Issuance of SCN in undue haste, without reasonable time to respond to audit queries and DRC-01A intimation, violates principles of natural justice

The Hon’ble Gujarat High Court in SAI CONSULTING ENGINEERS PRIVATE LIMITED Versus UNION OF INDIA & ORS. - 2025 (8) TMI 1048 - GUJARAT HIGH COURT held that issuance of a show-cause notice in undue haste, without granting reasonable time for compliance with audit queries and intimation in Form DRC-01A, warrants interference.

Facts:

Sai Consulting Engineers Private Limited (“the Petitioner”) is engaged in providing consultancy services. The Union of India & Ors. (“the Respondent”) initiated audit proceedings against the Petitioner and issued a query memo on July 25, 2024, granting only one day to respond, i.e., up to 26.07.2024. Thereafter, Form DRC-01A was issued on July 31, 2024 with compliance time till 01.08.2024.

The Petitioner requested an extension through a letter dated August 1, 2024, but no reply was given. Instead, the Respondent issued a show-cause notice in Form DRC-01 on August 3, 2024, allegedly to save limitation for FY 2017-18. This culminated in an Order-in-Original dated January 25, 2025 raising substantial demand. The Respondent did not grant any additional time despite the Petitioner’s request and proceeded with adjudication.

The Petitioner challenged the SCN and order under Article 226, contending that the hasty action violated principles of natural justice.

Issue:

Whether issuance of a show-cause notice in undue haste, without reasonable opportunity to respond to audit queries and DRC-01A intimation, is sustainable under GST law?

Held:

The Hon’ble Gujarat High Court in SAI CONSULTING ENGINEERS PRIVATE LIMITED Versus UNION OF INDIA & ORS. - 2025 (8) TMI 1048 - GUJARAT HIGH COURT held as under:

• Observed that the timeframes provided, i.e. one day for audit queries and one day for DRC-01A compliance, were manifestly inadequate for meaningful reply.
• Noted that, the Petitioner had promptly requested an extension through a written letter dated August 1, 2024, but the Respondent issued SCN on August 03, 2024 without considering the request.
• Noted that, such action appeared premeditated to meet limitation deadlines for FY 2017-18, compromising the fairness of proceedings.
• Held that prima facie, the process adopted amounted to denial of reasonable opportunity, constituting breach of principles of natural justice.
• Directed that, as an ad-interim relief, and that no coercive action shall be taken against the Petitioner during the pendency of the petition.

Our Comments:

The Court’s prima facie view aligns with settled jurisprudence that unreasonable timelines for compliance vitiate adjudication proceedings. In Tin Box Company Versus Commissioner of Income-Tax - 2001 (2) TMI 13 - Supreme Court, the Supreme Court held that an order passed without affording adequate opportunity must be set aside regardless of merits.

The Calcutta High Court in The Commissioner of CGST, Kolkata Audit-I, Commissionerate Versus M/s. Saumya Agrotech Private Limited & Ors. - 2022 (8) TMI 1317 - CALCUTTA HIGH COURT and The Delhi High Court in Spinclabs Private Limited Versus The Commissioner Of Delhi Goods And Services Tax And Ors. - 2024 (4) TMI 946 - DELHI HIGH COURT reiterated that SCNs issued in undue haste are unsustainable. The present case is consistent with these principles, reinforcing that limitation deadlines cannot override the statutory and constitutional requirement of fair hearing under Articles 14 and 21.

Relevant Provisions:

“Rule 142, CGST Rules, 2017

Rule 142. Notice and order for demand of amounts payable under the Act. -

(1) The proper officer shall serve, along with the

(a) Notice issued under section 52 or section 73 or section 74 10[or section 74A  or section 76 or section 122 or section 123 or section 124 or section 125 or section 127 or section 129 or section 130, a summary thereof electronically in FORM GST DRC-01,

(b) statement under sub-section (3) of section 73 or sub-section (3) of section 74 10[or sub-section (3) of section 74A, a summary thereof electronically in FORM GST DRC-02, specifying therein the details of the amount payable.

(1A) The proper officer may, before service of Notice to the person chargeable with tax, interest and penalty, under sub-section (1) of Section 73 or sub-section (1) of Section 74 or sub-section (1) of section 74A, as the case may be, communicate the details of any tax, interest and penalty as ascertained by the said officer, in Part A of FORM GST DRC-01A.; ….”

 (Author can be reached at [email protected])