To,
…………………………………………..
…………………………………………..
…………………………………………..

Subject: Reply to Show Cause Notice issued under Section 122 and 74 of the CGST Act, 2017 and corresponding provisions of …GST Act, 2017 and IGST Act, 2017 (DRC-01)

Ref: Show Cause Notice ………………….. dated ……………

Respected Sir/Madam,

We have received the Show Cause Notice (SCN) referred to above, directing us to pay a penalty under Section 122 for utilizing Input Tax Credit (ITC) without actual receipt of goods or services for the period April 20….. to March 20….

Under Section 122(1)(vii), a taxable person who takes or utilizes ITC without actual receipt of goods or services is liable to pay a penalty of ten thousand rupees or an amount equivalent to the tax evaded.

We would like to clarify that the ITC in question was claimed based on genuine transactions. The only reason for the ITC reversal was to avoid further complications, not due to any involvement with fake invoices. We fully complied with the conditions specified in Section 16(2) of the CGST Act, which states:

• A registered person must be in possession of a tax invoice or debit note issued by a registered supplier.
• The details of the invoice must be furnished by the supplier and communicated to the recipient.
• The goods or services must have been received.
• The tax charged must have been paid to the government.
• The return under Section 39 must have been furnished.

Since we met all these conditions and had all necessary documentation, the ITC claimed was valid. Any discrepancies were not due to any malafide intent but were a result of third-party errors.

1. Submission

At the outset, I acknowledge the receipt of the Show Cause Notice (SCN) issued under the provisions of Section 122 and 74 of the Central Goods and Services Tax (CGST) Act, 2017, and corresponding provisions under the …………….. Goods and Services Tax (………GST) Act, 2017, and Integrated Goods and Services Tax (IGST) Act, 2017. I submit this reply to the SCN in compliance with the principles of natural justice and in defense of the allegations made therein.

2. Statement of Facts

I, [Your Name], proprietor of M/s ………………………………………., registered under GSTIN: ………………………….., engaged in the business of …………… and other calcareous monumental or ………………………. The SCN alleges fraudulent availment of Input Tax Credit (ITC) amounting to Rs. ……………………………………. and passing on of ITC amounting to Rs. ……………………………………. without actual receipt or supply of goods. The allegations are primarily based on the establishment of bogus firms and misrepresentation of transactions.

3. Denial of Allegations

I categorically deny all allegations made in the SCN. The alleged contraventions of Section 7, 16, 31, 35, 41 of the CGST Act, 2017 read with Rule 36 and 46 of the CGST Rules, 2017 are unfounded and baseless. My business operations are conducted in full compliance with the statutory provisions of the GST laws. I maintain that all transactions undertaken by my firm are genuine and supported by proper documentation, including invoices and transport documents.

4. No Intention to Evade Tax

There has never been any intent to defraud the government or evade tax. All ITC claims were made based on valid invoices received from suppliers. Any discrepancies, if found, may have arisen from bona fide errors or incorrect information provided by third parties without my knowledge or consent.

5. Non-Existence of Bogus Firms

I am not associated with the creation or operation of any bogus firms as alleged in the SCN. The names and GSTINs of firms mentioned in the SCN, including M/s ………………, M/s ……………………………, and others, are unknown to me. If my name or details have been misused by others to establish these firms, I request a thorough investigation to identify the culprits and hold them accountable.

6. Request for Cross-Examination

I request the opportunity to cross-examine the individuals whose statements have been recorded under Section 70 of the CGST Act, 2017, and have been used as evidence against me. It is my right under the principles of natural justice to challenge the veracity and reliability of these statements.

7. Legal Provisions and Case Law

The imposition of penalties under Section 122 and demand under Section 74 of the CGST Act, 2017 requires proof of willful misstatement, suppression of facts, or fraud with intent to evade tax. The burden of proof lies with the department to establish these elements beyond reasonable doubt. I submit that no such evidence has been provided in the SCN, and therefore, the proposed actions are legally unsustainable.

8. Request for Personal Hearing

In light of the above submissions, I request a personal hearing where I may further present my case and submit additional documents or explanations if necessary.

The following case laws:

1. BHARAT MINT AND ALLIED CHEMICALS vs. COMMISSIONER COMMERCIAL TAX AND 2 OTHERS, (ALL-HC) :(2022) 51 TLC(GST) 013, WRIT TAX NO. – 1029 OF 2021, Dated – 04-03-2022

   • In this case, the Allahabad High Court held that the mere non-existence of the supplier at the registered address cannot be a ground to deny Input Tax Credit (ITC) if the purchaser has fulfilled all statutory conditions, such as payment of consideration and tax to the supplier.

2. SRI VINAYAGA AGENCIES vs. THE ASSISTANT COMMISSIONER (CT), (MAD-HC) :(2013) 1 TLC(GST) 154, W.P.Nos.2036 to 2038 of 2013 Dated – 29-01-2013

   • The Madras High Court ruled that ITC cannot be denied to a purchaser if the supplier has defaulted in paying taxes to the government.

3. ARISE INDIA LIMITED AND ORS vs. COMMISSIONER OF TRADE & TAXES, DELHI AND ORS. (DEL-HC) :(2017) 1 TLC(GST) 159, W.P.(C) 2106/2015, Dated – 26-10-2017

   • The Delhi High Court held that denial of ITC on the grounds of non-payment of tax by the supplier without establishing any collusion or intention to evade tax on the part of the buyer is not justified.

4. LGW INDUSTRIES LIMITED & ORS. vs. UNION OF INDIA & ORS. (CAL-HC) : (2021) 48 TLC (GST) 055, WPA NO.23512 OF 2019 AND OTHERS, Dated – 13-12-2021

   • The Calcutta High Court held that ITC cannot be denied to the recipient if the transactions are genuine and supported by valid documents.

I respectfully submit that the allegations made in the SCN are without merit and request that the SCN be withdrawn or dismissed. In the alternative, I seek a lenient view in the matter, considering the bona fide nature of my business operations and my adherence to the provisions of the GST law.

Thank you for considering my reply. I look forward to a favorable resolution of this matter.

Yours sincerely,
[Your Name]
Proprietor, ………………………
GSTIN: …………………………..
[Your Contact Information]
[Date]