The Gauhati High Court cleared an ambiguity crawling under Section 73 of the CGST Act, 2017, read with Rule 142 of the CGST Rules, 2017, by ruling that an attachment in the Summary Show Cause GST DRC-01 would not qualify as a valid Show Cause Notice (SCN). The Court added that “merely attaching a tax determination order to the summary in DRC-01 does not amount to valid initiation u/s 73, as the summary is only supplementary to a full SCN”, and therefore, orders passed without a proper SCN are violative of Section 73 and Rule 142(1)(a). (Para 14)
While accepting the submission that the attachments to both DRC-01 and DRC-07 summaries lack legal value, as they bear no authentication by the Proper Officer, a Single Judge Bench of Justice Sanjay Kumar Medhi observed that such a statement attached to the Summary in GST DRC-01 does not constitute a valid SCN. The Bench added that if an adverse decision is contemplated, a hearing must be granted, and failure to provide such a hearing renders Section 75(4) meaningless, and thus, passing an adverse order without a hearing in such circumstances violates both the statutory mandate and the principles of natural justice.
Briefly, the petitioner, an individual, who was issued a Summary of Show Cause in GST DRC-01 for the tax period from April 2018 – March 2019, along with an attachment for the determination of tax, claimed that since no proper SCN authenticated by any signature of the Proper Officer, was attached to the Summary in the portal, he could not submit any reply. However, without acceding to his difficulty, an order was passed in GST DRC-07 on the ground that the petitioner had failed to make payment within 30 days of the issue of notice.
When the matter reached the High Court, it was found from a perusal of the GST DRC-01 issued to the petitioner that it included an attachment which was claimed by the Department to constitute a SCN as it comprises of tax determination therein. Referring to Section 73 of the CGST Act, the Court stated that the Proper Officer is mandated to issue a SCN in case of taxes unpaid or short-paid, taxes erroneously refunded, or there was wrong availment of the input tax credit (ITC), and the SCN must clearly state the reasons for the recipient to effectively respond, particularly if they wish to challenge the applicability of Section 73.
The Court, at the same time, observed that the legislature has made a clear distinction between a Show Cause Notice and a Statement, which calls for a separate and proper SCN even if a Statement is issued u/s 73(3). Therefore, referring to Rule 142 of the CGST Rules, 2017, the Court observed that the “issuance of the Show Cause Notice and the Statement of determination of tax by the Proper Officer are mandatory requirements in addition to the Summary of Show Cause Notice in GST DRC-01 and Summary of the Statement in GST DRC-02”.(Para 12)
Lastly, the Court allowed the petition in favour of the petitioner and granted liberty to the respondents to initiate de novo proceedings u/s 73, observing that they may have proceeded under the mistaken impression that attaching the determination of tax to the summary constitutes a valid SCN.
Appearances:
Advocate Amit Goyal, for the Petitioner
Advocate B. Choudhury, for the Respondent
