Responding to a show cause notice is critical in any dispute. When a department issues such a notice, it is essential for the taxpayer to take it seriously and address all the points of contention comprehensively. Further proceedings with regards to the same depends on your reply to the notice. In this article, we’ll guide you how to draft a reply to show cause notice properly.
IMPORTANT AND FREQUENTLY RAISED SHOW CAUSE NOTICE
Show Cause Notice Under Section 73 of GST Act – Bonafide Cases
If the proper officer finds that any tax has not been paid, has been underpaid, has been refunded by mistake, or that input tax credit has been wrongly claimed or used ( excluding cases of fraud, intentional misstatement, or suppression of facts ), they must issue a notice to the person responsible 3 months in prior to the issuance of order. This notice will enquire the person to explain why they should not pay the specified amount, along with any applicable interest and penalties.
Show Cause Notice Under Section 74 of GST Act – Malafide Cases
If the proper officer believes that any tax has not been paid, has been underpaid, has been refunded by mistake, or that input tax credit has been wrongly claimed or used due to fraud, intentional misstatement, or suppression of facts to evade tax, they will issue a notice to the responsible person at least 6 months in prior to the issuance of order. This notice will ask the person to explain why they should not pay the specified amount, along with any applicable interest and a penalty equal to the tax amount stated in the notice.
Show Cause Notice Under Section 76 of GST Act
Regardless of any orders or directions from any Appellate Authority, Appellate Tribunal, court, or any other laws, anyone who has collected an amount as tax from another person but has not paid that amount to the Government must immediately pay it to the Government, regardless of whether the related supplies are taxable or not.
If this amount has not been paid, the proper officer can issue a notice to the person responsible, asking them to explain why they should not pay the specified amount to the Government and why a penalty equal to that amount should not be imposed on them.
OTHER FREQUENT REASONS FOR GST NOTICES
MODE OF SENDING GST NOTICES
The Service of GST notices, order..etc is mentioned under Section 169 of the GST Act. The following can be used by the officers :
However, there have been numerous instances where petitioners argued that they were unaware of the GST proceedings because orders and notices were uploaded on the GST portal instead of being served in person. In such cases, the court has imposed conditions on the petitioners, such as requiring a deposit of 10% of the disputed amount.
In many cases, the court has stated that as a registered person, it is the duty of the taxpayer to check the portal on a daily basis.
THINGS TO DO WHEN YOU RECEIVE AN SCN
Don’t Panic, Read the Notice
When you receive a notice from the GST department or any department, don’t panic. Those notices are issued just to hear your side on the disputed demands or the allegations stated. Read the notice and try to understand the purpose of the notice.
Understand the Notice, mentioned Provisions and Demand
The next step you should do is to understand the notice, mentioned provisions and the demand. Never blindly trust words of the notice. Understand the notice, cross check the same with facts and the legal provisions with the help of a professional. If you have such legal knowledge, then do the same by yourself.
Professional Advice
It is essential to take professional advice even if you did understand the provisions and the notice. The professionals are experts in the field and they might have already encountered the same before. Thus, such expertise will help you.
Limitation Period
The very important factor which you should not miss before replying to the Show Cause Notice is the ‘Limitation Period’. The reply should be filed within the time-period specified or as the statute demands.
Additionally, it is important to verify whether the order issued to you falls within the limitation period specified in the GST Act. For instance, a notice under Section 74 of the GST Act must be issued at least 6 months before the issuance of the final order. Ensure that the subsequent order from the GST department adheres to this limitation period; otherwise, you can challenge the validity of the order in court.
MANDATORY CONTENTS IN YOUR REPLY
Demand admitted/disputed
In your reply, clearly distinguish between the admitted and disputed demands. The Show Cause Notice ( SCN ) issued by the GST department will outline these demands. For admitted demands, no further clarification or submission is necessary. However, for disputed demands, you must provide a detailed explanation, including the reasons for your dispute, supported by relevant documents and submissions.
Facts
The next important part in the reply is the Facts. The facts include who you are, what business you’re engaged with, whether you have filed the returns properly or not..etc. State the factual things happened till the receival of the notice.
Submission Including Legal Precedents
The submissions you make are crucial. If you are disputing multiple demands or defects, address each one separately in your reply, providing a thorough explanation for each. Additionally, support your arguments with relevant legal precedents, if available. Citing such precedents can significantly strengthen your position before the department.
Each demand disputed shall be explained with necessary facts, documents and legal precedents in paragraphs.
Supporting Documents
Always substantiate your arguments with supporting documents. Evidence is crucial not only in court but also when dealing with departmental matters. Therefore, always provide relevant evidence to support any new submissions or to clarify disputed points.
Third Party Documents including CA Certificate, Affidavits supporting your reply
In addition to the documents in your possession, include third-party documents such as certificates from Chartered Accountants or affidavits to substantiate your reply. However, ensure that these documents are genuine and truthful. Fabricating evidence solely to comply with instructions is unethical and should be avoided. Submit such evidence only if it is bona fide, accurate and relevant.
Copies of Submissions Already Submitted to GST Dept
For added security, consider resubmitting documents that have already been filed with the department. Despite previous submissions, there are instances where the GST department may overlook these documents, leading to your reply being deemed insufficient. Therefore, it’s advisable to always include copies of previously submitted documents with your response.
Copies Submitted to Other Dept like MCA, Income Tax Etc.
In addition to relevant documents submitted to the GST department, taxpayers must also include copies of documents submitted to other departments such as the Ministry of Corporate Affairs ( MCA ) and Income Tax. These may include income tax returns, MCA filings, and other pertinent documents.
Highlight Errors in SCN (if any)
In addition to presenting facts and submissions, it’s important to identify any errors in the notice. GST officers, like everyone else, can make mistakes, so if you spot an error in the Show Cause Notice ( SCN ), be sure to highlight it in your reply.
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