A Show Cause Notice (SCN) is a formal notice issued by the tax authorities under the Goods and Services Tax (GST) in India, to a taxpayer, requiring them to explain or justify a particular action or inaction that is in violation of the GST laws. The purpose of a Show Cause Notice is to give an opportunity to the taxpayer to explain their actions, and to provide evidence or arguments that show that the violation was not intentional or that the taxpayer was not at fault.

In 2022, the government issued around 50,000 show-cause notices under GST. The businesses have been ordered to provide cause for discrepancies within 15–30 days after conducting GST audits for the fiscal years 2017–18 and 2018–19 (also, part of the fiscal years 2019–20 and 2020–21). More than one lakh GSTINs are now being examined.

This suggests that the government is taking action against non-compliance and it is high time that businesses start taking GST litigation seriously! Here, in this article, we will discuss all about the GST notices in detail.

What is Show Cause Notice Under GST?

A show cause notice is a formal written request issued by a government regulatory body to an individual or business, asking them to provide a satisfactory explanation or justification for a certain action or behavior. In the context of Indirect Taxation in India, a show cause notice under GST may be issued by the GST authorities to a business or individual for various reasons, such as non-compliance with GST laws and regulations, evasion of tax, or other suspected offenses.

The purpose of a show cause notice under GST is to give the recipient an opportunity to explain their actions or provide any relevant information or documents that may support their case.

The recipient is required to respond to the notice within the specified time frame, which is usually 30 days. If the recipient fails to respond or provide a satisfactory explanation, the GST authorities may proceed to take further action, such as imposing a penalty or initiating legal proceedings.

What does a Show Cause Notice Contain?

A show cause notice under GST typically includes the following information:

1. Show Cause Notice Number and Date of Issuance
2. The name and address of the recipient
3. The GST registration number of the recipient
4. The nature of the alleged offense or violation
5. The provisions of the GST laws that the recipient is alleged to have violated
6. The deadline for the recipient to respond to the notice
7. Consequences for Not Replying to the SCN

If you have received a show cause notice under GST, it is advisable to seek legal advice and assistance in preparing a response. An experienced tax lawyer or GST expert can help you understand the allegations against you and provide guidance on how to best defend your case.

Why is an SCN issued?

There are several grounds on which a show cause notice under GST may be issued. Some common examples include:

• Non-compliance with the GST laws: SCN may be issued if the taxpayer is found to be non-compliant with the GST laws, such as failing to file returns, not paying taxes, or not maintaining proper records.
• Evasion of taxes: SCN may be issued if the GST authorities suspect that the taxpayer is attempting to evade taxes by misrepresenting the nature of their supplies or by claiming ineligible credits or exemptions.
• Fraud: SCN may be issued if the GST authorities suspect that the taxpayer is involved in fraudulent activities, such as making false or misleading statements or using fake invoices.
• Misuse of input tax credit: A show cause notice under GST may be issued if the authorities suspect that the taxpayer is claiming input tax credit on supplies that are not eligible for ITC, or if the taxpayer is claiming ITC on supplies that were not received or excess ITC Claim.
• Supplying goods or services without proper documentation: SCN may be issued if the GST authorities find that the taxpayer is supplying goods or services without proper documentation, such as invoices or delivery challans.

What are some common reasons for the issuance of a Show Cause Notice?

1. Delay in filing GSTR-1 and GSTR-3B consecutively for more than 6 months
2. Mismatch in details reported between GSTR-1 and GSTR-3B
3. Mismatch declaration in GSTR-1 and E-way bill portal
4. Having failed to obtain GST registration even when applicable
5. Mismatch – ITC claim found between GSTR-3B & GSTR-2A/2B
6. Non-payment/ Short-payment of GST
7. Wrongly availed ITC/ Refund wrongly claimed
8. Anti-profiteering cases
9. Non-furnishing of information return, within the given time limit
10. Non-Compliance with E-invoicing
11. E-invoice and E-way bill amount does not tally

What if you fail to reply correctly to a Show Cause Notice?

It is important for businesses and individuals to take show cause notices under GST seriously and respond to them promptly and appropriately. Ignoring or failing to respond to a show cause notice can result in serious consequences, including financial penalties, legal action, and damage to the business’s reputation.

The GST authorities have wide-ranging powers to issue SCNs and to take further action if the taxpayer is unable to provide a satisfactory explanation. Some common actions that may be taken include:

• Imposing a penalty: The GST authorities may impose a penalty on the taxpayer if they are found to be non-compliant with the GST laws or if they are found to have evaded taxes.
• Initiating legal proceedings: The GST authorities may initiate legal proceedings against the taxpayer if they are found to be involved in fraudulent activities or if they fail to provide a satisfactory explanation in response to the SCN.
• Disqualifying the taxpayer from availing ITCs: The GST authorities may disqualify the taxpayer from availing ITCs if they are found to be misusing ITCs or if they fail to provide a satisfactory explanation in response to the SCN.

It is important for taxpayers to take SCNs seriously and to respond to them promptly and accurately. Failing to do so may result in further action being taken by the GST authorities. If a taxpayer is unsure of how to respond to an SCN, they should seek the assistance of a tax professional or a GST expert.

How to handle a Show Cause Notice Under GST:

Here are 6 steps you can take if you receive a show-cause notice under GST:

• Read the notice carefully and understand the reasons stated for the issuance of the notice.
• Determine whether the allegations made in the notice are correct or not. If you believe that the allegations are incorrect, you should prepare a detailed response explaining why.
• Gather all relevant documents and records that support your response to the show cause notice. This may include invoices, receipts, bank statements, and any other supporting evidence.
• Prepare a written response to the show cause notice, addressing each of the allegations made in the notice. Make sure to provide a clear and concise explanation for each point, and provide supporting evidence wherever necessary.
• Submit your response to the GST authorities within the time specified in the notice. You may also want to consider seeking the assistance of a professional tax advisor or lawyer to help you prepare and submit your response.
• If you are not satisfied with the outcome of the show cause notice, you may have grounds to appeal against the decision to a higher authority or to the courts. It is advisable to seek legal advice before pursuing this option.

It is important to note that failure to respond to a show cause notice or to comply with the terms of the notice can result in penalties, fines, and other consequences under GST laws. Therefore, it is important to take the show cause notice seriously and to seek professional advice if necessary.

What is the procedure for issuing a Show Cause Notice under GST?

The procedure for issuing a Show Cause Notice under GST is as follows:

1. The tax authorities conduct an investigation or departmental audit to determine whether a taxpayer has violated any GST laws or evaded taxes.
2. If the tax authorities find evidence of non-compliance or evasion, they may issue a Show Cause Notice to the taxpayer.
3. The Show Cause Notice can be sent to the taxpayer via e-mail or on the official portal. It can also be sent via registered post or delivered a physical copy.
4. The Show Cause Notice includes the details of the alleged violation, the provision of the GST Act or the rules and regulations that have been violated, and the action that the tax authorities propose to take against the taxpayer.
5. The taxpayer is given a specified period of time, usually 15-30 days, to respond to the Show Cause Notice and provide an explanation for the alleged violation.
6. The taxpayer can either accept the allegations and offer to pay the taxes and penalties as per the Show Cause Notice, or contest the allegations and provide an explanation for their actions.
7. The tax authorities consider the response of the taxpayer and decide whether to accept the explanation and close the case or to proceed with the proposed action.

Conclusion

It is important for taxpayers to comply with GST laws and respond to Show Cause Notices in a timely and satisfactory manner to avoid penalties and other sanctions. We hope this article has provided a useful overview of Show Cause Notices under GST in India. If you have any further questions, please don’t hesitate to ask: support@irisgst.com

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IRIS LMS is a Litigation Management Solution (LMS) is a cloud-based litigation management software with Artificial Intelligence, a proactive alert mechanism, extensive reporting and an analytics dashboard for enterprises.

LMS is here to assist you in facing GST departmental audits and efficiently manage Litigation under GST. Further, Integration through API with GSTN Portal is under request with GSTN to enable better tracking.

What can you do with IRIS LMS?

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5. Alerts: For various Due Dates for Pending Replies, Appeals, Personal Hearings, Written Submissions