GST Show Cause Notice Cannot Proceed On Preconceived Conclusion Of Liability: Kerala High Court

The Kerala High Court recently set aside a Goods and Services Tax (GST) show cause notice issued to the Kerala State Self-Financing B.Pharm College Management Association after finding that the notice was worded in a manner suggesting a pre-conceived conclusion on the petitioner's liability.

The court held that a show cause notice can contain only a proposal based on the material on record and that a final conclusion can be reached only after considering the assessee's objections and documents.

"What is required in a show cause notice is a proposal from the part of the authorities, based on the impression created in the mind of the authority from the documents available on record. A final conclusion as to the said proposals can only be made, after meticulously going through the documents to be produced by the party subjected to the proceedings and also considering the objections raised by such person, against such proposal. Therefore, the show cause notices issued to the parties should conform to the said requirement."

Justice Ziyad Rahman A.A. allowed the writ petition filed by the association, which represents 36 self-financing pharmacy colleges in the state, challenging a notice issued under Section 63 of the Central Goods and Services Tax Act and the Kerala Goods and Services Tax Act proposing assessment of tax and penalty.

The court referred to the Supreme Court ruling in Oryx Fisheries Pvt. Ltd. v. Union of India, which held that a show cause notice in quasi-judicial proceedings must be framed in a manner that gives the noticee a real and effective opportunity to respond and must not indicate that the authority has already reached a final conclusion.

Applying the principle, the court found that the language used in the impugned notice created an impression that the issue of registration and tax liability had already been decided and observed that,"Ext.P1 is not worded in that manner, and impression that is created are with regard to the conclusion arrived at by the said authorities with respect to the question of requirement of registration and the tax/penalty to be imposed upon the petitioner"

The court clarified that what is required in a show cause notice is only a proposal based on the material available on record and that a final conclusion can be reached only after examining the documents produced by the assessee and considering the objections raised.

The court also found that the impugned notice was a composite notice covering multiple assessment years and, relying on earlier Division Bench decisions, held that “the show cause notice is a composite notice issued for multiple assessment years, which was found to be not legally sustainable by a Division Bench of this Court in Joint Commissioner (Intelligence & Enforcement) v. M/s. Lakshmi Mobiles Accessories and Tharayil Medicals v. Deputy Commissioner, Audit Division – IV." Therefore, to that extent, an interference is required.”

However, the court declined to decide the question whether the petitioner was liable to obtain GST registration, noting that the issue, including the claim that the services rendered are exempt as services relating to admission to courses or conduct of examinations, must be examined by the competent authority based on the nature of the services rendered.

Setting aside the notice, the court granted liberty to the authorities to issue fresh, separate show cause notices for each assessment year and directed that further proceedings be conducted in accordance with the applicable laws.