show-cause notice


Under the existing scheme of fiscal laws in India, both the initiation of dispute and the adjudication is by the Revenue Officers themselves. Both from an administrative law front (which decries that no one shall be a Judge in his own cause) and also from a constitutional perspective (which envisages separation of executive from the judiciary) this is not an ideal scenario. Nonetheless to instil a degree of fairness in the adjudication process, judicial prescriptions have constrained the extent of administrative discretion available to the officers. One such instance is where the judiciary has proscribed the powers of the Revenue and evolved the fundamental tenets which need to be observed by the Revenue Officers insofar as the manner of recovery of tax in the form of a show-cause notices concerned. This note seeks to revisit certain fundamental principles which govern the notice proceedings in tax laws.

Why show-cause notice is needed?

The requirement for issuing a show-cause notice (SCN) is not just an aspirational guidance flowing from the principles of natural justice but is in fact a constitutional prescription as also the statutory mandate.

Article 265 of the Constitution of India directs that “no tax shall be levied or collected except by authority of law”. Thus, even for the purpose of collection of tax, it is essential that the prescription of the law is followed. This takes us to the stipulations in the fiscal laws.

To illustrate, in the indirect tax sphere, both Sections 28 and 124 of the Customs Act, 1962, which govern proceedings relating to recovery of tax and confiscation of goods, respectively, enjoin upon the Revenue Officer to serve notice on the person before any direction or order can be issued in such proceedings. These provisions further oblige the officer to grant an opportunity of hearing to the taxpayer concerned. Similar legal position flows from Sections 73 and 74 of the Central Goods and Services Tax Act, 2017, which likewise provide for issuance of show-cause notice and hearing opportunity to the taxpayer concerned. Even though the scheme under direct tax is distinct from indirect tax laws, the former also encapsulates the obligation of the Revenue Officers to serve notice to the taxpayers and give them hearing opportunity before proceeding to take action against the taxpayer.1 Thus, it is ingrained in the fiscal laws that the taxpayer shall be served with a notice and granted hearing before any adverse action is undertaken against the taxpayer.

Furthermore, even where the tax law is silent and does not specifically provide for such, the fundamental principle of natural justice — audi alteram partem i.e. no one shall be condemned unheard — has been read into the law by the judiciary. In its famous decision in Kesar Enterprises Ltd. v. State of U.P.2 the Supreme Court read into the tax law the obligation of the officers to comply with the principle even holding it to be a fundamental tenet of law. Even earlier, in Nagarjuna Construction Co. Ltd. v. State of A.P.3 the Supreme Court had similarly concluded that there can be no action against the taxpayer, unless notice and hearing proceedings have been undertaken by the Revenue Officers.

Besides the facet of natural justice, there is another reason for the courts to insist upon show- cause notice. The decision of the Supreme Court in CCE v. Damodar Poly Fab (P) Ltd.4 brings out this aspect clearly. In this case the taxpayer accepted that the classification of goods manufactured by it was incorrect. On this premise the Revenue chose not to issue a show-cause notice, which fact was objected by the taxpayer. Both the High Court and the Supreme Court sustained the objection and concluded that Revenue could not proceed without notice for twin reasons. Explaining the rationale for insisting upon notice being issued, the Supreme Court noted that (a) statutory obligation of the officer to issue notice could not be waived; and (b) there could be other reasons for which the taxpayer could still contest the tax demand. Hence, the Revenue could not be permitted to treat the obligation to issue SCN as having been obviated.5

Thus, the obligation of Revenue Officers to ensure that SCN is issued to the taxpayer is well instilled both within the statutory framework and the judicial principles.

Importance of comprehensive SCN

Having noted that issuance of notice is mandatory, it is also critical to note that SCN is not an empty formality calling for lip service.6 On the contrary, the judicial prescriptions mandate that the SCN must be comprehensive and must spell out each and every aspect on which the taxpayer concerned is required to defend. On this front, wide-ranging observations have been made by the courts, which can be crystallised as different propositions.

The foremost aspect to be noted is the declaration that SCN is the foundation of Department’s case.7 In other words, a premise missing in the SCN cannot be the basis for Revenue’s proceedings at all. This aspect is so fundamental that in another set of precedents the Supreme Court has declared that what is missing in the SCN cannot be brought on record at the stage of adjudication by the Revenue as the adjudication order cannot travel beyond the confines of the SCN.8 In fact, the fetters are not just upon the departmental officer adjudicating the matter but also extend to the quasi-judicial tribunal which is equally not permitted to sustain the Revenue’s case on grounds outside the SCN.9 Thus, a SCN must be self-contained and cannot be improved upon on a go-forward basis.

To exemplify, the various salient features arising from judicial precedents to this effect can be enumerated as under; vague SCN are not sustainable;10 premature SCN cannot be upheld;11 SCN cannot be supplemented subsequently12 and hence, incomplete SCN is also not acceptable13.

In view of the legal position, a vague notice, incomplete notice, faulty notice or a defective notice, therefore, cannot extend the case of the Revenue. Consequently, the failure of the Revenue to issue a comprehensive SCN is to its own peril and does not injunct the taxpayer.


The principles of reasonableness and fair-play in the exercise of administrative powers, now well settled under the canons of administrative law, find due resonance in the confines of the fiscal laws. These canons have been applied with fortitude in order to vindicate the rights of the taxpayers, and, more particularly, give full meaning to the fundamental constitutional guarantees. To similar effect are the judicial principles circumscribing the discretion of the Revenue Officers which, upholding the need for fair and reasonable opportunity to the taxpayers, have crystallised into principles governing issuance and contents of show-cause notices with on such count.

†Advocate, Supreme Court of India; LLM, London School of Economics; BBA LLB (Hons.) (Double Gold Medalist), National Law University, Jodhpur. Author can be reached at:

1. For illustration, in the Income Tax Act, 1961, see proviso to Sections 143(1) and(2); proviso to Sections 144(1),144-B(xii), 144-BA(2) and148, etc.

2. (2011) 13 SCC 733.

3. (2008) 16 SCC 276.

4. CCE v. Damodar Poly Fab (P) Ltd., (2018) 14 GSTL 162.

5. CCE v. Damodar Poly Fab (P) Ltd., (2018) 14 GSTL 162. The Supreme Court inter alia observed as under:

10. Section 11-A of the Act enjoins a duty on the Central Excise Officer concerned to show cause an assessee as to why the assessee should not pay the duty not levied or not paid or short-levied or short paid or erroneously refunded, as the case may be, details of which are required to be mentioned in the show-cause notice. On cause being shown by the assessee, the notice(s) is required to be adjudicated upon by the Central Excise Officer issuing such notice under Section 11-A which order can be the subject matter of further proceedings under the Act. Section 11-A of the Act statutorily engrafts the principle of reasonable opportunity which would cast a mandatory duty on the Central Excise Officer to comply with the said requirement. While it is correct that duty has to be paid as per classification determined, acceptance of classification may not necessarily amount to acknowledgment of the liability to pay duty. This is because the particular chapter sub-heading under which classification has been made and which has been accepted by the assessee may be covered by an exemption notification or the question of exemption may be reasonably argued in the reply of the assessee, as may be. Alternatively, Section 11-A contemplates a period of limitation for giving of the notice which gets extended in case of suppression, misstatement, etc. This could be another defence open to an assessee in support of his claim of nil duty liability while, at the same time, accepting the classification made.

11. The situations in which an assessee can legitimately deny its liability to pay duty even after accepting a classification may be so myriad that it is not for the Court to speculate the same. The very fact that the requirement of giving notice has been statutorily engrafted casting a mandatory character to the said requirement is sufficient for the Court to take the view that in the present appeals the demands raised for payment of duty following the classification under chapter sub-heading 3920.32 without giving the assessee an opportunity as contemplated by Section 11-A of the Act is legally impermissible and therefore would not be tenable in law.”

6. See generally, Oryx Fisheries (P) Ltd. v. Union of India, (2010) 13 SCC 427, 435, para 24 inter alia observing that the Revenue Authority “while acting in exercise of its statutory power must act fairly and must act with an open mind while initiating a show-cause proceeding. A show-cause proceeding is meant to give the person proceeded against a reasonable opportunity of making his objection against the proposed charges indicated in the notice”.

7. For illustration, see CCE v. Ballarpur Industries Ltd., (2007) 8 SCC 89; CCE v. Gas Authority of India Ltd., (2007) 15 SCC 91.

8. For illustration, see CCE v. H.M.M. Ltd., 1995 Supp (3) SCC 322, (1995) 76 ELT 497; Reckitt & Colman of India Ltd. v. Collector of Central Excise, (1997) 10 SCC 379; SACI Allied Products Ltd. v. CCE, (2005) 7 SCC 159.

9. For illustration, see Precision Rubber Industries (P) Ltd. v. Commissioner of Central Excise, Mumbai, 2016 SCC OnLine SC 406, (2016) 334 ELT 577 Warner Hindustan Ltd. v. Collector of Central Excise, (1999) 6 SCC 762.

10. CCE v. Gujarat Container Ltd., (2016) 43 STR 90)

11. Sarla Performance Fibers Ltd. v. Union of India, 2022 SCC OnLine Bom 1583.

12. Commr. of Customs v. Toyo Engg. India Ltd., (2006) 7 SCC 592.

13. D.R. Cotton Co. v. State of Gujarat, SCA No. 11944 of 2023, decided on 22-9-2023

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