2024 (1) TMI 1201 - HC - GST

GST summary notice quashed for violating natural justice principles, no proper hearing given

Jharkhand HC quashed Summary of Show Cause Notice in Form GST DRC-01 and subsequent adjudication order, finding violation of natural justice principles. ... Seeking to set aside Summary of the Show Cause Notice - only ‘Summary of Show Cause Notice’ has been issued and no proper Show Cause Notice has been issued to the Petitioner - violation of principles of natural justice - HELD THAT:- This Court, while considering the similar matter in the case of M/S. NKAS SERVICES PRIVATE LIMITED. VERSUS THE STATE OF JHARKHAND, THE COMMISSIONER OF STATE TAXES, RANCHI, DEPUTY COMMISSIONER OF STATE TAXES, GODDA [2021 (10) TMI 880 - JHARKHAND HIGH COURT], has held that Since we are of the considered view that the impugned show cause notice as contained in Annexure-1 does not fulfill the ingredients of a proper show-cause notice and thus amounts to violation of principles of natural justice, the challenge is entertainable in exercise of writ jurisdiction of this Court. Accordingly, the impugned notice at Annexure-1 and the summary of show-cause notice at Annexure-2 in Form GST DRC-01 are quashed. In the instant case, from bare perusal of the order-sheet, it would transpire that Summary of Show Cause Notice in Form GST DRC-01 was issued to the Petitioner on 27.09.2019 and, although no date of compliance was given, the Petitioner, suo-motu, filed its reply on 22.10.2019. Thereafter, no date of hearing was fixed in the matter and, straightaway, vide order-sheet dated 02.09.2020, it has been recorded that Summary of Demand in Form GST DRC-07 is being issued to the Petitioner. Thus, admittedly, no opportunity of hearing was also granted to the Petitioner before the impugned demand was raised upon the Petitioner. There are no option, but to quash and set aside the Summary of Show Cause Notice contained in Form GSTR DRC-01 dated 27.09.2019 (Annexure 2/1) issued by Respondent No. 2 and consequently, set aside the adjudication order dated 02.09.2020 contained in the order-sheet pertaining to financial year 2018-19 and, consequently also, the Summary of the Order issued in form GST DRC-07 dated 04.09.2020 issued by Respondent No. 2. However, Respondents would be at liberty to initiate fresh proceeding in accordance with law, if so advised. The writ application is allowed and disposed of. ISSUES PRESENTED AND CONSIDERED 1. Whether a 'Summary of Show Cause Notice' issued in Form GST DRC-01, without issuance of a proper show-cause notice fulfilling statutory ingredients, can sustain adjudication under Sections 73/75 of the JGST Act. 2. Whether issuance of a demand by way of Form GST DRC-07 without fixing a hearing date or granting opportunity of hearing violates the requirements of natural justice and Sections 75(4)-75(5) of the JGST Act. 3. Whether a summary adjudication communicated belatedly on the taxpayer's portal, and absence of an adjudication order on the record, precludes exercise of writ jurisdiction (i.e., availability of alternative remedy by appeal bars writ relief). ISSUE-WISE DETAILED ANALYSIS - Issue 1: Validity of 'Summary of Show Cause Notice' in Form GST DRC-01 Legal framework: Section 73 (and Section 74 where referenced) of the JGST Act requires initiation of adjudication proceedings by issuance of a show-cause notice containing the foundational allegations enabling the authority to require explanation and to propose demand of tax, interest and penalty; Rule 142(1) provides the Form GST DRC-01 as a 'summary of show-cause notice.' Precedent Treatment: The Court relied on prior bench decisions of this Court that addressed whether a Form GST DRC-01 summary can substitute for a proper show-cause notice; those decisions held that a mere summary lacking the statutory ingredients is insufficient. Interpretation and reasoning: The Form GST DRC-01 issued in the instant matter did not set out the foundational allegations with requisite particularity (it merely referenced mismatch between returns), rendering the notice vague and failing to fulfill the ingredients of a proper show-cause notice under the statutory scheme. A summary form cannot substitute the statutorily mandated show-cause notice required to commence adjudication under Sections 73/74. Ratio vs. Obiter: Ratio - A summary notice in Form GST DRC-01 that does not meet the statutory content requirements constitutes a defective show-cause notice and amounts to breach of principles of natural justice; such defect permits exercise of writ jurisdiction. Observations on whether issuance of Form ASMT-10 is a condition precedent were left open and treated as obiter. Conclusions: The Summary of Show Cause Notice in Form GST DRC-01 (dated 27.09.2019) is quashed for not fulfilling statutory ingredients and for violating principles of natural justice. Respondents are permitted to initiate fresh proceedings in accordance with law if so advised. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Failure to grant hearing before issuing Form GST DRC-07 (Summary of Order/Demand) Legal framework: Sections 75(4) and 75(5) of the JGST Act mandate that (i) opportunity of hearing shall be granted where a request is made or where an adverse decision is contemplated, and (ii) adjournments be granted on sufficient cause with reasons recorded, subject to limits on adjournments. Precedent Treatment: The Court relied on earlier bench jurisprudence interpreting Sections 75(4)-75(5) to require an opportunity of hearing before issuing adverse adjudicatory demands and to treat issuance of a demand without such hearing as contrary to the statutory scheme and principles of natural justice. Interpretation and reasoning: The order-sheet shows no date of hearing was fixed, no hearing was held, and the authority proceeded after the taxpayer's suo motu reply to record a summary demand in Form GST DRC-07. A conjoint reading of Sections 75(4) and 75(5) makes clear that where an adverse decision is contemplated the authority must grant an opportunity of hearing; absent hearing or recorded reasons for not adjourning, the action is procedurally infirm. Ratio vs. Obiter: Ratio - Issuance of a demand (Form GST DRC-07) without granting the taxpayer an opportunity of hearing, where an adverse decision is contemplated, violates Sections 75(4)-75(5) and principles of natural justice, rendering the demand invalid. Observations limited to interpretation of those statutory subsections are part of the binding ratio in this matter. Conclusions: The Summary of Demand in Form GST DRC-07 and the adjudication entry dated 02.09.2020 are set aside for failure to grant the requisite opportunity of hearing; respondents may initiate fresh proceedings consistent with statutory hearing requirements. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Availability of alternative remedy (appeal) and maintainability of writ petition Legal framework: Principles governing writ jurisdiction permit interference where fundamental statutory requirements or principles of natural justice are violated; availability of alternative efficacious remedies can affect maintainability, but egregious procedural defects may still warrant writ relief. Precedent Treatment: Earlier decisions of this Court have entertained writs where the show-cause process or opportunity to be heard is fundamentally defective, notwithstanding the existence of statutory appellate remedies. Interpretation and reasoning: The respondents contended that remedy by appeal exists and thus the writ was not maintainable. The Court found that the issuance of only a summary notice devoid of statutory essentials and the ex parte imposition of demand without hearing constitute breaches of principles of natural justice and statutory mandate that justify writ intervention; the mere existence of an appeal did not preclude relief where the foundational notice itself was invalid and where no adjudication in proper form was made known to the taxpayer until much later via portal upload. Ratio vs. Obiter: Ratio - Fundamental procedural defects in issuance of notice and denial of hearing justify exercise of writ jurisdiction despite availability of statutory appellate remedy. Conclusions: Writ jurisdiction was rightly invoked; maintainability objection based solely on the availability of appeal is rejected in view of the procedural infirmities established. OVERALL CONCLUSION AND RELIEF The Court quashed the Summary of Show Cause Notice in Form GST DRC-01 dated 27.09.2019, set aside the adjudication entry dated 02.09.2020 and the Summary of Order in Form GST DRC-07 dated 04.09.2020, holding that (a) a Form GST DRC-01 that fails to state the statutory ingredients cannot substitute for a proper show-cause notice; (b) issuance of demand without granting opportunity of hearing violates Sections 75(4)-75(5) and principles of natural justice; and (c) writ relief is appropriate notwithstanding the availability of appellate remedy. Respondents are at liberty to initiate fresh proceedings in accordance with law. Parties to bear their own costs.