GST | Show Cause Notice A Vital Checkpoint, Delineates Boundaries Within Which Any Authority Can Operate: Allahabad High Court

The Allahabad High Court has held that authorities cannot travel beyond the show cause notice to impose penalty on the assesee.

The bench comprising Justice Shekhar B. Saraf held,

“At its core, a show cause notice represents the initial step in an administrative or legal process, wherein an individual or entity is formally apprised of allegations or discrepancies attributed to them. This notice serves as a mechanism to afford the recipient an opportunity to present their side of the story, provide clarifications, or rectify any perceived errors before any punitive action is taken.”

The Court observed that the issuance of show cause notice is acknowledgment of the principle of audi alteram partem ensuring due process and fairness in proceedings.

Upon interception of goods, petitioner was issued a show cause notice on grounds that the destination to which the vehicle was travelling was not mentioned in the invoice. However, the appellate authority upheld the penalty order on grounds that the e-way bill accompanying the goods had expired. Petitioner challenged both, the penalty order as well as the order of the first appellate authority.

The Court placed reliance on the decisions of the Supreme Court in Commissioner of Customs, Mumbai v. Toyo Engineering Ltd., Commissioner of Central Excise, Bhubaneshwar v. Champdany Industries Ltd and Commissioner of Central Excise, Chandigarh v. Shital International wherein it has been held that the authorities cannot go beyond the scope of show cause notice issued by them.

The Court observed that a show cause notice upholds the rule of law and prevents arbitrary exercise of power on part of the authorities.

“Any action taken by an authority beyond the scope defined in the notice risks transgressing the boundaries of legality and procedural fairness. Such overreach not only undermines the legitimacy of the authority but also compromises the rights of the individuals or entities involved, potentially leading to legal challenges and erosion of public trust.”

The Court observed that the requirement of outlining all allegations in the show cause notice fosters transparency and accountability as it enables the assesee to submit an informed reply. In going beyond the realm of the show cause notice, the authority violates the principle of specificity and deprives the assesee an opportunity to rebut the charges levelled against him. The Court further relied on the decisions of the Allahabad High Court in Ramlala v. State of U.P and Ors. and Jitendra Kumar v. State of U.P. and Anr. to hold that while imposing penalty, authorities had travelled beyond the scope of the show cause notice. Since the petitioner did not have the opportunity to reply to the charges leading to imposition of penalty, it was a violation of principles of natural justice.

Accordingly, the penalty order and subsequent order of the first appellate authority were quashed.

Case Title: M/S Associated Switch Gears and Projects Ltd. Through Its Director Jawahar Lal Jain vs. State of U.P., Through Secretary Institutional Finance U.P. Govt. And 2 Others 2024 LiveLaw (AB) 57 [WRIT TAX No. – 276 0f 2020]

Case Citation: 2024 LiveLaw (AB) 57

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