Prefatory Note
Under the Goods and Services Tax ('GST') law, an intelligence-based investigation may be initiated by the Directorate General of Goods and Service Tax Act Intelligence ('DGGI') under the provisions of the Central Goods and Service Tax Act, 2017 ('CGST') or the respective State Goods and Services Tax Acts ('SGST').
Pursuant to the investigation, where it appears to the Proper Officer ('PO')1 that the amount of tax has not been paid or short paid or erroneously refunded or Input Tax Credit wrongly availed or utilized, the PO is empowered to issue a Show Cause Notice ('SCN') under s. 73(2) [for reasons other than fraud, willful misstatement or suppression of fact] or s. 74(2) [for reasons of fraud, willful misstatement or suppression of facts].
Thereafter, in consideration of the representations made by the person(s) chargeable with tax, the PO passes an order under the above-mentioned provisions. As per s. 75(7), the amount of tax, interest and penalty demanded in the order of the PO shall not be in excess of the amount specified in the notice. Further, no demand on the basis of additional grounds other than specified in the notice can be raised by the PO while passing an order under ss. 73 & 74.
In this context, a pertinent question arises, given the limitation on the power of the PO to increase the quantum of demand in its order in excess of the demand raised in the SCN, does the PO have any recourse for enhancing the demand in case any additional material or information surfaces, or a blatant error with the erstwhile calculation of demand is noticed, which necessitates the increase of such demand? This article seeks to provide an answer to this question by interpreting and analyzing the provisions of the CGST Act and various SGST Acts.
Statutory Power to Amend/Rectify SCN
S. 161 of the CGST empowers GST authorities that have issued an order, notice, decision, or any other document with the power to rectify any error apparent on the face of the record. This power can be exercised either suo-moto when the error is brought to the notice of the officer, or upon the application of the affected person. However, the CGST does not explicitly define what constitutes an 'error apparent on the face of the record'. Broadly such errors can be categorized into three types, viz., (i) errors in law, (ii) errors in fact and (iii) clerical or arithmetic errors.
The concept of 'error apparent on the face of the record'is well-established and covers errors that are evident by merely examining the record, without necessitating reasoning or application of mind. In other words, an error apparent on the face of the record is a patent, manifest and self-evident error that does not require elaborate discussion of evidence or argument for its establishment.2 Thus, from a careful examination of s. 161 and its judicial interpretation, it becomes clear that s. 161 does not encompass an error resulting from an erroneous interpretation of the provisions of the CGST or due to an erroneous application of the law. Any rectification under s.161, especially if it adversely affects any person, must be preceded by adherence to the principles of natural justice.3
Considering that the CGST Act is relatively nascent, it would be imperative to derive substance from analogous provisions of the Income-tax Act, 1961 ('IT Act'). To this effect,reliance may be placed on s. 154 of the IT Act, which confers upon the Income Tax Authorities the power to rectify any error apparent on the face of the record, and it includes the power to enhance the assessment or increase the liability of the assessee after providing a reasonable opportunity of hearing.4
Thus, an inference can be drawn from the said provision that the power to rectify an error under s. 161 would include the power to raise additional demand where such demand arises on account of some computational error or factual error apparent on the face of the record and does not require elaborate reasoning. However, in case the changes/revisions in the SCN are substantive in nature, the recourse to rectification under s. 161 may not be possible since the section does not envisage any provision for granting reasonable opportunity to the taxpayer. To sum up, the extent and scope of S. 161 would only be limited to the categories of errors as enumerated in (ii) and (iii) above and would not apply to category (i).
In scenarios where a certain amount of tax demand remains unassessed due to an error in law, it is crucial to recognize that GST provides a dual safeguard: it ensures that the PO has available remedies to address such errors, while also protecting the taxpayer from being compelled to meet an enhanced tax demand without a reasonable opportunity to be heard. The following sections deal with this aspect in detail.
Issuance of Addendum/Supplementary SCN
Though under s.161, the PO has been conferred with the power to rectify errors in the SCN where there is an error apparent on the face of the record, as mentioned in the foregoing section, the question which begs discussion is what recourse the PO has in case additional material/information comes to his light pursuant to the issuance of SCN without breaching the principles of natural justice.
As the PO initiates the investigation, issues the SCN, and subsequently passes the order pursuant to the submissions made by the taxpayer and the opportunity of hearing, it is essential that they possess recourse to enhance the quantum of demand. This necessity may arise when the PO has the reason to believe that such enhancement is necessary, based on the additional information emerging from the reply to the SCN, further investigation, or corrections of errors in legal interpretation.
A perusal of judicial pronouncements reveals that GST authorities have issued an addendum to SCNs or rectification orders to enhance the quantum of demand.5 In such a scenario, the GST authorities have to either issue a supplementary SCN within the stipulated period6 or issue a corrigendum to revise the original SCN, adhering to the prescribed limitation period.
Although the GST law does not specifically confer upon the PO the power to issue a corrigendum, this power can be read into the power to issue SCN.7 Further, interference may be drawn from the erstwhile Service Tax Regime. For instance, in Commissioner of C.Ex., Cus & S.T., BBSR-I v. Konark Industries,8 a corrigendum issued to seek classification of goods under a different head than in the previous SCN was held to be valid and not prospective in nature.
Reference may also be made to the Customs Act, 1962 ('Customs Act') where s. 28(7A) endows upon the customs authorities the power to issue supplementary/corrigendum SCNs. In light of the said provision, the Central Board of Indirect Taxes and Customs ('CBIC') has enacted the Customs (Supplementary Notice) Regulations, 2019 ('Regulations 2019'). Reg. 4(d) of the Regulations 2019 lays down the circumstances under which such supplementary SCN may be issued. As per reg. 4(c) & 4(d) of the Regulations 2019, supplementary SCNs may be issued in cases where the original notice under ss. 28 or 124 of the Customs Act, necessitates invoking additional section(s) or where there is additional evidence that may have a significant bearing on the outcome of the case. Given the parallels between s. 28 of the Customs Act and ss. 73 and 74 of the CGST, it can be interpreted that the authority to issue supplementary SCNs falls within the scope of the PO's power to issue an SCN under the CGST.
Raising of Additional Demand at The Adjudication Stage
In certain scenarios, additional information may be brought to the notice of PO during the Adjudication Stage under ss. 73(9) and 74(9) of the CGST. This can occur subsequent to the conclusion of the investigation and the submission of a response to the SCN by the person subject to the tax levy. Such situations might arise basis the information received by the PO in reply to the SCN or from a subsequent source of information. In these instances, a question arises regarding the PO's authority to raise additional demand at the adjudication stage.
A perusal of s. 75(7) of the CGST reveals the PO is not authorized to raise an additional demand at the adjudication stage while passing orders under ss. 73(9) or 74(9) of the CGST. S. 75(7) of the CGST specifically stipulates that the tax, interest, and penalty demanded in the order (i.e., the order issued pursuant to the SCN by the Adjudicating Authority ('AA')) shall not exceed the amount specified in the SCN. Further, no demand can be confirmed on grounds other than grounds specified in the original SCN.
Therefore, if computational errors in the SCN lead to a reduced tax demand, these can be addressed during the adjudication proceedings by the AA. Conversely, if computational errors necessitate an increased tax demand, the SCN must be rectified or amended, as previously discussed, to surmount the restrictions prescribed under s. 75(7) of the CGST.
Conclusion
The provisions of the IT Act and the Customs Act confer on the revenue authorities the power to raise additional demand post-issuance of SCN, based on the additional material or information. However, the GST does not explicitly confer upon the GST authorities this power post-issuance of SCN. The GST envisages the power to rectify orders, notices, documents, etc. in cases where an error is apparent on the face of the record.
Various judicial pronouncements have established that an 'error apparent on the record' is self-evident and does not require elaborate reasoning for its identification. Given this interpretation, the rectification power conferred to the GST Authorities should not be construed to include the power to raise additional demand on the basis of an error in interpreting the law or analysing the information basis on which the demand was initially raised through the SCN.
Nevertheless, the power to issue a corrigendum/addendum to SCN should be considered an inherent power of all revenue authorities, regardless of the presence or absence of specific statutory provisions.
Hence, it is well within the power of the investigating agency under the GST to raise additional demand based on the additional material/information post-issuance of SCN. However, such additional demand, potentially adversely affecting the taxpayer, necessitates adherence to the principles of natural justice, in line with the provisions of other statutes like the IT Act.
It is noteworthy that there is significant jurisprudence dealing with situations where corrigenda/supplementary notices have either been treated as part of the initial notice itself or as separate and independent proceedings. The validity of such corrigenda /supplementary SCNs, therefore, will depend on the specific facts and circumstances and nature of amendments proposed to the initial SCN.
Footnotes
1. The Central Goods and Service Tax Act, 2017, s. 2(91) defines 'proper officer' as; "proper officer" in relation to any function to be performed under this Act, means the Commissioner or the officer of the central tax who is assigned that function by the Commissioner in the Board.
2. Assistant Commissioner of Income-tax, Rajkot v. Saurashtra Kutch Stock Exchange Ltd (2008) 14 SCC 171 (SC).
3. S.P.Y Agro Industries Limited v. Union of India, 2022 SCC Online AP 1146.
4. The Income Tax Act, 1961, s.154(6).
5. S.P.Y Agro Industries Limited v. Union of India, 2022 SCC Online AP 1146
6. As per ss. 73(10) & 74(10) of the CGST t, the PO has to pass an order levying the tax, interest or penalty within the period of 3 years and 5 years respectively from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within 3 years (under s. 73) or 5 years (under s.74) from the date of erroneous refund. However, as per s. 73(2) and s. 74 (2), the SCN must be issued at least 3 months prior to the date of passing of the order under s. 73(9) and 6 months prior to passing of the order under s.74(9) hence the effective period of limitation to issue SCN under s. 73 would be 2 years 9 months and under s. 74 would be 4 years 6 months from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within 3 years (under s. 73) or 5 years (under s.74) from the date of erroneous refund.
7. Supra Note 5
8. 2011 (270) E.L.T. 673 (Tri.- Kolkata)
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