2022 (10) TMI 671 - HC - GST

HC quashes GST summary orders for procedural violations, missing show cause notices under Sections 73/74

The HC quashed summary orders and adjudication orders issued under JGST Act, 2017, finding them invalid due to procedural violations. The court held that ... Mandatory show cause notice under Section 74 of the JGST Act - summary adjudication under Rule 142 of the JGST Rules (DRC 01/DRC 02/DRC 07) - principles of natural justice and right to personal hearing - service of adjudication order and disclosure of relied upon materials - quashing of orders for failure to follow statutory procedure - remand for fresh adjudication in accordance with lawMandatory show cause notice under Section 74 of the JGST Act - summary adjudication under Rule 142 of the JGST Rules (DRC 07) - quashing of orders for failure to follow statutory procedure - Validity of summary orders (DRC 07) and related adjudication where no statutory show cause notice under Section 73/74 was issued and no detailed adjudication order was passed - HELD THAT: - The Court found that in the matters before it no show cause notice as mandated by Sections 73/74 of the JGST Act was issued and, in several cases, only summary forms (DRC 01/DRC 02/DRC 07) were employed without issuance of the requisite detailed notice or provision of relied upon materials. The procedure mandated by the Act was not followed, and several petitioners were not shown to have been served with the detailed adjudication orders. The Court held that failure to issue the mandatory show cause notice and to pass a detailed order goes to the root of the proceedings and vitiates the same. Consequently the summary orders and consequential adjudication orders were set aside. The Court expressly did not go into the merits of the departmental allegations and confined its decision to the procedural infirmity arising from non compliance with mandatory statutory procedure. [Paras 8, 9, 10, 11, 12]Summary orders (DRC 07) and adjudication/penalty orders are quashed where no show cause notice under Sections 73/74 was issued and no detailed order was passed; the Court set aside the impugned summary/adjudication orders.Principles of natural justice and right to personal hearing - service of adjudication order and disclosure of relied upon materials - Whether principles of natural justice were complied with, including furnishing of relied upon materials and affording personal hearing - HELD THAT: - The Court concluded that principles of natural justice were violated: DRC 01 forms issued in several matters were vague, lacked details of relied upon material, and did not furnish documents or particulars on which adverse findings were based. Opportunity of hearing, as required by the Act, was not afforded and it was not demonstrated that adjudication orders were served on the petitioners. Reliance on third party statements without confronting parties and without making relied upon material available was noted as inconsistent with fair adjudication. For these reasons the impugned orders were held to be vitiated by breach of natural justice. [Paras 6, 8, 9, 10, 11]Proceedings and orders were invalid for failure to comply with principles of natural justice, including non disclosure of relied upon materials and absence of personal hearing.Remand for fresh adjudication in accordance with law - Disposition of matters following quashing of impugned orders - HELD THAT: - Having quashed the summary and adjudication orders for procedural defects and non compliance with natural justice, the Court remitted the matters to the concerned respondents for fresh adjudication strictly in accordance with the statutory provisions of the JGST Act and Rules and after affording the petitioners requisite opportunity of hearing. The Court clarified that it has not considered the merits of the departmental claims and left open the question of invocation of revisional jurisdiction under Section 108. [Paras 11, 12, 13]Matters remitted to respondents to pass fresh orders in accordance with law after complying with statutory procedure and principles of natural justice; merits left open.Final Conclusion: The High Court quashed and set aside the summary show cause notices, DRC 07 summary orders, adjudication and penalty orders in the listed writ petitions for failure to issue mandatory show cause notices and for breach of principles of natural justice, and remitted the matters to the respondents for fresh adjudication in accordance with the JGST Act and Rules after affording opportunity of hearing; merits were not decided. Issues Involved:1. Issuance of Show Cause Notices (SCN) under Section 74 of the JGST Act.2. Compliance with principles of natural justice.3. Validity of summary orders (DRC-07) and related proceedings.4. Right to appeal under Section 107 of the JGST Act.5. Jurisdiction of revisional authority under Section 108 of the JGST Act.Detailed Analysis:1. Issuance of Show Cause Notices (SCN) under Section 74 of the JGST Act:The petitioners challenged the summary of SCN issued under Rule 142 of the JGST Rules, respective adjudication orders, and all consequential orders, arguing that mandatory show cause notices under Section 74(1) of the JGST Act were never issued. Instead, only summary orders in Form DRC-07 were issued. The court found that no detailed orders had been passed against the petitioners, and they were served DRC-07 notices without the issuance of any proper SCN, which is a violation of the provisions of the Act.2. Compliance with principles of natural justice:The petitioners argued that the entire procedure adopted by the respondents suffered from illegality, impropriety, material irregularity, and miscarriage of justice. They contended that DRC-01 issued was vague, lacked details, and violated principles of natural justice as no reference to any relied upon adverse materials was provided. The court noted that the DRC-01 issued was indeed vague and lacked details, and no relied upon materials were given, which is in violation of the principles of natural justice.3. Validity of summary orders (DRC-07) and related proceedings:The court observed that in some cases, only penalty orders were passed, and in some cases, no DRC-01 was issued. The procedure required under the Act was not followed at all. The court concluded that the summary of orders, adjudication orders, and all subsequent orders issued by the department were bad in law as they were issued without issuing any SCN and without affording the opportunity of personal hearing, which is mandatory.4. Right to appeal under Section 107 of the JGST Act:The respondents argued that the petitioners, to avoid the statutory appeal under Section 107 of the JGST Act, preferred revision under Section 108 before the Additional Commissioner. The court did not delve deeply into this issue but noted that the petitioners' challenge was based on the ground of non-compliance with the principles of natural justice and the provisions of the Act.5. Jurisdiction of revisional authority under Section 108 of the JGST Act:The petitioners initially argued that the revisional authority should have adjudicated their revision applications. However, during the proceedings, they sought to press the challenge on the alternative grounds of non-compliance with principles of natural justice and the provisions of the Act. The court left the question open regarding whether an assessee can invoke jurisdiction under Section 108 of the JGST Act.Conclusion:The court quashed and set aside the summary of SCN and orders, including DRC-01, DRC-02, DRC-07, penalty orders, and DRC-13 notices in all the writ applications. It remitted the matters back to the concerned respondents to pass fresh orders in accordance with the law and specific provisions of the JGST Act, 2017, after following the principles of natural justice. The court clarified that it did not go into the merits of the case of the parties. All writ applications were allowed and disposed of, and any pending I.A. was also disposed of.