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

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 clear details of suspicious transactions and tax calculations. Court quashed the Notice, allowing the Department to re-issue proceedings in compliance with legal requirements, without imposing costs on the petitioner.

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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 Notice
The 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 Notice
Upon 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.

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