The Goods and Services Tax Appellate Tribunal (GSTAT), Kolkata Bench, has set aside a GST demand against a taxpayer after finding that the revenue authorities had initiated proceedings and determined tax, interest and penalty without issuing a statutory show cause notice (SCN).

The bench of S.G. Chattopadhyay (Judicial Member) and Bijoy Kumar Kar (Technical Member) has observed that the absence of an SCN deprived the taxpayer of an effective opportunity to know and contest the allegations, thereby vitiating the entire proceedings.

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The dispute arose following an inspection and search conducted by the revenue authorities at the taxpayer’s registered office at Bachamari Government Colony, Old Malda, Malda district, on November 18, 2021.

According to the Tribunal’s order, the taxpayer was engaged in the wholesale business of Zarda, Pan Masala, Mamy Poko Pants and Neutrella (Soya Nuggets). During the search, the revenue authorities allegedly found records relating to outward supplies of Pan Masala and Zarda being maintained on scrap papers rather than through proper records.

The taxpayer reportedly contended before the inspecting team that the incriminating materials belonged to another entity, M/s Tribedi Uddoge, and that he had no connection with that entity.

The revenue authorities nevertheless seized the scrap papers along with electronic devices, including pen drives, from the taxpayer’s possession. Based on the information allegedly recovered from those materials and electronic devices, the department detected what it considered to be substantial tax evasion. However, according to the Tribunal, no show cause notice was issued to the taxpayer.

Instead of issuing an SCN, the taxpayer was summoned to appear before the revenue authorities on January 2, 2022. He did not appear on that date and subsequently appeared on January 29, 2022, stating that illness had prevented him from attending the earlier summons.

The adjudicating authority thereafter proceeded on the basis of the scrap papers and electronic data seized during the investigation. A tax liability was determined through an order in Form GST-DRC-07 dated March 25, 2022.

The original demand included CGST of ₹5,98,626, SGST of ₹5,98,626 and cess of ₹25,66,730, besides penalties. The order also stated that the calculation of interest and final scrutiny of records were still pending.

The taxpayer challenged the demand before the first appellate authority under Section 107(1) of the CGST Act, principally arguing that no statutory SCN had been served and that this amounted to a violation of natural justice.

He also disputed the factual basis of the demand, asserting that he dealt only in Pan Masala and did not have the other business attributed to him in the DRC-07 order.

The first appellate authority, however, dismissed the appeal by order dated July 25, 2023, and upheld the demand.

The authority relied upon the search and seizure conducted at the taxpayer’s premises and the incriminating materials allegedly recovered during the investigation. It concluded that the taxpayer had suppressed outward supplies of Zarda and Pan Masala and had incurred tax liability.

The appellate authority also modified the original demand by adding interest and determining tax and penalty amounts.

Before GSTAT, the taxpayer’s authorised representative, Manish Sethia, argued that proceedings for recovery of GST demand could not legally be sustained when no show cause notice had been issued.

The revenue, represented by Sandip Roy Chowdhury, Deputy Commissioner, SGST, accepted that no SCN had been issued but argued that the taxpayer had nevertheless been provided opportunities to appear before the adjudicating authority and the first appellate authority. According to the revenue, both authorities had considered the matter on merits and therefore the orders did not warrant interference.

The Tribunal identified the central legal issue as whether proceedings against the taxpayer could survive in the absence of a show cause notice.

The Tribunal examined Section 74 of the CGST Act and the corresponding provision under the West Bengal GST Act.

It noted that where tax has not been paid or has been short-paid, or where input tax credit has been wrongly availed or utilised by reason of fraud, wilful misstatement or suppression of facts, Section 74(1) requires the proper officer to serve a notice on the person chargeable with tax.

The purpose of the notice is to require the taxpayer to show cause as to why the specified tax, along with applicable interest and penalty, should not be recovered.

The Tribunal further referred to Rule 142, which provides for service of a summary of the statutory notice electronically in Form GST-DRC-01 in proceedings under Sections 73 and 74.

Significantly, the Bench held that even GST-DRC-01 and GST-DRC-02 cannot themselves substitute the statutory notice contemplated under Sections 73 and 74 of the CGST and WBGST Acts.

The Tribunal relied upon the Gujarat High Court’s decision in ArcelorMittal Nippon Steel India Ltd. v. Assistant Commissioner, where the importance of a properly framed SCN was emphasised.

The GSTAT noted that an SCN is the foundation of proceedings and must contain sufficient material and clarity to enable the taxpayer to make an effective representation. A vague notice lacking fundamental details cannot provide a proper foundation for subsequent proceedings.

The Tribunal also referred to the Supreme Court’s decision in Metal Forgings and Another v. Union of India and Others, which held that communications or orders cannot simply be treated as substitutes for a statutory show cause notice where the law specifically requires issuance of such notice.

On this basis, GSTAT held that a communication in another form cannot replace the statutory SCN. According to the Bench, the notice must contain the amount demanded, the foundational facts and other necessary particulars enabling the taxpayer to effectively respond.

The Tribunal also considered the Supreme Court’s judgment dated August 25, 2026, in M/s Tata Steel Limited v. Union of India, particularly because the demand in the present case had been created under Section 74.

GSTAT noted the Supreme Court’s observation that where the extended limitation mechanism under Section 74 is invoked on allegations of fraud, wilful misrepresentation or suppression, the foundational facts leading to such an inference must be evident from the notice itself.

The Tribunal observed that merely using expressions such as “fraud”, “wilful misrepresentation” or “suppression” mechanically would not satisfy the statutory requirement.

Applying this principle, the Tribunal found the absence of any notice in the present case particularly significant because the demand had been determined under Section 74(9) of the WBGST Act.

The Bench described the determination of tax under Section 74(9) without issuing the required notice as legally unsustainable.

GSTAT also referred to CBEC Circular No. 1053/02/2017-CX dated March 10, 2017, which dealt extensively with show cause notices, adjudication and recovery.

The circular describes the SCN as the basic document for settlement of a tax dispute and states that issuance of an SCN is a statutory requirement that provides the noticee an opportunity to submit oral or written submissions before the adjudicating authority.

The Tribunal also noted that an SCN should set out, among other things, the factual background, legal framework, evidence, limitation, calculation of the amounts due, charges alleged and the authority competent to adjudicate the matter.

After considering the statutory scheme and judicial precedents, the Tribunal concluded that tax, penalty and interest could be demanded only after serving the taxpayer with a statutory SCN and considering the taxpayer’s representation in response to that notice.

In the present case, the Tribunal found that no such SCN had been issued.

Consequently, the taxpayer was not properly informed of the case against him and was deprived of the opportunity to make an effective representation. The Bench held that this defect vitiated the entire proceedings.

The GSTAT accordingly allowed the appeal and set aside the impugned order passed by the first appellate authority.

The Tribunal disposed of the appeal after directing that the order be communicated to the parties and uploaded on the GSTAT Portal. The order was pronounced in open court on September 22, 2026.

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