2022 (4) TMI 1026 - HC - GST

GST adjudication orders quashed for lack of proper show cause notice violating natural justice principles

The Jharkhand HC quashed GST adjudication orders passed without proper show cause notice. The petitioner challenged Form GST DRC 07 dated 11.09.2020, ... Principles of natural justice - show cause notice under Section 74 of the JGST Act - summary of show cause notice not substituting a formal show cause notice - opportunity of personal hearing under Section 75(4) and 75(5) of the JGST Act - antedated adjudication order vitiates proceedings - quashing of adjudication order for procedural infirmityShow cause notice under Section 74 of the JGST Act - summary of show cause notice not substituting a formal show cause notice - principles of natural justice - Adjudication proceedings initiated and adjudication order passed without issuance of a proper show cause notice under Section 74 are void for violation of principles of natural justice. - HELD THAT: - The Court held that proceedings under Section 74, which allege fraud or willful misstatement/suppression, require a show cause notice specifying the charges so that the person proceeded against can make an effective defence. A mere issuance of Form GST DRC 01 as a 'summary of show cause notice' without specifying the foundational allegations and without meeting the statutory ingredients of a notice under Section 74 cannot substitute a proper show cause notice. Reliance on the Coordinate Bench decision in M/s NKAS Services Pvt. Ltd. established that vague or conclusory notices deny a reasonable opportunity to the noticee and vitiate the proceedings. Applying that principle, the Court found the statutory requirements unmet and the adjudication order to be non est in law. [Paras 16, 17, 18]The summary of show cause notices dated 14.03.2020 and the adjudication order are quashed insofar as they were preceded by no proper show cause notice; the impugned orders are set aside.Opportunity of personal hearing under Section 75(4) and 75(5) of the JGST Act - principles of natural justice - quashing of adjudication order for procedural infirmity - Passing of adjudication order without affording opportunity of personal hearing and in disregard of Sections 75(4) and 75(5) constitutes violation of natural justice and warrants setting aside the order. - HELD THAT: - Sections 75(4) and 75(5) require that an opportunity of hearing be granted where an adverse decision is contemplated, and adjournments be allowed if sufficient cause is shown. The record showed that Form GST DRC 01 did not fix any hearing date and no personal hearing was recorded; the adjudication order was passed on the first recorded date after issuance of the summary notice. The Court found this to be a stark disregard of the statutory scheme and principles of natural justice, independently justifying quashing of the adjudication order. [Paras 21, 23]The adjudication orders are quashed for failure to afford the statutory opportunity of hearing and for breach of natural justice.Antedated adjudication order vitiates proceedings - quashing of adjudication order for procedural infirmity - Discrepancies in dates of adjudication order and absence of corresponding entries in the order sheet (suggesting an antedated or unrecorded order) amount to serious lacunae in the proceedings and militates against the validity of the orders. - HELD THAT: - The Court observed that the adjudication order produced in the counter affidavit bore a date which was not reflected in the order sheet and that the summary of order elsewhere referenced a different date. The State could not satisfactorily explain the discrepancy. While the Court did not base its sole conclusion on malice, it held that such defects in recording and dating the proceedings contributed to the procedural infirmity and reinforced the need to quash the impugned orders. [Paras 24, 25, 26]The inconsistencies and failure to record the adjudication proceedings contribute to invalidating the orders; the impugned orders are quashed.Quashing of adjudication order for procedural infirmity - administrative direction to tax authorities - Court directs administrative remedial action to prevent recurrence of procedural lapses by State Tax authorities. - HELD THAT: - Having found systemic lapses in adherence to prescribed procedure in the present and similar matters, the Court directed the Commissioner of State Tax to issue appropriate guidelines/circular/notification detailing the procedure to be followed in issuance of show cause notices, adjudication and recovery proceedings so that due process is observed in future adjudications. The Court noted this step was warranted in the public interest given the impact on revenue administration and taxpayers' rights. [Paras 26, 27]Commissioner of State Tax directed to issue guidelines/circulars clarifying the procedure for issuance of show cause notices, adjudication and recovery; respondents permitted to initiate fresh proceedings in accordance with law.Final Conclusion: The writ petitions are allowed. The summary of show cause notices dated 14.03.2020, the adjudication order dated 13.08.2020 (and related summaries dated 11.09.2020) issued against the petitioner for Financial Years 2017 18 and 2018 19 are quashed and set aside for failure to issue a proper show cause notice, denial of statutory opportunity of hearing and procedural lacunae; respondents are at liberty to initiate fresh proceedings in accordance with law and the Commissioner of State Tax is directed to issue procedural guidelines. Issues Involved:1. Issuance of proper show cause notice under Section 74 of the JGST Act.2. Violation of principles of natural justice and statutory provisions under Section 75(4) and 75(5) of the JGST Act.3. Allegation of antedating the adjudication order.Issue-wise Detailed Analysis:1. Issuance of Proper Show Cause Notice:The petitioner contended that no show cause notice as required under Section 74 of the JGST Act, 2017, read with Rule 142(1) of the JGST Rules, 2017, was issued, rendering the entire proceeding void ab initio. The court observed that only a 'summary of show cause notice' in Form GST DRC-01 was issued on 14th March 2020, without specifying a date for filing a reply or for a hearing. This issue was previously settled in the case of M/s NKAS Services Private Limited Vs. State of Jharkhand, where it was held that a proper show cause notice is mandatory for proceedings under Section 74. The court reiterated that the absence of a proper show cause notice violates principles of natural justice, making the adjudication order non est in the eye of law.2. Violation of Principles of Natural Justice and Statutory Provisions:The petitioner argued that the adjudication order was passed without providing an adequate opportunity to file a reply or a personal hearing, violating Sections 75(4) and 75(5) of the JGST Act. The court noted that Form GST DRC-01 was issued without specifying any date for a hearing, and the adjudication order was allegedly passed on 13th August 2020, without any recorded opportunity for a personal hearing. This was in stark disregard of the mandatory provisions of the GST Act. The court cited multiple judgments from various High Courts supporting the necessity of adhering to the principles of natural justice and statutory provisions, emphasizing that an opportunity of hearing must be granted where any adverse decision is contemplated.3. Allegation of Antedating the Adjudication Order:The petitioner alleged that the adjudication order dated 13th August 2020 was antedated to justify the earlier issued Form GST DRC-07. The court found that the summary of the order dated 11th September 2020 referred to an adjudication order dated 11th September 2020, while the respondents introduced an adjudication order dated 13th August 2020 in their counter affidavit. The court observed that there was no recording in the order-sheet of any proceeding conducted on either 13th August 2020 or 11th September 2020. The respondents admitted that the order-sheet did not record any proceedings on these dates, failing to provide a satisfactory explanation for the discrepancy.Conclusion:The court concluded that the adjudication proceedings were conducted in stark disregard of the mandatory provisions of the GST Act, entailing adverse consequences for the petitioner. The summary of show cause notices dated 14th March 2020, the adjudication order dated 13th August 2020, and the summary of orders dated 11th September 2020 were quashed and set aside. The respondents were granted liberty to initiate fresh proceedings in accordance with the law. The court also directed the Commissioner of the State Tax Department to issue appropriate guidelines to ensure proper procedure is followed in future adjudication proceedings. Both writ applications were allowed and disposed of.