GST notices under section 73 quashed for being vague and violating natural justice principles

Jharkhand HC quashed show-cause notices and orders under section 73 of JGST Act, 2017, finding them vague and procedurally defective. The court held that summary notices in Form GST DRC-01 cannot substitute proper show-cause notices as required under section 73(1). The proceedings violated natural justice principles and statutory procedures. Additionally, the 100% penalty levy contravened section 73(9), which permits maximum 10% penalty. The court found non-application of mind by tax authorities and procedural violations, allowing the petitions and quashing the impugned notices and orders.

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Issues Involved:
- Quashing of show-cause notices and orders issued under JGST Act, 2017
- Challenge to the imposition of 100% penalty
- Violation of principles of natural justice and procedural errors

Summary of the judgment:

The High Court of Jharkhand heard and decided two writ petitions concerning different petitioners but with common issues. The first petitioner, engaged in civil construction, sought to quash a show-cause notice and related orders for the tax period of April 2018 to March 2019. The second petitioner, a proprietor of a medical store, also challenged a show-cause notice and related orders for the same tax period. Both petitioners argued that the notices did not comply with Section 73(1) of the JGST Act, 2017, and failed to specify the contraventions adequately. They also contested the imposition of 100% penalty, which they deemed impermissible under the law.

In response, the State argued that the notices followed the standard format provided by GSTN and highlighted discrepancies in the taxpayers' filings. The State contended that late filing of GSTR-1 by suppliers led to changes in GSTR-2A figures, necessitating the levying of interest under section 50 of the Act to prevent revenue loss. The Court noted that the State did not specifically deny the petitioners' argument regarding the penalty imposition.

After considering the submissions, the Court found the show-cause notices to be vague and not meeting the requirements of a proper notice under Section 73(1) of the Act. The Court cited a previous judgment to emphasize the importance of specifying grounds in a show-cause notice to enable the taxpayer to defend themselves adequately. The Court also observed that the penalty of 100% tax dues imposed was in violation of the Act and principles of natural justice.

Consequently, the Court quashed the impugned show-cause notices, orders, and penalties, allowing the Deputy Commissioner to initiate fresh proceedings with proper notices and adherence to the law. The writ petitions were allowed in favor of the petitioners based on the identified deficiencies in the proceedings.

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