CBIC Urged For Proper Due Diligence Before Issuing SCNs

The Central Board of Indirect Taxes and Customs (CBIC) has directed all its field formations not to issue show-cause notices (SCN) to taxpayers for service tax defaults merely on the basis of any discrepancy between an individual's income tax returns and service tax amount.

The matter pertains to financial year 2015-16 by when service tax regime was prevalent before the introduction of GST in 2017. The tax department can file SCNs for any service tax liability violation for FY16 till December 31. But in the rush to protect revenues, the tax department seems to have issued SCN even for certain category of individuals who were not even liable to pay service tax.

Sources said that CBIC acted after a lot of associations complained about the problems.

What an SCN allows is it gives powers to tax authorities to reopen tax cases for five years against all taxpayers who have been issued SCNs. However, tax experts differ on this treatment suggesting that tax cases of past few years can only be reopened in event of fraud, collusion, wilful misstatement or suppression of facts which is not the case with several of the SCNs that have been issued.

The CBIC has written to tax officers that SCNs should only be issued after proper due diligence and merely not if IT returns and service tax amounts do not provide matching numbers.

The CBIC has also decided that tax officers will actively conduct pre-show cause notice (SCN) consultation with alleged evaders and assessees of GST to facilitate easier resolution of tax disputes and prevent increasing number of litigation.

The process will involve tax authorities holding consultation with assessees on the tax demand raised by them and how it could be settled. All clarifications regarding the unsettled tax demand would be provided and all effort will be made to settle the issue before a show cause notice is issued.

The process of mandatory consultation will be followed in cases of adjudication of demands of duty/tax or recovery of CENVAT Credit by different authorities. This (pre-show cause notice (SCN) consultation) however, will not be done in case of preventive and offence related SCNs.