2022 (7) TMI 814 - HC - GST

Show-cause notice under Section 74(1) must allow statutory hearing under Sections 75(4)-75(5); identical pre-decisional forms invalid

HC held the adjudication proceedings and demand orders unlawful for failure to issue a proper show-cause notice under Section 74(1) and for denying the ... Validity of summary of SCN - it s alleged that the summary of show-cause notice has pre-judged and pre-decided the entire issue and has in fact fastened the liability towards tax, interest and penalty upon the individual petitioners - opportunity of hearing not granted - violation of principles of natural justice - HELD THAT:- The adjudication proceedings in each case were based upon inspection undertaken on the basis of the intelligence inputs provided to the concerned circles by the headquarters of the State Tax Department. It is also evident from the records and the stand taken by the respondents in the counter affidavit that no relied upon documents in the inspection report were supplied to the petitioners. Respondents have now after producing the compilation of records of the proceedings in individual cases, not been able to dispute that no proper showcause notice was issued in terms of Section 74(1) of the JGST Act to the individual petitioners. In the absence of a proper show-cause notice the petitioners herein have been denied proper opportunity to defend themselves of the charges. The requirement of affording opportunity of hearing as contemplated in Section 75(4) of the JGST Act has also been denied. Section 75(5) provides that in case sufficient show-cause is shown by the person chargeable with tax, the proper officer shall grant time to the said person and adjourn the hearing for reasons to be recorded in writing provided that no such adjournment shall be granted for more than three times to a person during the proceedings. At this stage that the summary of show-cause notice in case of each of the writ petitioners is in the same format and language. It does not indicate any date for filing reply. The language employed also creates a clear impression that the liability towards tax, penalty and interest has been already pre-determined. None of the petitioners got any opportunity to reply to the summary of the show-cause notice either as no date or time was indicated therein. The adjudication order has been passed thereafter confirming this liability towards tax, penalty and interest indicated in the summary of show-cause notice in case of each of the writ petitioners - Learned counsel for the State has not been able to dispute that the summary of show-cause notice in Form GST DRC-01 in case of individual petitioners and the adjudication order also in case of individual petitioners are in the same language and format and that no opportunity whatsoever was given to the individual petitioners to furnish reply to the summary of show-cause notice. The summary of the order in Form GST DRC 07 has been issued in individual cases conveying the assessment of liability towards tax, interest and penalty adjudged by the State Tax Officer on wrongful availment of ITC without receipt of goods in contravention of Section 16(2) using fraudulent methods in case of individual petitioners in like manner. It is evident that without proper opportunity of furnishing reply to the show-cause notice and without supplying the relied upon documents referred to in the inspection report, the petitioners have been prejudiced in defending themselves. The petitioners may have also lost the opportunity to cross-examine such persons as are relied upon by the tax authorities to support the impugned proceedings. Since the impugned proceedings are clearly in violation of principles of natural justice and the procedure prescribed under the JGST Act, the petitioners are justified in approaching this Court in writ jurisdiction. The impugned show-cause notice, the adjudication orders and the summary of the order/demand notice in DRC-07 in the case of the individual petitioners cannot be sustained in the eyes of law and on facts - the respondents State Tax authorities are at liberty to initiate fresh proceedings by issuing a proper show-cause notice in respect of the individual writ petitioners relating to the relevant tax periods and take a decision thereupon in accordance with law - petition allowed. Issues Involved:1. Quashing of summary show-cause notices issued in Form GST DRC-01.2. Quashing of adjudication orders passed under Section 74(9) of the JGST Act, 2017.3. Quashing of consequential Demand Notices issued in Form GST DRC-07.4. Violation of principles of natural justice.5. Non-issuance of proper show-cause notices under Section 74(1) of the JGST Act.6. Denial of opportunity to file a reply and hearing.7. Non-supply of relied-upon documents to petitioners.8. Maintainability of writ petitions under Article 226 of the Constitution of India.Detailed Analysis:1. Quashing of Summary Show-Cause Notices Issued in Form GST DRC-01:The petitioners argued that the summary show-cause notices in Form GST DRC-01 pre-judged and pre-decided the entire issue, fastening liability towards tax, interest, and penalty upon them without proper adjudication. The court found that the summary show-cause notices issued did not fulfill the requirements of a proper show-cause notice under Section 74(1) of the JGST Act. The notices lacked specific charges and did not provide an opportunity for the petitioners to defend themselves, thereby violating principles of natural justice.2. Quashing of Adjudication Orders Passed Under Section 74(9) of the JGST Act, 2017:The petitioners contended that the adjudication orders were passed without granting any opportunity of hearing, in a pre-judged manner. The court noted that the adjudication orders confirmed the tax, interest, and penalty without any variation from the summary show-cause notices, indicating a pre-determined liability. The court held that the adjudication orders were passed in violation of Section 75(4) and (5) of the JGST Act, which mandate granting an opportunity of hearing and allowing adjournments for sufficient cause.3. Quashing of Consequential Demand Notices Issued in Form GST DRC-07:The petitioners challenged the consequential demand notices issued in Form GST DRC-07, which quantified the demand of tax, interest, and penalty as indicated in the adjudication orders. The court found that the demand notices were issued based on flawed adjudication orders and improper show-cause notices. Consequently, the demand notices were also quashed.4. Violation of Principles of Natural Justice:The petitioners argued that the entire proceedings were conducted in violation of principles of natural justice. The court observed that the petitioners were not provided with the relied-upon documents, nor were they given an opportunity to cross-examine witnesses. The court held that the denial of a proper opportunity to defend themselves amounted to a violation of natural justice.5. Non-Issuance of Proper Show-Cause Notices Under Section 74(1) of the JGST Act:The petitioners contended that no proper show-cause notices were issued in terms of Section 74(1) of the JGST Act. The court noted that the summary show-cause notices did not specify the charges clearly and lacked details, making it impossible for the petitioners to respond effectively. The court emphasized that a proper show-cause notice is a sine qua non for initiating proceedings under Section 74.6. Denial of Opportunity to File a Reply and Hearing:The court found that the summary show-cause notices did not indicate any date for filing a reply, nor were the petitioners given an opportunity to file their replies or be heard. The court held that this denial of opportunity violated Section 75(4) of the JGST Act, which mandates granting an opportunity of hearing where any adverse decision is contemplated.7. Non-Supply of Relied-Upon Documents to Petitioners:The petitioners argued that none of the relied-upon documents in the intelligence notes were supplied to them, making it impossible to defend against the charges. The court agreed, noting that the failure to provide these documents violated principles of natural justice and the petitioners' right to a fair hearing.8. Maintainability of Writ Petitions Under Article 226 of the Constitution of India:The petitioners argued that the writ petitions were maintainable under Article 226 due to the violation of principles of natural justice. The court agreed, citing precedents that allow for writ jurisdiction in cases where natural justice is violated. The court held that the writ petitions were maintainable and justified in the given circumstances.Conclusion:The court quashed the impugned summary show-cause notices, adjudication orders, and demand notices. The respondents were granted liberty to initiate fresh proceedings with proper show-cause notices in accordance with the law. The court emphasized that it did not delve into the merits of the case and that the adjudicating officer should take a fresh decision without being influenced by the observations made in this judgment. The writ petitions were allowed to the extent indicated.