show cause notice

A notice may be referred to as a show cause notice under GST, demand notice, or regulatory notice depending on the reason or degree of the default or action requested from the taxpayer.

GST show-cause notices are notices issued by GST authorities. These are sent to taxpayers as a notification or warning about any identified defaults, particularly noncompliance with GST laws. Other times, notices may be issued to provide more information. 

For example, tax authorities will issue notices if any shipping or services are provided instead of tax-exempt or if taxpayers act suspiciously. They take action based on information obtained while verifying taxpayers' GST returns and information obtained from other government departments or third parties.

What is a GST Notice?

"Notice" is used to draw someone's attention in the sense of "observe" or "warning.". On the other hand, "Notification" refers to an "announcement."  We must refer to the Notifications whenever our clients receive notice. 

GST Notices are communications from the GST Authorities. Depending on the purpose or action required of the taxpayer, a notice issued in this manner may be referred to as a Show-cause notice (SCN), Scrutiny Notice, or Demand Notice.

GST notices are communications from the GST authorities. These are sent to taxpayers to remind or caution them of any defaults discovered, specifically for failing to comply with GST laws. In other cases, notices may be issued solely to obtain additional information from the taxpayer. 

However, there are a few cases where tax authorities issue notices when any movement of goods or provision of services occurs without coming under the tax lens or when taxpayers act suspiciously. 

Instead, GST authorities make decisions based on information gathered while verifying taxpayers' GST returns and information obtained from another government department or third parties.

Depending on the purpose or density of the default or action required from the taxpayer, a notice may be referred to as a show cause notice (SCN), a scrutiny notice, or a demand notice.

A taxpayer must act or respond to notices within the time frame specified in the notice. Failure to do so may land the taxpayer in hot water. In such a case, the authorities may track inspection or consider it a willful default and charge a penalty.

Read more related articles:

Penalties under GST | Precautionary List to Avoid Penalties to a Maximum Extent

Show Cause Notice Concept

The concept of cause notice existed in the previous Central indirect tax laws. As a result, provisions have been made under the relevant Act for issuing a show cause notice for the recovery of demand. (For example, Section 11 of the Central Excise Act, Section 73 of the Service Tax Act, the Customs Act, and so on.) 

As a result, it is nothing new for those involved in such acts. However, in terms of the State VAT Act, it is unique. Of course, SCN is served on the dealer before making ex-party assessment orders and providing an opportunity to be heard before making any decision or order under the VAT Act. 

Show cause notice (SCN) is significant in adjudication proceedings for mandatory compliance with the principle of natural justice.

Different Show cause notices under GST

A show-cause notice is a government document that allows an individual to explain why a specific course of action should not be taken against them in the context of GST. 

A person should be declared guilty with being given the opportunity to be heard; this is an essential part of the procedures of the tax system. It can be provided for various reasons, such as registration cancellation or denial of a refund claim.

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As per Sections

1. Show Cause Notice - Under Section 73

Section 73 pertains to identifying tax that is not paid, underpaid, or erroneously returned or input credit claims that are mistakenly acquired or used for any reason other than fraud, purposeful misstatement, or suppression of facts.

The Proper Officer must announce the individual mentioned above, requesting that they show cause why they are unable to pay the sum listed in the notice, plus interest payable following Section 50 and an imposed penalty following the Act's provisions.

2. Show Cause Notice - Under Section 74

The Proper Officer shall issue a notice to the said person requiring them to show cause why they should not be questioned to pay the amount stipulated, plus interest due under Section 50, as well as 100% of the unpaid tax, short paid, inaccurately refunded incorrectly acquired or employed due to fraud or any deliberate misstatement or rejection of facts solely to eliminate the tax.

3. Show Cause Notice - Under Section 76

Section 76 deals with taxes earned but not paid to the government. Under the GST Acts, any amount collected "as tax" must be refunded to the government immediately, regardless of whether the transactions were taxable.

However, suppose any amount owed to the government needs to be paid. In that case, the Proper Officer may issue a GST show-cause notice to the person obligated to pay the amount, requiring them to justify why the specified amount was not paid. They must also demonstrate why a penalty of the same amount should not be imposed on them under the provisions of this Section.

Most common causes of GST Notices

  1. Mismatch in reported details between GSTR-1 and GSTR-3B: examination notice
  2. Differences between GSTR-2A and GSTR-3B claims for input tax credits GSTR-2A
  3. Delay in filing GSTR-1 and GSTR-3B for more than six months in a row
  4. Inconsistency in GSTR-1 and e-way bill portal declarations
  5. Prices will not be reduced due to lower GST rates, which will take effect on the date specified by CBIC.
    As a result, the taxpayer (seller) defaults by failing to pass on the benefit of lower prices (or GST rates) to the ultimate consumers. Profiteering is the term for this practice. The GST authorities have implemented several measures to address the defaults in GST.
  6. Nonpayment of GST or under payment of GST, with or without intent to defraud: show cause notice (SCN)
  7. GST Refund is made incorrectly, with or without intent to defraud: show cause notice (SCN)
  8. The input tax credit is wrongly claimed or utilised.
  9. Inconsistencies between GSTR-1 export reporting and ICEGATE information. For example, a shipping or export bill is lodged on ICEGATE but not reported in GSTR-1. For providing any information related to records to be kept by a taxpayer Conducting an audit by tax authorities.
  10. An information return was required to be delivered to tax authorities but must be submitted within the specified time limit.
  11. The most common reasons for receiving GST notices are delays on the part of taxpayers, such as not registering under GST law, non-filing or any delay in filing of GST returns, nonpayment of GST or underpayment of GST, excess Input tax credit claims etc.

Read more related articles:

Wrongly Claiming of Input Tax Credit | Conditions and Eligibility

How to track GST Refund status | GST Refund Process

Respond to GST Notices and the Results of Failure to Respond

Any response to GST notices must be submitted online through the GST portal. A taxpayer may use the digital signature or e-signature of the taxpayer's authorised personnel or himself. Where the payment of tax and interest is required, do so in the appropriate form and manner. 

Following such payment, the required reply letter must be submitted to the tax authority that issued the notice. If the taxpayer receiving the GST notices does not respond within the time limit specified, he will be subject to penalties and further proceedings as each case requires under GST law.

A taxpayer may delegate the investigation of GST notices to another representative or a practising chartered accountant. He can do so by issuing a GST Letter of Authorization. The GST authorisation letter grants the authority to respond to GST notices and take action on behalf of another representative.

Read more related articles:

GST Refund Claim In Case of Inverted Duty Structure under GST

Conclusion

In GST, a show-cause notice is a court order requiring a party to appear in court and explain why a specific course of action should not be pursued against them. If the party cannot persuade the court or fails to appear, this course of action is taken.

The practice of hearing writ petitions challenging the constitutionality of show cause notices, prolonging investigations and delaying the discovery of facts with the parties' participation has been condemned by the Supreme Court and high courts in several cases.

Writ petitioners will not be heard for a simple request and, as a matter of routine, unless the High Court is satisfied that the show cause notice was entirely honest in the eyes of the law due to the authority's complete lack of jurisdiction even to investigate the fact. 

In these circumstances, writ petitioners must respond to the GST show cause notice and present all of the positions stated in the writ petition to the adjudicating authority.

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Sameep Mohite

About the author

Sameep Mohite is a computer engineer with a passion for GST. He has written many articles on GST, Finance, and Technology topics.

He is a GST expert who writes for GSTHero. He wants to ensure you know what you're paying for and why.

He enjoys explaining complex technical terms in primary, easy-to-understand language.

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