Show Cause Notices – A primer

Purpose and significance of a Show Cause Notice: an opportunity to be heard before any adverse action is taken.

• A show cause notice is a formal communication from an authority, informing the recipient of an alleged violation or non-compliance with a law, and providing them with an opportunity to respond to the said allegations. It embodies the principle of natural justice, which requires that parties to a dispute be given a fair hearing before any decision is made that may affect their rights or interests. The principles of due process and fairness mandate that the recipient of a show cause notice be given adequate time to respond and present their case, that they be given access to relevant evidence and information, and that they be given the opportunity to be heard before any action is taken against them. This ensures that the decision-maker is not biased, that the decision is based on the facts of the case and the relevant law, and that the recipient's rights and interests are protected. Thus, in addition to the fair hearing principle, there are other principles of natural justice that also apply for the purposes of issuance of show cause notices, including the principle of impartiality, which requires that the decision maker be impartial, and the principle of reasons, which requires that the decision-maker provide reasons for their decision. Therefore, a show cause notice is an important tool for enforcing the law, and to ensure that the recipient is given a fair and transparent opportunity to present their case before any adverse order affecting their rights and interests is passed. 2023 SCMR 1856

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• The issuance of a show cause notice is an essential element in ensuring the provision of the said rights, as it provides individuals and organizations with the opportunity to explain their actions and to respond to allegations of violation or non-compliance with any law before any adverse action is taken against them. Hence, it follows that when a specific allegation is not put to the recipient, thereby failing to provide the recipient with the opportunity to respond to the same, any adjudication on the said allegation would be against the right of due process and fair trial and therefore, in contravention to Articles 4 and 10A of the Constitution. 2023 SCMR 1856

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• A show cause notice can also be viewed as being akin to alternative dispute resolution ("ADR") as it provides a pre-litigation opportunity for the recipient to present their position and show cause. By doing so, the matter can potentially be resolved before it escalates and requires any adjudication. This not only saves time and resources but also encourages the efficient resolution of disputes, acting as an effective mode of resolving disputes outside of the traditional legal framework. Thus, while acting as a means to ensure due process and fair trial by allowing the recipient to explain their position and respond to the allegations before any legal action is taken, the issuance of a show cause notice also acts as a tool to resolve the issue in the pre-litigation stage, similar to the objective of ADR.? 2023 SCMR 1856

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• Show-cause notice is a foundational document which is to comprehensively describe the case made out against the taxpayer by making reference to the evidence collected in support of the same. It is the narration of facts in the show-cause notice along with the supporting evidence which determines the offence attracted in a particular case. Show-cause notice is not a casual correspondence or a tool or license to commence roving inquiry into the affairs of the taxpayer based on assumptions and speculations but is a fundamental document that carries definitive legal and factual position of the department against the taxpayer. 2013 PTD 1536 (DB)

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• The principles of fairness and due process are an integral part of the fundamental right guaranteed under Article 10A of the Constitution. It guarantees that every person is entitled to a fair trial and due process for determination of rights and obligations. The issuance of a show cause notice is the most crucial in the context of a fair trial and due process. It enables a tax payer to precisely know what allegations are to be met, explained and answered to the satisfaction of the adjudication officer. 2023 SCMR 2070

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Ingredients of a valid Show Cause Notice:

(i)?states necessary facts;

(ii) states specific allegations and grounds (including time period of liability);

(iii) cites relevant provision of law;

(iv)?places relevant material on record/ gives access to relevant evidence and information;

(v)??identifies consequences of infraction;

(vi)?clearly indicates that it happens to be a show-cause notice; ?

(vii)?provides an opportunity to answer the allegation or charge; and

(viii) has to be served within the period of limitation prescribed.

• A show cause notice issued to a taxpayer must contain all the necessary facts and must specify the alleged actions or inaction by the taxpayer that violated the law, allowing for a meaningful response from the taxpayer. It is imperative that the taxpayer is confronted with specific allegations, along with the grounds upon which such allegations are based, in order to properly respond to the same and to place relevant material on record that would be necessary for any defence put forth and for any adjudication by the assessing officer in relation thereto. 2023 SCMR 1856

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• The principles of due process and fairness mandate that the recipient of a show cause notice be given adequate time to respond and present their case, that they be given access to relevant evidence and information, and that they be given the opportunity to be heard before any action is taken against them. This ensures that the decision-maker is not biased, that the decision is based on the facts of the case and the relevant law, and that the recipient's rights and interests are protected. 2023 SCMR 1856

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• The show cause must contain all the allegations categorically and unambiguously, including the legal provisions related to the transgression of law or default. 2023 SCMR 1319

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• The jurisprudence on legality of show-cause notices is guided by fundamental principles of fairness. A person being put a notice ought to know the allegation or charge against them together with identification of the consequences of the infraction if found to be true along with being provided an opportunity to answer the allegation or charge. 2021 PTD 1680 (DB)

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• It is settled principle of law that without completion of pre requisite of show cause notice and supply of the grounds/reasons in clear and explicit words to ascertain that under which subsection of section 36 of Sales Tax Act, 1990, the case would fall, the demand notice [subsequent to the show cause notice] may have no legal consequence and thus the failure of the authorities issuing show cause notice to disclose such grounds and reasons may render the notice invalid. 2005 PTD 480 (SC)

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• As the petitioner has undoubtedly been saddled with a tax liability for a period which was not disclosed in the notice, we exclude the said additional period (March, 2005 till January, 2006) from the purview of the impugned orders passed by the Collector and Collector (Appeals). 2021 SCMR 1133

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• Under subsection (2) for non-levy, short levy or erroneous refund, specific allegations of any collusion between the assessee and the Custom Staff has to be levelled with proper particulars in the show-cause notice which has to be served within three years of the relevant date whereas under subsection (3) if non-levy, short levy or erroneous refund is done due to inadvertence, error or misconstruction then show-cause notice to the importer has to be served within six months of the non-short levy. If such specific particulars are not stated in the notice, the notice would be vague and would not be in consonance with the requirement of subsections (2) and (3) of section 32 of the Act. 2001 SCMR 838

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• The show-cause notice though charged the appellant with the evasion of sales tax of Rs. 48,335 and generally alleged contravention of numerous provisions, yet neither the specific provision of the contravened law nor the manner of its contravention was specified by the respondents. Further the motives or the reasons causing/occasioning the alleged evasion were also not stated under section 36 of the Sales Tax Act by the notifying authority. The show-cause notice was vague, unspecific and too general to enable the reader or the notified person to make out or clearly identify the particular clause/subsection or the reason or the period of limitation applicable to the case of the appellant in terms of section 36 ibid. For proceeding against a person under the provision of section 36 ibid, the show-cause notice has to mandatorily specify the reasons for the alleged non-levy, short levy or erroneous refund of the sales tax or charge. And the notice has to be served within the period of limitation prescribed in the applicable subsection in reference to the reasons prescribed in each part of section 36. 2007 PTD 2265 (DB)

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• The law has provided for a show-cause notice to be issued and thus it is- necessary that such show-cause notice should clearly indicate that it happens to be a show-cause notice, so that the person to whom it is issued is aware that if he does not appear to show cause, adverse action might be taken against him. It is obvious that no such intimation can be gleaned from this particular letter. Consequently, I do not find that this letter would -constitute a show-cause notice under the provision of Sales Tax Rules, 1992 or Sales Tax Act, 1990. 2000 PTD 1798 (SB)

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Pre-requisites for issuing a Show Cause Notice: Formation of tentative or prima facie view after ascertaining the facts thorough inquiry/ investigation

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• It is the duty of the Department to ensure that a show cause notice is issued after a proper inquiry and investigation. It should be manifest from the contents of the show cause notice that it was issued after ascertaining the facts and the allegations are not vague or ambiguous. 2023 SCMR 2070

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• Forming a tentative view that a political party has received prohibited funds is a pre-requisite for the issuance of a show-cause notice. There would thus be no occasion for the ECP to issue a show-cause notice unless it forms such tentative or prima facie view. But the formation of such prima facie view does not make it a final decision. And any correction of such view during show-cause proceedings would not amount to a review of a prior decision. Any tentative view on the basis of which a show-cause notice is issued merges with the final decision rendered at the end of the show-cause proceedings. And any correction or revision of the view formed as a preliminary matter does not qualify as a review of the prior decision. A contrary understanding of how the adjudicatory process works would create a chicken and egg problem. As no show-cause notice could be issued by a public authority unless it forms a tentative view and has some basis to drag a party through show-cause proceeding under a threat of penalty. And if such tentative view were to be treated as a final decision, it would render the show-cause proceedings redundant and undermine the party's due process right under Article 10A of the Constitution. PLD 2024 Islamabad 1 (FB)

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When is a fresh or supplementary Show Cause Notice necessary?

(i)????????????When there is a significant change in circumstances;

(ii)?????????? When new evidence has come to light;

(iii)???????? When the original notice was defective or incomplete; or

(iv)????????? When further inquiry or verification is required.

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• After the issuance of the initial show cause notice, it may be necessary to issue a supplementary or a fresh show cause notice if there has been a significant change in circumstances or if new evidence has come to light. For example, if the recipient has provided a valid response to the initial show cause notice, but new information has surfaced suggesting that the alleged violation or non-compliance did occur, a fresh show cause notice may be required to enable the recipient to respond to the new allegations and provide further clarification. Similarly, where there has been a significant change in the circumstances or situation that led to the issuance of the initial show cause notice, a fresh or supplementary show cause notice may be required to address these changes; where the original notice was defective or incomplete, a fresh or supplementary notice would be required to be issued to provide a more detailed or accurate statement of the issues; and where the original notice does not fully address all of the issues or violations that need to be addressed, a fresh or supplementary notice should be issued to cover any outstanding matters. Ultimately, the decision to issue a fresh show cause notice should be predicated on a thorough and careful evaluation of the facts and circumstances of each case, guaranteeing that the principles of due process and fair trial are upheld. 2023 SCMR 1856

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• Where in response to a show cause notice, the taxpayer, in defence, raises substantial grounds or puts forth substantial factual aspects that are not covered in the initial show cause notice and, therefore, require further inquiry or verification by the department, then, after conducting such further inquiry or verification, a fresh or supplementary show cause notice should be issued to the taxpayer, if it is then so required. No determination can be made with regards to the same unless the taxpayer is afforded the opportunity to respond to any deficiencies or misrepresentations found in relation thereto by specifically alleging the same in a fresh or supplementary show cause notice. Hence, instead of proceeding under the same show cause notice, it is necessary that a fresh or supplementary show cause notice is issued to the taxpayer in light of the defence so taken. Failure to do so would not only denote that in light of the grounds or facts raised in the defence put forth by taxpayer in response to the show cause notice, which were not in the knowledge of the tax authorities and therefore, were not part of the show cause notice, no further action is required under the said show cause notice, any adjudication in relation to the same would also be against the law, rendering the whole exercise redundant. 2023 SCMR 1856

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Omission or misstatement of provision of law does not generally invalidate a Show Cause Notice

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• Quoting of wrong provisions of law in a show cause notice would not necessarily vitiate the entire process initiated thereunder. What is crucial to note is that, in deciding the legal validity of the show cause notice, it is important to first see whether the recipient/assessee of the said notice has been put to any prejudice in preparing and putting up its defence to the allegations made therein. And whether the issuer of the notice had the authority to issue the same, provided the notice had all the necessary facts leading to the alleged acts or omission of the recipient constituting the stated contravention of provisions of law, and thus, to be meaningfully responded by the assessee. 2019 SCMR 2018

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• It is settled law that misstatement of a provision of law within the SCN or omission of the provision of the statute under which the show-cause notice has been issued, in the absence of additional factors or circumstances rendering the show-cause notice incomplete or unfair for not clearly stating the allegation, does not invalidate such show-cause notice. 2021 PTD 1680 (DB)

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• Merely for the reason that sub-rules (2) and (3) of Rule 10 of the Central Excise Rules, 1944 have not been mentioned, it would have not been proper to declare the notice illegal. It is to be noted that instead of taking into consideration technicalities, the Court looks into the matter with different angles namely as to whether substantial compliance has been made or if any of the sub-rule has been omitted then what prejudice is likely to cause to the party to whom the show-cause notice is given. 2008 SCMR 615

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Consequences of an invalid Show Cause Notice

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• Unless the taxpayer is confronted with the allegations through a show cause notice, no determination can be made by the assessing officer with regards to the said allegations as it is beyond the competence of the department to make out a case which the department had never canvassed and the taxpayer had never been afforded the opportunity to meet. Hence, unless the allegations, and the grounds on which the said allegations are based, are not specifically alleged in the show cause notice issued to the taxpayer, the whole exercise becomes redundant and unsustainable in law. 2023 SCMR 1856

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• A show-cause notice that is issued on a wrong legal presumption is totally unlawful. Superstructure raised on wrong foundation remains defective and whole of it crumbles on identification of the said defect. 2018 PTD 253 (DB)

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• It is to be noted that the notices issued to the respondents do not contain a specific allegation of false statements, as such, these do not fulfill the criteria of violation of subsection (3) of Section 32 of the Act. Thus, the show-cause notices in question were defective, therefore, no adjudication can initiated upon the same. 2019 PTD 110 (DB)

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Consequences of not issuing a Show Cause Notice

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• The Courts in Pakistan have taken the view that where the giving of a notice is provided for by the statute itself, then the failure to give such a notice is fatal and cannot be cured. But where there is no specific statutory provision and reliance is only placed on the principles of natural justice and audi alteram partem, there if at some stage or other, the person aggrieved has been given a fair opportunity of representing his point of view, then the defect, if any, in the initial order may be deemed to have been cured. Each case will have to be determined on its own facts. If the statutory provision for notice be of a mandatory nature, then an order without any notice would be wholly void; but if there be no such provision or if the provision be merely of a directory nature, then, wherever a violation of this principle of natural justice is alleged, the Court may call upon the party alleging the same to prove prejudice before it sets aside the order. Such prejudice would obviously not be there if it is found that the party had been actually given a full hearing by the appellate or revisional authority and afforded every opportunity of showing cause against the allegations made. The principle, so far as this country is concerned, is accordingly well settled that where notice required to be given by the statute is a mandatory notice, then the failure to comply with such a mandatory requirement of the statute would render the act void ab initio as being an act performed in disregard of the provisions of the statute. Furthermore, any further action taken on the basis of such a void order would also be vitiated and the defect at the initial stage would be incurable by a hearing at a subsequent stage. 1971 SCMR 681

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Scope of adjudication must be limited to the contents of the Show Cause Notice

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• Once a show cause notice is issued, the original adjudication on the said show cause notice can only be based on the grounds and allegations levelled therein. 2023 SCMR 1856

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• The adjudication authority has to confine the proceedings to the specific charges and allegations clearly mentioned in a show cause notice and cannot adjudicate any charge or allegation beyond it. Adjudicating a charge or allegation not confronted in the show cause notice would not be sustainable in law. 2023 SCMR 2070

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• Order of adjudication being ultimately based on a ground which was not mentioned in the show cause notice, the order was palpably illegal and void on the face of it. 1987 SCMR 1840

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Mere issuance of a show cause notice does not give rise to any cause of action or amount to an adverse action or order; and a challenge based on apprehension of coercive action is premature.

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• It is most commonly noticed that whenever a show cause notice is issued by the hierarchy provided under the tax laws calling upon the taxpayer to submit the reply, they immediately challenge the show cause notice in writ jurisdiction with the presumption or presupposition that the show cause notice means an adverse order against them, so in our considerate appraisal, abstinence from interference at the stage of issuance of show cause notice in order to relegate the parties to the proceedings before the concerned authorities must be the normal rule. 2022 SCMR 92

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• A mere charge-sheet or show-cause notice does not give rise to any cause of action, because it does not amount to an adverse order which affects the rights of any party unless the same has been issued by a person having no jurisdiction to do so. It is quite possible that after considering the reply to the show-cause notice, the authority concerned may drop the proceedings and/or hold that the charges are not established. It is well settled that a writ lies when some right of any party is infringed. A mere show-cause notice or charge-sheet does not infringe the right of anyone. This Court ought to be careful when it passes an interim order to see that the statutory functionaries specially and specifically constituted for the purpose are not denuded of powers and authority to initially decide the matter and ensure that ultimate relief which may or may not be finally granted in the writ petition. Abstinence from interference at the stage of issuance of show cause notice in order to relegate the parties to the proceedings before the concerned authorities is the normal rule. 2019 PTD 1678 (DB)

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• Mere issuance of a show cause notice does not amount to an adverse action. 2016 PTD 2332 (SB) and 2019 PTD 692 (SB)

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• Laying challenge to a show cause notice is, therefore, no different that filing a petition on the basis of an apprehension or a speculation. Such a petition is premature and not ripe for adjudication. Just as a case can be brought too late, it can be brought too early, and not yet be ripe for adjudication until the controversy has become concrete and focused. 2011 PTD 2260 (SB)

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• Apprehension that under the garb of show cause notice, the Respondents will take coercive action against the Appellant is nothing but an apprehension and this Court in constitutional jurisdiction does not act upon mere apprehension. Furthermore, it is just a notice and no substantive right is being infringed. 2017 PTD 803 (DB)

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Valid grounds for challenging a Show Cause Notice in Constitutional Jurisdiction of the High Court

1.??? Where the impugned notice is without jurisdiction for being coram non judice or being issued by a person not vested with the authority under law to issue such notice.

2.??? Where the impugned notice is non-est for purporting to exercise power and jurisdiction for purposes alien to the empowering statute, thereby rendering it palpably or wholly without jurisdiction.

3.??? Where the impugned notice suffers from mala fide for having been issued (i) for a collateral purpose that can be easily inferred from the facts and circumstances of the matter or (ii) in clear breach of procedural preconditions and pre-requisites prescribed by statute, that is tantamount to colourable exercise of jurisdiction or abuse of authority.

4.??? Where the alternative remedy is inadequate and illusory, because it lies before an adjudicatory forum that is conflicted or otherwise incapable of deciding the matter with an open mind in accordance with law as the authority or discretion vested in it stand fettered.

5.??? Where the impugned order violates the fundamental rights of the aggrieved person to due process guaranteed by the Constitution.

6.??? Where the controversy involves the interpretation of a statutory instrument, which makes it a case of first impression, provided that the High Court is not the repository of ultimate appellate, revisional or reference powers within the adjudicatory scheme prescribed by statute for remedying such grievance. 2021 PTD 1644 (SB)

7. ?? Where same issue was already pending in Tax Reference before the High Court and resort to statutory remedies below the Tribunal level would be a mere formality. 2012 PTD 130 (DB) and 2022 PTD 109 (DB)

8. ?? When revenue authority had already interpretated relevant provisions making statutory remedies illusory provided the petitioners sought interpretation of law requiring no factual determination. 2021 PTD 460 (DB)