Author Name:   Shreyaa

A Show Cause Notice [SCN] is issued when a government official is held prima facie responsible for misconduct.

CHALLENGING THE SHOW CAUSE NOTICE

INTRODUCTION

A Show Cause Notice [SCN] is issued when a government official is held prima facie responsible for misconduct. In the SCN the delinquent is required to be informed that he is responsible for such misconduct. He is then required to submit his reply to the disciplinary authority as to why the SCN should not be initiated against him within a stipulated period of time, prescribed in the SCN.

If the charges against the delinquent stand proved, then disciplinary authority issues a SCN to the delinquent proposing the penalty prescribed under the rules. The SCN is given with the object to afford to the delinquent a reasonable opportunity to reply to the penalty proposed.

Once the show cause notice is received by the delinquent he is supposed to respond to the show cause notice by filing reply to the show cause notice with the authority concerned within the time stipulated in the show cause notice. The question which needs to be answered here is that whether the issue of show cause notice can be challenged without filing the reply and on what grounds?

METHOD

The SCN is a primary stage of adjudication and is not an order of any authority. Therefore, it cannot be challenged before the first appellate authority.

In taxation matters, stay could not be obtained in civil courts against the issue of SCN as the civil courts do not hold any jurisdiction in the taxation matters.

Thus the only way to challenge the issue of show cause notice is by way of filing a writ petition before the High Court under Article 226.

RELEVANT CASE LAWS

1.   TRF Limited v. Commissioner of Central Excise & Service Tax, Jamshedpur 2013 (4) TMI 21 (Jharkhand HC)

CONTENTION - The petitioner has challenged the show cause notice dated 15th October, 2012 issued by the Commissioner, Central Excise & Service Tax, Jamshedpur, on various grounds including the ground that the authority concerned has already made up mind and this notice has been issued only to project that opportunity of hearing is sought to be given to the petitioner before passing the same order for which decision has been taken by the authority and it has been communicated in the show cause notice itself.

Learned counsel for the petitioner submitted that in case of violation of principle of natural justice and in case of issuance of a show cause notice, the show cause notice can be challenged by filing the writ petition. 

CASES RELIED ON -

·         Siemens Ltd. Vs. State of Maharashtra & Ors.

Hon'ble Supreme Court held that, in a case where show cause notice has been issued, the Court can examine whether the jurisdictional fact existed for issuance of the said notice. So Hon'ble Supreme Court, after taking note of the legal position that ordinarily a writ court may not exercise its discretionary jurisdiction in entertaining a writ petition questioning a notice to show cause, observed by making it clear that unless the same appears to have been without jurisdiction[1].

·         K.I.Shephard Vs. Union of India [(1987) 4 SCC 431].

When notice is issued with premeditation, a writ petition would be maintainable and also held that in such an event, even if the court directs the statutory authority to hear the matter afresh, ordinarily such hearing would not yield any fruitful purpose.

·         Oryx Fisheries Private Limited Vs. Union of India & Ors.

“Show cause      notice   cannot        be      read hyper technically and it is well settled that it is to be read reasonably. But while reading a show-cause notice the person who is subject to it must get an impression that he will get an effective   opportunity     to   rebut     the allegations contained in the show-cause notice and prove his innocence. If on a reasonable reading of a show-cause notice a person of ordinary prudence gets the feeling that his reply to the show-cause notice will be an empty ceremony and he will merely knock his head against the impenetrable wall of prejudged opinion, such a show-cause notice does not commence a fair procedure especially when it is issued in a quasi-judicial proceeding under a statutory regulation which promises to give the person proceeded against a reasonable opportunity of defence.”

In view of the above judgments[2], it is clear that ordinarily writ jurisdiction is not available to challenge the show cause notice, however subject to certain exceptions where – 

o   the Constitutional vires of the very enactment under which the proceedings are initiated is under challenge; 

o   cases where the proceedings have been initiated or concluded in total violation of the principle of natural justice and 

o   where the orders impugned are totally without jurisdiction 

o   where private and public wrongs are so inextricably mixed up 

o   Where prevention of public injury and vindication of public justice demands that recourse to Art 226 of the Constitution be taken.

HELD - The reasons for forming opinion against the delinquent are required to be reflected in the notice itself.   It cannot render notice illegal as being issued with pre determined mind.   However, notice reflecting in unequivocal terms decision on contentious issues rather than pulling question to delinquent, may something reflect pre-determined mind of issuing authority. The show cause notice should not show pre-determined mind of department.  Such notice cannot be treated to be a notice to show cause in any manner.

2.   Union of India V. Vicco Laboratories 2007 (11) TMI 21 (Supreme Court)

HELD - Normally the writ should not interfere at the stage of issuance of show cause notice by the authorities.   In such a case the parties get ample opportunity to put forth their contentions before the authorities concerned and to satisfy the authorities concerned about the absence if case for proceeding against the person against whom the show cause notice has been issued.  

Abstinence from interference at the stage of issuance of show cause notice in order to relegate the parties to the proceedings before the authorities concerned is the normal rule.  

However the said rule is not without any exceptions. Where a show cause notice is issued either without jurisdiction or an abuse of process of law, certainly in that case, the writ court would not hesitate to interfere even at the stage of show cause notice.   The interference at the show cause notice stage should be rare and not in a routine manner.   Mere ascertain by the petitioner that notice was without jurisdiction and/or abuse of process of law would not suffice. It should prima facie be established.  Where factual adjudication would be necessary interference is ruled out.

3.   Creative Travel Private Limited V. Commissioner of Central Excise & Service Tax, New Delhi 2015 (10) TMI 1305 (CESTAT New Delhi)

FACTS - Before the issuance of show cause notice the assessee was asked to provide details/document/information for the period from April 2009 to November 2010 through various letters.  But the assessee did not provide any details to the department.  Therefore it was alleged in the show cause notice that the appellant has failed to furnish the requisite information

Therefore the provisions of Section 72 of the Act were attracted on the basis of ‘best judgment assessment’ and show cause notice was issued accordingly.   The appellant challenged the issuance of show cause notice before the High Court, Delhi. 

HELD - The High Court, Delhi directed the Adjudicating Authority to decide the matter with regard to jurisdiction tacit basis taken into consideration the stand and stances put forth by the assessee, whether the show cause notice was issued correctly or not. 

4.   SBQ Steels Ltd. v Commissioner of Customs, Central Excise and Service Tax, Guntur 2013 (1) TMI 359 (Andhra HC)

HELD - While issuing such show cause the department should ensure that it does not indicate any pre meditation or prejudgment by the Department.

5.   Bhubaneswar Development Authority V. Commissioner of Central Excise & Service Tax 2015 (4) TMI 464 (Orissa High Court)

FACTS - Demand-cum-show cause notice calling upon to submit the reply to the show cause notice within 30 days of the receipt of the notice was challenged. The question being as to why service tax interest/penalty shall not be levied. 

The challenge is on the ground that the conditions precedent for exercise of jurisdiction to invoke the extended period of limitation are wholly absent and the Commissioner has not properly applied his mind to the questions as to the condition for invoking the extended period of limitation existed and/or acted mechanically. It was submitted that the impugned show cause notice amounts to wrongfully invocation of jurisdiction and hence ought to be quashed. 

HELD - The High Court held that the issue whether the extended period of limitation was applicable, was yet to be determined by the Adjudicating Authority at first instance itself.  Hence writ petition was not maintainable.   The High Court directed the petitioner to file reply to show cause notice within 30 days of the order and to participate in proceedings.

6.   Tanushree Logistics Private Limited V. Union of India 2015 (9) TMI 420 (Rajasthan High Court)

HELD - Without even filing of reply to the show cause notice, approaching the High Court is premature.  The High Court further held that if reply to show cause notice is furnished, it is always open to the authority to consider and decide in accordance with the law.

7.   Infinity Infotech Parks Limited V. Union of India 2014 (12) TMI 36 (Calcutta High Court) 

HELD - The conditions precedent for exercising of jurisdiction to invoke extended period of limitation are wholly absent.  The Commissioner has not properly and independently applied his mind to the question of whether the conditions for invoking the extended period of limitation existed, but has acted mechanically, swayed by the inquiry report, which is itself appears to be illegal and unsustainable. The impugned show cause notice has been issued by wrongful invocation of jurisdiction.  The writ petition is allowed for the reasons discussed above.  The High Court set aside the impugned show cause notice.

8.   Mega Corporation V. Commissioner of Service Tax 2015 (1) TMI 1095 (Delhi High Court) 

HELD - The High Court held that the petitioner should first respond to show cause notice and take recourse to such remedies as are available in law in the circumstances of the case.  The petitioner is directed to file a reply or appropriately respond to the show cause notice.

9.   Naresh Kumar & Co, Private Limited V. Union of India 2013 (2) TMI 676 (CALCUTTA HIGH COURT)

HELD - High Court can interfere with a show cause notice would be in flagrant violation of principles of Natural Justice.  Furthermore the High Court might also interfere with a show cause notice which does not fulfill the statutory conditions for issuance thereof or ex-facie does not disclose any offence, misconduct or other cause of action for which action is contemplated in the show cause notice can be initiated.  For this purpose the court may examine whether jurisdiction to issue show cause notice has been properly exercised or such jurisdiction is usurped by pretended invocation of a provision of a statute. 

Thus the High Court is entitled to examine whether the extended period of limitation could have been invoked and if so, whether any cogent grounds have been made out in the impugned show cause notice for invocation of the extended period of limitation and if the same is supported by materials on record.

CONCLUSION

The Supreme Court and High Courts in a large number of cases have deprecated the practice of entertaining writ petitions questioning the legality of the show cause notices stalling enquiries as proposed and retarding investigation process to find actual facts with the participation.   Unless the High Court is satisfied that the show cause notice was totally honest in the eye of the law for absolute want of jurisdiction of the authority to even investigate into the fact, writ petitioners will not be entertained for the mere asking and as a matter of routine.  The writ petitioners in such cases are directed to respond to the show cause notice and take all stands highlighted in the writ petition before the Adjudicating Authority. 

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