From the desk of one of the best GST Consultants in Ahmedabad on understanding show cause notice better, learn to prepare your defense.
The GST authorities issue a Show Cause Notice (SCN) on taxable entities to seek an explanation as to why a particular action should not be taken against them. With an increased sense of vigilance, the authorities are always on the lookout for finding any irregularity. Once they find or even suspect an error, misinformation, or wrongdoing, they send out a Show Cause Notice to the entity seeking a reason, explanation, or more information related to the subject.
A GST SCN can be issued on several grounds depending on the violations detected by the GST authorities. Following are some common reasons:
- Non-compliance with the GST laws
- Evasion of taxes
- Misuse of input tax credit
- Supplying goods or services without proper documentation
There is absolutely no need to panic if you or a firm that you represent receives a Show Cause Notice. The basic purpose of a notice is to make the entity in question aware of the situation and thereby provide a platform to respond in the best possible manner. The Notice should always be approached with an open mind as it is an opportunity to present your case with well-directed information. Your response will be taken into account before any action is initiated. At the same time, such Notices should not be treated lightly. This article covers what a GST Show Cause Notice is and how best to respond to it.
What is a Show Cause Notice Under GST?
A Show Cause Notice under GST is a culmination of any inquiry, assessment, audit, or investigation of an individual or entity where the department finds any short payment of tax, availing wrong or excess credit, or any refund is given erroneously. The Notice outlines the nature and the details of the wrongdoing along with its implications, including financial penalties and interests, if applicable. The entity is also asked to give detailed reasons backed by evidence to counter the allegations if it does not agree with them.
The GST authorities must prove their case in the Show Cause Notice by listing all the reasons and breaches and providing detailed evidence. Therefore, the allegations made in the Notice need to be very specific. They cannot be vague or left to misunderstandings. Also, the SCN should be a prima facie opinion and should not be in the form of a final opinion or conclusion. Under GST, it is mandatory to issue SCN in form DRC 01, and it has to be done electronically on the portal.
What Are the Most Common Reasons for GST Show Cause Notices?
The ambit of GST laws is quite large, and many rules and regulations must be complied with. Therefore, non-compliance with the same can attract an SCN from the authorities. However, through our vast experience in handling GST Show Cause Notices, we have been able to compile the ten most common reasons for GST SCN:
- A scrutiny notice was issued because a mismatch was found in the details reported bin GSTR-1 and GSTR-3B
- Differences found in details of Input Tax Credit (ITC) claims made in GSTR-3B as compared to GSTR-2A
- Inconsistency found in the declaration details found in GSTR-1 and e-way bill portal
- There has been a delay in the filing of GSTR-1 and GSTR-3B consecutively for over six months
- Wrongly availing or utilizing Input Tax Credit (ITC)
- Indulgence in profiteering by non-reduction of prices as per revised GST rates with effect from the notification date by CBIC
- Inconsistency found in reporting of exports in GSTR-1 compared to details available on ICEGATE
- Failure to obtain GST registration wherever a business is liable to do so
- Not providing the right set of information required by authorities within the stipulated time limit
- Incorrect GST Refund with or without an intent to defraud
What Does GST Show Cause Notice Contain?
Any GST Show Cause Notice would generally include the following information:
- The SCN Number and date of issue
- Name and address of the recipient
- GST registration number of the recipient
- Nature of the alleged violation or offense with evidence
- Provisions of the GST laws that have been violated based on the allegations
- Deadline to respond to the SCN for the recipient
- Consequences for failure to reply to the SCN
How Best to Respond to GST Show Cause Notices?
A GST SCN can be issued for various reasons, but it is essential to comprehend it and take timely action. As mentioned earlier, the SCN is not a judgment but an opportunity given by the authorities to present your case against the allegations leveled by them. Hence you should take the help of GST experts to prepare your response. Following are the critical steps in the process of how to respond to GST Show Cause Notices in the best way:
1. Understand the Show Cause Notice
The first reaction of many SCN recipients is panic, and they tend not to understand the details of the SCN fully. Hence the first step needs to be reading the Notice document thoroughly. Then make a list of issues raised and evidence listed. Finally, ensure that all the evidence listed under ‘Relied Upon Document’ in the SCN has been provided to you with the SCN.
2. Prepare Pointers for Defence
Once you have fully understood the details of SCN, especially the allegations and the evidence provided by the authorities, you can now move on to start preparing your response. The first step for that will be to make a list of pointers about specific defenses you want to give to the allegations. But, again, ensure these are very objective and cover all ground.
3. Ready Evidence List
Your defending arguments need to be backed by documented evidence. Mere counter-allegations or statements will never help your case. So once you have listed down your defense pointers, make a list of documents you will need to substantiate your claims and ready the evidence list systematically.
4. Seek Cross Examinations
If you deem fit, ask for a cross-examination of the persons whose statements have been relied upon by the department in the SCN. This is important in major cases, especially ones dealing with fraud. Such cross-examinations will offer you more insight into the allegations and give you more time and information to prepare your response.
5. Abide by the Time Limit
Each SCN will be accompanied by a time frame within which you should reply. Always try to file your reply to the SCN within this time limit. If you cannot, write a letter seeking time from the department. Also, we always recommend that, as per section 75(4), you seek a personal hearing before the case is decided.
6. Prepare a Detailed Reply
This step is, of course, the most important one as you, in consultation with your GST expert, ready your response to the Notice. Cover all the details in your reply and list the evidence you submit to defend your case. Make sure the submission is clearly legible, so write in a font not below size 12, with spacing not below 1.5. All points must be nicely numbered, and arguments must be in a logical flow. Also, provide an Index at the start so it is easy to fund things within the submission.
7. Reserve The Right To Make Additional Submissions
This is an essential step, as there may be times when you want to add to the details or evidence you have already submitted. Moreover, in certain complicated cases, new arguments are counter-arguments are common. Hence ensure that you reserve your right to make additional submissions to the Notice. Also, it is recommended that you submit Vakalatnama or Authority letter along with the defense reply.
8. Attend Personal / Virtual Hearings
Make it a point to attend personal hearings as and when granted by the authority and explain the case in detail. Submit an executive summary of the case during the hearing and also submit any new case law that may be helpful in your case. Get the details of the hearing written on the Personal Hearing Record and ask for a copy of this record. As per law, a maximum of 3 hearing dates can be given in a case, so make sure you attend the same. If, for any personal reasons not able to attend, send in a written adjournment request.
9. Follow UPS With the Adjudicating Authority
Make sure that once the personal or virtual hearings are over, take regular follow ups with the concerned officials and seek the order copy at the earliest.
Not replying to GST notices promptly and correctly can result in adverse consequences. You may face legal and/or financial implications. Hence it is in your favor to be prompt in responding to the Notice and, at the same time, do it professionally. The pointers mentioned above will help you understand the concept of GST Short Cause Notice better and also assist you in preparing your defense.
You can always authorize a GST expert in the form of a practicing Chartered Accountant to take up the issue on your behalf. As these experts have been dealing with such notices regularly, they will be very well-equipped to defend your case and bring it to the most favorable outcome for you.