Why Most GST SCNs Are Legally Weak: Common Drafting Errors with Case Laws

A Show Cause Notice (SCN) is the foundation of any GST demand. An SCN must state the charge, facts, legal provision, and basis of demand. If the SCN fails in drafting, the entire proceeding fails. Many GST disputes collapse not because tax is not payable, but because the SCN does not meet legal requirements.

Courts have repeatedly held that an SCN must satisfy principles of natural justice and statutory requirements. It must inform the taxpayer of the exact allegation and the basis of demand. In practice, a large number of GST SCNs fail this test. This article explains why most GST SCNs are legally weak, identifies common drafting errors and case laws.

SCN Lacks Essential Details

An SCN must state all essential details such as allegation, provision invoked, and specific demand. An SCN that fails to do so cannot allow the taxpayer to respond effectively.

In Ganesh Sales Corporation vs Union of India (2024 TAXSCAN (HC)568), the Delhi High Court set aside an order cancelling GST registration because the SCN lacked crucial details such as the name of the officer and clear grounds for cancellation. The court directed issuance of a proper SCN for compliance with law and to provide the petitioner a personal hearing opportunity.

An SCN that lacks basic information such as the officer’s credentials, relevant facts, and specific provisions violates natural justice.

SCN gives vague reason like “Others”

A vague SCN fails because it does not disclose the charge.

The Delhi High Court in DP Abhushan Vs Commissioner, Cgst & Ors (2024 TAXSCAN (HC)743) restored GST registration where the SCN did not mention the reason for cancellation and used vague grounds.

SCN has no computation or no quantum breakup

An SCN must disclose the working and the demand basis. Many SCNs fail because they do not state the quantum or give a computation sheet.

The Delhi High Court in Shubh Ball Bearings Company vs The Assistant Commissioner (2024TAXSCAN (HC) 446) set aside retrospective cancellation where the SCN did not contain details or quantum of wrongful ITC or refund, and treated the SCN as defective.

SCN Without Personal Hearing or Portal Access

Proper communication of SCN includes personal hearing details and access to the GST portal. If the taxpayer is unable to access the SCN or personal hearing is denied, the SCN is weak.

In Matcon Impex vs The State Tax Officer (2024 TAXSCAN (HC) 1908), the Madras High Court set aside an order passed without granting personal hearing due to a printing error in the SCN reply form. The petitioner had selected “Yes” for personal hearing but the printed form showed “No”, depriving the taxpayer of the hearing.

Failure to include correct hearing details in the SCN violates principles of natural justice.

SCN Invalid for Portal or Notice Delivery Errors

An SCN must reach the taxpayer in a mode that allows response. Errors in uploading or portal placement weaken the notice.

In Polytec Industries vs The Commissioner (2024 TAXSCAN (HC) 567), the Delhi High Court directed re-adjudication because the petitioner could not reply to the SCN due to lack of access to the GST portal. The court ordered the officer to reissue the SCN and grant opportunity to reply.

An SCN that fails to allow the taxpayer to reply is legally flawed.

SCN Fails to Allege Fraud or Suppression for Section 74

SCNs under Section 74 require clear allegations of fraud, wilful misstatement, or suppression of facts. Drafting errors in this part render the SCN weak.

The Allahabad High Court in Hcl Infotech Ltd vs Commissioner (2024 TAXSCAN (HC) 2157) held that an SCN must specify allegations of fraud, wilful misstatement, or suppression of facts if Section 74 is invoked. Section 73 deals with non-fraudulent errors, while Section 74 applies only when intent to evade tax exists.

If an SCN invokes Section 74 without such allegations, it is legally weak.

Final order travels beyond the SCN

If the order confirms demand on a ground not proposed in the SCN, the order fails. The authority must issue a fresh SCN if it changes the basis.

The Madras High Court in Vela Agencies vs Assistant Commissioner ST FAC BhavaniAssessment Circle (2024 TAXSCAN (HC) 945) set aside a GST demand order issued on a basis different from the SCN and directed fresh proceedings.

SCN Without Opportunity to Respond

Tax law demands that the taxpayer be given a reasonable opportunity to reply to an SCN.

In Anhad Impex Through Its Partner Vs Assistant Commissioner (2024TAXSCAN (HC) 442), the Delhi High Court directed re-adjudication of SCN proceedings because the taxpayer failed to respond due to not receiving the SCN through the GST portal.

An SCN that does not allow a proper response is legally weak.

SCN and Pre-Consultation Errors

Procedure before issuing an SCN sometimes must include pre-notice consultation under Rule 142(1A). Omission of such steps is a drafting defect.

Where mandatory pre-consultation is bypassed without explanation, it weakens the proceedings. While amendments altered wording in Rule 142(1A), the principle that the taxpayer should be informed before severe action remains.

Proper procedural drafting is essential for SCN validity.

How CAs Can Spot Weak SCNs

A Chartered Accountant must review an SCN on first reading for these legal defects:

• Lack of essential allegations or details
• Absence of personal hearing or portal access
• Misapplication of Section 73 vs Section 74
• Failure to allege fraud or suppression where Section 74 is invoked
• Errors in service or delivery mode
• Lack of a reasonable opportunity to reply

Early identification of such defects allows strong legal challenge and prevents prolonged litigation.

Conclusion

Most GST SCNs fail due to drafting defects that violate statutory requirements and principles of natural justice. SCNs that lack proper details, hearing opportunity, correct section invocation, or portal access are legally weak. Courts and high tribunals have consistently set aside or remanded such SCNs when fundamental errors are found.

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