice under GST
Let us now see some of the practical aspects. Readers are hereby informed that the details given in the following paragraphs are based on the practical experience of the author and it cannot be taken as complete set of procedures. There is always a scope of improvement and hence, the readers can pick and choose the points as suitable to them and they should explore beyond what is mentioned under this article to improvise the practical method of responding to show cause notice.
Date of Receipt
The date of receipt of the show cause notice plays a vital role in commencing the decision making process. The date of receipt can be ascertained from copy of email, postal cover, etc. Hence, it is very important that a documentation for the date of receipt of the notice is created without fail. It is suggested that, a one-page print of email or photocopy of the postal cover should be preserved in the file. The calculation of 30 days from the date of communication of notice will start only from the date when you receive the show cause notice.
Time limit to reply for Show Cause notice under GST
Section 73 / 74 does not prescribe any time limit per se within which the person has to respond to the notice. In many occasions, the date of personal hearing may be specified in the SCN which implies that written response need to be submitted on or before the said date. In certain cases, a particular date may be mentioned within which the taxpayer will have to respond. Hence, that can also be treated as the due date to furnish a reply to a show cause notice.
It is suggested that one should take a time of 30 days within which the proper officer may start expecting the reply. It is necessary that the tax payer responds to the notice within the first 30 days by either submitting the reply that has been prepared or seeking an extension in order to submit a reply.
Reading of A Show Cause Notice
A show cause notice should be read line by line and in detail. We need to look for the details which can give us the complete picture of the issue right from the basic details of the assessee including
- GST Number
- tax period concerned with the issue
- the transactions captured in the notice
- details of the Sections and Rules of the GST Acts referred in the show cause notice and the alleged violations by the noticee
- other allegations made by the department
- manner in which the value has been arrived
- the way in which goods or services have been classified
- the details of input tax credit being disallowed
- the rate of tax considered for arriving at the tax amount, etc.
This will enable us to get a good grip on the issue which can help us while we draft the reply to show cause notice.
Analysis of Issue with Client and Collection of further Details
A lot of things can happen over a coffee. Similarly, many details may come out over a one to one discussion on the table. It is suggested that, the details gathered by studying the show cause notice be discussed in detail with the client and his views on the allegations made in the show cause notice be sought from him in order to take the case forward.
One should also seek further information by asking questions on the issue viz., date of transaction, what was the input tax credit that is alleged as ineligible, whether invoice was raised properly, whether e-way bill was raised, was there any issue during the said period, whether the applicable taxes were paid on time or with delay…etc. The client may sometimes come up with a new information which can be relevant for the case on hand.
Drafting of Response
The drafting of a reply to a show cause notice is an art. It requires regular practice of reading the law and its daily updates along with references to landmark judgements pronounced by various judicial fora.
A good and tasty food though prepared well, will not be attractive unless it is presented well. Similarly, the presentation of response matters a lot when it comes to responding to a show cause notice.
Further the environment for drafting of response should be calm and quiet without disturbance which will enhance the quality of reply with proper flow of contents.
In addition to the above, the following points need to be covered properly in responding to the notice:
Coverage of Issues
The reply should be prepared by responding to each and every paragraph of the show cause notice. The drafting should cover response to all the issues and allegations made in the notice. If any of the issue/allegation is not addressed, the proper officer may deem it as acceptance of the same and it will have negative impact on the outcome of the adjudication process.
Reference to Provisions of Law
The reply should be crisp and specific to the point and it should not be like beating around the bush. Wherever required, the references of the provisions of law can be quoted and explained in a detailed manner which will convey the clear message of how we have interpreted the provisions.
It has been held in many judgements under the erstwhile law that when the issue involves interpretation, penal provisions cannot be invoked on the tax payer. Whenever there is an interpretational issue, the response should contain the structured method of interpreting each and every word, phrase or line of the section or rule and arrive at a conclusion, giving the meaning as understood by us.
Further, wherever possible, the allegations made in the SCN should also be referred and it should be brought to the notice of the adjudicating authority as to why the conclusion drawn in the show cause notice by way of wrong interpretation cannot be held valid in the eyes of the GST law.
The major contentious issue which is expected to break out will be on classification. The taxpayer would classify certain particular goods or service under a particular HSN Tariff Code / SAC Code. However, the proper officer may have another view on classification of those goods or services. If the rate of taxes of the goods or services in dispute happens to be the same, it may not have much implication.
However, when there is a rate difference, the taxpayer may loose his profits, reserves and surplus too if his classification happens to be at a tariff with lesser rate of tax. Whenever classification issues comes up, please ensure that the Schedule of the Chapter is discussed in detail along with relevant Chapter Notes,references from the decided judicial precedents, references from the customs act, references from the HSN issued by World Custom Organisation also can be quoted in the response.
A clear distinction should be drawn between the tariff followed by the tax payer and the one referred in the SCN.
Whenever the issue pertains to valuation or calculation of tax liability, it should be the endeavour of the notice to give the complete basis and method of arriving at a particular value as per the valuation rules based on which the tax payer has declared the value of taxable supply and calculated the tax liability at appropriate rates.
We should be able to defend the method and the calculation by highlighting what is missed or wrongly considered in the calculation adopted in the Show Cause notice.
The reply should not be cluttered by dumping all the details at one place. The items or details which are referred (Case Laws, Copy of the HSN Tariff Schedule or notes, Third Party Certificates…etc.) or which cannot fit within the response (calculations, widely tabulated information for ITC…etc.) should always be given as annexure. This will help the reader of the response to develop a positive feel and understand the issue in better manner and also refer to the annexures wherever necessary.
Documentation & Submission
The reply to show cause notice shall be printed on the letter head of the noticee along with the annexures on white sheets of size A4 or legal as per the requirement. In total, three sets of the response shall be prepared. One for submission with the Department, second copy for obtaining acknowledgement and the third one as client copy which also will come handy in time of need. The response shall be printed with page numbers on every page including annexures. The papers shall be neatly assembled and tagged properly before submission to the Department.
Authorisation to Appear
Section 116 of the CGST Act, 2017 contains the provisions relating to the appearance before the authorities:
Personal appearance by the tax payer where he or she is an individual / proprietor for examination on oath or affirmation, subject to the other provisions of this section.
Appearance by Authorised Representative
The term “authorised representative” shall mean a person authorised by the person referred above to appear on his behalf, being—
- his relative or regular employee; or
- an advocate who is entitled to practice in any court in India, and who has not been debarred from practicing before any court in India; or
- any Chartered Accountant, a Cost Accountant or a Company Secretary, who holds a certificate of practice and who has not been debarred from practice; or
- a retired officer of the Commercial Tax Department of any State Government or Union territory or of the Board who, during his service under the Government, had worked in a post not below the rank than that of a Group-B Gazetted officer for a period of not less than two years and he shall be entitled to appear after lapse of one year from the date of his retirement or resignation; or
- any person who has been authorised to act as a goods and services tax practitioner on behalf of the concerned registered person.
- A person who has been dismissed or removed from Government service.
- A person who is convicted of an offence connected with any proceedings under this Act, the State Goods and Services Tax Act, the Integrated Goods and Services Tax Act or the Union Territory Goods and Services Tax Act, or under the existing law or under any of the Acts passed by a State Legislature dealing with the imposition of taxes on sale of goods or supply of goods or services or both.
- A person who is found guilty of misconduct by the prescribed authority.
- A person who has been adjudged as an insolvent, for the period during which the insolvency continues.
Any person who has been disqualified under the provisions of the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act shall be deemed to be disqualified under this Act.
It is suggested that the authorised representative shall obtain a Power of attorney on a stamp paper of Rs.100/- which shall be signed by the noticee and the representative who is going to appear on behalf of the tax payer. Advocates will usually execute a Vakalatnama to obtain an authorisation in their name for appearing before the authorities. The original copy of the power of attorney should be submitted to the adjudicating authority before or at the time of personal hearing and an acknowledgment shall be obtained on the photocopy of the same document which shall be preserved as office copy.
Winning the case or loosing the case should be a matter of concern for a tax payer. As a professional, we should be concerned with the professionalism we show in handling the matter. The way in which we prepare our response, the way in which we express the finer points in detail, the way in which we present ourselves before the authorities will have a lasting impression.
Whenever any professional appears before an authority, the authority should be convinced or he should develop a feeling that, this person will do his job perfectly and he is a perfect gentleman. They should be able to understand that the person has got the good grasp on the subject matter and the law and finally, the client should understand our efforts and our conscience should say that we have given our best.
How do I issue a show cause notice in GST?
Show Cause Notice is issued by the ‘Proper Officer’ from GST Authorities.Proper officer is defined u/s 6 of CGST Act, 2017.
What is the meaning of SCN in GST?
The meaning of Show Cause notice is asking the person registered under GST as to why the additional tax, interest and penalty should not be levied.
How do you respond to SCN under GST?
Following points should be considered while drafting Show Cause notice under GST:
2.Reference to provisions of law
4. Classification issues
6.Documentation and Submission
Who can appear before GST Authorities?
2.Appearance by Authorised Representatives