HC holds 30 days to be the reasonable period for filing reply to SCN

This Tax Alert summarizes a recent ruling of the Madhya Pradesh High                court(HC)[1] . The issue revolved around the reasonable time to be provided for responding to a show cause notice (SCN).

In this case, the Revenue had issued SCN to the taxpayer on 3 September 2022 and thereafter, passed demand order on 12 September 2022 i.e., within 9 days of the issuance of SCN. Taxpayer challenged the SCN as well as the order before the HC.

Taxpayer contended that reasonable opportunity of being heard was denied as the impugned demand order was passed within 9 days of the issuance of SCN. Further, the SCN was not self-contained inasmuch as failing to inform about material of adverse nature which constituted the foundation of SCN.

HC observed that section 73(1) of the Central Goods and Services Tax Act, 2017 (CGST Act) gives opportunity to the noticee to respond as to why he should not pay the amount specified in the notice with interest and penalty, if any.

Though no time period is stipulated in Section 73 for the noticee to respond but it is obvious that the statute contemplates affording of reasonable opportunity to reply to SCN. In the considered opinion of HC, reasonable period for filing reply to SCN should not be less than 15 days, if not more.

However, since the time period for paying tax, interest and penalty specified in SCN is statutorily prescribed to be 30 days in Section 73(8), the reasonable period within which SCN is to be responded should be 30 days. The time gap of 9 days in the present case falls desperately short of satisfying the concept of reasonable opportunity of being heard.

Further, HC observed that any SCN can withstand the test of judicial scrutiny only when the same contains enough and adequate material which motivated the Authority to take a prima facie view against the noticee. Thus, the SCN appears to be lacking in material particular.

Accordingly, HC set aside the SCN and the impugned demand order with liberty to the Revenue to issue fresh legal and valid SCN.  

Comments

The judgement is likely to benefit the taxpayers where adverse demand orders are passed by the revenue authorities without providing a reasonable time to respond to the SCN. 

The ruling re-emphasizes the principle that notices are not sustainable if they are bereft of facts and material and thus, become vulnerable to judicial review.

[1]  TS-595-HC(MP)-2023-GST