2023 (12) TMI 994 - HC - GST

Procedural Defect in Tax Notice Leads to Quashing of Section 73 Show Cause Notice Due to Insufficient Substantive Evidence

M/s. Glaxosmithkline Consumer Health Care Limited Versus The Deputy Commissioner State Tax

HC found the Show Cause Notice under Section 73 of CGST Act defective due to lack of substantial material and vagueness. The Notice failed to provide ... Validity of SCN issued u/s 73 of the CGST Act, 2017 - invocation of the extraordinary jurisdiction of this Court contending that the Show Cause Notice is vague - HELD THAT:- A plain reading of the Show Cause Notice itself would give a clear indication that the Show Cause Notice lacks necessary information, source and the materials on the basis of which the authority concerned found the necessity for issuance of the Show Cause Notice. The Show Cause Notice, from the plain reading, seems to be one which has been issued in a mechanical manner without application of mind and without any cogent sufficient materials available or even the basic scrutiny or the investigation which were required for the authority concerned in reaching to the conclusion that certain transactions which have been carried on by the respondents appear to have been the transactions where there is evasion of tax or where there is suppression of material facts or atleast there was reasonable suspicion on the transactions so made by the petitioner. This Court also finds sufficient force in the submissions made by the learned counsel for the petitioner when they say that since the proceeding has been initiated under Section 73 of the Act, the very provision of Section 73 of the Act starts with the words where it appears to be for the authority concerned which by itself means that at the time where the authority appears to found it necessary for initiating the proceedings, there ought to had been some material, information or even sort of a complaint available with them as regards the suspicious transactions or the alleged evasion of tax made by the petitioner. Ex. P1 – Show Cause Notice, dated 29.09.2023 would not be sustainable as they are bereft of facts and materials and the same deserves to be and is accordingly set aside/quashed - Petition allowed. Issues involved:The challenge to a Show Cause Notice issued under Section 73 of the CGST Act, 2017 on grounds of vagueness, lack of substantial material, exceeding the period of limitation, and absence of necessary information and materials.Issue 1: Vagueness and lack of substantial material in Show Cause NoticeThe petitioner contended that the Show Cause Notice lacked clarity and did not provide substantial material for the petitioner to respond adequately. It was argued that the Notice did not specify which transactions were under scrutiny or why they were considered suspicious. Additionally, the petitioner highlighted that the rate of tax mentioned in the Notice did not align with the actual tax rates applicable to their products. The petitioner also raised concerns about the Notice being issued beyond the prescribed period of limitation and any granted extensions.Issue 2: Lack of necessary information and materials in Show Cause NoticeUpon examination of the Show Cause Notice, the Court observed that it appeared to be issued mechanically without sufficient information or materials to support the allegations of tax evasion or suppression of facts. The Notice was deemed to lack the necessary scrutiny and investigation required before initiating such proceedings. The Court agreed with the petitioner's argument that Section 73 of the Act necessitates the presence of material or information indicating suspicious transactions or tax evasion before initiating proceedings.Judgement:The Court found merit in the petitioner's contentions and held that the Show Cause Notice was unsustainable due to its deficiency in facts and materials. Consequently, the Notice was set aside/quashed. The Court emphasized that the Department retained the right to initiate proceedings in accordance with the law. The Writ Petition was allowed in favor of the petitioner, with no costs imposed. Any pending miscellaneous petitions were directed to be closed as a result of the judgment.