A show cause notice is invalid if its timeline for reply and hearing is contradictory.

A show cause notice is invalid if its timeline for reply and hearing is contradictory.

Issue

Is a show cause notice for the cancellation of a GST registration legally valid if it sets a date for a personal hearing that falls before the expiry of the time limit given to the taxpayer to file a written reply?

Facts

• The assessee, a proprietorship firm, had failed to file its GST returns.
• The GST department issued a show cause notice (SCN) on March 12, 2024, proposing to cancel the firm’s registration.
• The SCN contained two significant defects:
  1. It fixed a date and time for a personal hearing (April 9, 2024) but failed to specify the venue where the assessee was supposed to appear.
  2. It gave the assessee 30 days to file a written reply (which meant the deadline was April 12, 2024) but simultaneously scheduled the personal hearing for an earlier date (April 9, 2024).
• The assessee did not file a written reply to this notice, and the department proceeded to pass an order cancelling the registration.

Decision

The High Court ruled in favour of the assessee.

• The court held that the SCN was bad in law specifically because of the contradictory timelines. Directing a taxpayer to appear for a personal hearing before their time limit for submitting a written defense has even expired is illogical and violates the principles of natural justice.
• Because the foundational notice was legally defective, the court quashed both the show cause notice and the consequential cancellation order.
• The court, however, granted liberty to the department to issue a fresh, legally correct show cause notice to the petitioner if they wished to proceed with the matter.

Key Takeways

• Contradictory Timelines Vitiate a Notice: A notice that provides conflicting or impossible deadlines for compliance is procedurally flawed and can be set aside by a court. The timelines must be logical and fair.
• Principles of Natural Justice: A taxpayer must be given a reasonable, clear, and unambiguous opportunity to present their case. A notice that is confusing or contradictory fails to meet this fundamental legal standard.
• Essential Details are Mandatory: A notice for a personal hearing is incomplete and ineffective if it omits essential details like the venue. The taxpayer cannot be expected to comply with an incomplete directive.
• Consequence of a Defective Notice: If the initial show cause notice is found to be bad in law, all subsequent proceedings and orders that are based on that notice are automatically rendered invalid. However, this does not prevent the department from restarting the process correctly.