Key Ruling: An Order Cannot Go Beyond the Scope of the Show Cause Notice (SCN)
Case: APN Sales and Marketing v. Union of India
Court: Delhi High Court
Date: August 9, 2024
Facts of the Case
1. Issuance of the Show Cause Notice
On September 26, 2023, M/s APN Sales and Marketing (“Petitioner”) received a Show Cause Notice (SCN). The notice demanded ₹17,43,356 along with applicable interest and penalties. It alleged that the Petitioner had incorrectly availed Input Tax Credit (ITC) because its supplier, Modern Traders, had its GST registration canceled.
2. Enhanced Demand in the Order
Despite the SCN, an Order dated December 29, 2023, raised a higher demand of ₹18,30,522. The enhanced demand exceeded the scope of the allegations made in the SCN, raising concerns about its validity.
Issues Raised
- Scope of the Order:
Can an Order exceed the scope of the allegations outlined in the SCN? - Adherence to Natural Justice:
Was the Order legally sustainable, given the lack of reasoning and failure to address the Petitioner’s submissions?
Court’s Observations
1. Orders Must Adhere to the SCN Scope
The Court highlighted that the SCN did not include allegations of “good-less invoices.” However, the Impugned Order implied that the invoices were fraudulent. This expansion of allegations was deemed invalid as the Order must remain confined to the scope of the SCN.
2. Violation of Natural Justice
The Court found that the Order lacked sufficient reasoning and failed to consider the Petitioner’s submissions. This omission rendered the Order legally unsustainable and contrary to the principles of natural justice.
3. Unexamined Evidence
The Court directed the Petitioner to provide additional documents, including proof of goods receipt. The supplier’s GST registration cancellation raised concerns about the genuineness of the transactions, which required further examination.
4. Appeals and Notification Challenge
The Court observed that the Petitioner could appeal the unreasoned Order. Additionally, the Petitioner’s challenge to a March 31, 2023 Notification under Section 168A of the CGST Act remained unaddressed.
Judgment
The Delhi High Court quashed the Impugned Order, declaring it invalid for exceeding the SCN’s scope and failing to provide sufficient reasoning. However, the Court directed the Petitioner to submit evidence substantiating the genuineness of the disputed transactions.
Significance of the Ruling
1. Limitation on Adjudicating Authorities
This ruling reinforces the principle that authorities cannot go beyond the scope of the SCN. Orders must align strictly with the allegations initially raised.
2. Safeguarding Natural Justice
The judgment upholds the taxpayers’ right to natural justice, ensuring they are given fair treatment and an opportunity to present their case.
3. Clarity in Tax Proceedings
The ruling ensures that adjudicating authorities provide detailed reasoning and examine all relevant evidence before passing an order.
