2024 (12) TMI 721 - HC - GST

GST assessment order quashed for violating natural justice principles under Section 73 CGST Act

The HC set aside a GST assessment order dated 31.12.2023 for violating natural justice principles. The court held that a summary of show cause notice with ... Violation of principles of natural justice - Validity of Summary of Show Cause Notice as a substitute for a proper Show Cause Notice - It is the grievance of the petitioner that the petitioner was not provided with the opportunity of hearing as provided under Section 75 (4) of the CGST/AGST Act, 2017 before passing of the order - attachment of SCN. Whether the said attachment can be said to be a Show Cause Notice as per the mandate of both the Central Act as well as the State Act and the Rules made therein under? - HELD THAT:- This Court is of the view that the Summary of the Show Cause Notice along with the attachment containing the determination of tax cannot be said to be a valid initiation of proceedings under Section 73 without issuance of a proper Show Cause Notice. The Summary of the Show Cause Notice is in addition to the issuance of a proper Show Cause Notice. Under such circumstances, this Court is of the opinion that the impugned order challenged in the instant writ petition is contrary to the provisions of Section 73 as well as Rule 142 (1) (a) of the Rules as the said impugned Orders were passed with issuance of a proper Show Cause Notice. Whether the determination of tax as well as the order attached to the Summary to the Show Cause Notice in GST DRC-01 and the Summary of the Order in GST DRC-07 can be said to be the Show Cause Notice and order respectively, this Court duly dealt with what would constitute a Show Cause Notice, the Statement as per Section 73 (3) as well as the Summary to the Show Cause Notice in GST DRC-01 and Summary of the Statement in GST DRC-02 - the submission of the respondents that the statement attached to the Summary of the Show Cause Notice is the Show Cause Notice is completely misconceived and contrary to Section 73 (1) and 73 (3). Whether Rule 26 (3) can be applicable to Chapter-XVIII when the said Sub-Rule on refers to Chapter-III? - HELD THAT:- In the case of M/S. SILVER OAK VILLAS LLP VERSUS THE ASSISTANT COMMISSIONER (ST), THE ADDITIONAL COMMISSIONER OF CENTRAL TAX, STATE OF TELANGANA, UNION OF INDIA, CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS [2024 (4) TMI 367 - TELANGANA HIGH COURT], the learned Division Bench of the Telangana High Court had applied Rule 26 (3) of the Rules of 2017 even to Chapter-XVIII of the Rules of 2017. In the case of AV BHANOJI ROW VERSUS ASSISTANT COMMISSIONER ST VISAKHAPATNAM [2023 (2) TMI 1224 - ANDHRA PRADESH HIGH COURT] the learned Division Bench of the Andhra Pradesh High Court held that the signatures cannot be dispensed with and Sections 160 and 169 cannot save an order, notice, communication which did not contain a signature. This Court has duly perused the Summary of the Show Cause Notices wherein the petitioner was only asked to file his reply on a date specified. There was no mention as to the date of hearing and the Column was kept blank. However, the petitioner had sought for an opportunity of hearing which was however not given - if this Court takes note of Section 75 (4) of both the Central Act as well as State Act, it would be seen that it is the mandate of the said provision that an opportunity of hearing should be granted when a request is received in writing from the person chargeable with tax or penalty or when any adverse decision is contemplated against such person. The mandate of Section 75 (4) of both the Central and State Act are safeguards provided to the assessees so that they can have a say in the hearing process. In the instant writ petitions, the attachment to the Summary of Show Cause Notice in GST DRC-01 is only the Statement of the determination of tax in terms with Section 73 (3). The said Statement of determination of tax cannot substitute the requirement for issuance of the Show Cause Notice by the Proper Officer in terms with Section 73 (1) of the Central or the State Act. Under such circumstances, initiation of the proceedings under Section 73 against the petitioners in the instant batch of writ petitions without the Show Cause Notice is bad in law and interfered with - The issuance of the Summary of the Show Cause Notice, Summary of the Statement and Summary of the Order do not dispense with the requirement of issuance of a proper Show Cause Notice and Statement as well as passing of the Order as per the mandate of Section 73 by the Proper Officer. As initiation of a proceedings under Section 73 and passing of an order under the same provision have consequences. The Show Cause Notice, Statement as well as the Order are all required to be authenticated in the manner stipulated in Rule 26 (3) of the Rules of 2017. Accordingly, this Court is of the opinion that the Impugned Order challenged in the writ petition are in violation of Section 75 (4) as no opportunity of hearing was given. The impugned order dated 31.12.2023 issued by the respondent no.3 is hereby set aside and quashed. This Court also cannot be unmindful of the fact that it is on account of certain technicalities and the manner in which the impugned order was passed, this Court interfered with the impugned order and hence set aside and quashed the same - this Court while setting aside the impugned Order-in-Original dated 31.12.2023, grants liberty to the respondent authorities to initiate de novo proceedings under Section 73, if deemed fit for the relevant financial year in question. Petition disposed off. Issues Involved:1. Validity of Summary of Show Cause Notice as a substitute for a proper Show Cause Notice.2. Requirement of authentication of notices and orders under Rule 26(3) of the Central Goods and Services Tax Rules, 2017.3. Violation of principles of natural justice and statutory mandate for providing an opportunity of hearing under Section 75(4) of the CGST/AGST Act, 2017.4. Authority of the Proper Officer to issue notices and pass orders under Section 73 of the CGST/AGST Act, 2017.Detailed Analysis:1. Validity of Summary of Show Cause Notice:The petitioner challenged the issuance of a Summary of the Show Cause Notice in Form GST DRC-01, arguing it cannot replace a proper Show Cause Notice as mandated by Section 73 of the CGST/AGST Act, 2017. The court noted that Section 73 requires a specific Show Cause Notice to be issued by the Proper Officer, detailing the reasons for initiating proceedings. Rule 142 of the Rules of 2017 mandates the issuance of a summary in addition to the Show Cause Notice, but it does not replace the requirement for a formal notice. The court cited precedents from various High Courts, including Jharkhand and Karnataka, which held that a summary cannot substitute a proper Show Cause Notice. Consequently, the court found the proceedings initiated under Section 73 without a proper Show Cause Notice to be invalid.2. Authentication of Notices and Orders:The petitioner contended that the attachments to the Summary of the Show Cause Notice and the Order lacked the signature of the Proper Officer, violating Rule 26(3) of the Rules of 2017. This rule requires electronic issuance of notices and orders with digital signatures or e-signatures. The court acknowledged that the lack of authentication rendered the notices and orders ineffective, citing judgments from Telangana and Andhra Pradesh High Courts which supported the necessity of signatures for validity. The court emphasized that authentication is crucial for the validity of notices and orders under the Act.3. Violation of Principles of Natural Justice:The petitioner argued that they were denied an opportunity for a hearing, violating Section 75(4) of the CGST/AGST Act, 2017, which mandates a hearing if requested in writing or if an adverse decision is contemplated. The court found that the petitioner had requested a personal hearing, which was not granted, thus violating the statutory mandate and principles of natural justice. The court highlighted that the opportunity for a hearing is a safeguard for assessees, ensuring they can participate in the adjudication process.4. Authority of the Proper Officer:The court reiterated that only the Proper Officer, as defined in Section 2(91) of the Act, has the authority to issue Show Cause Notices, Statements, and Orders under Section 73. The court found that the impugned orders were not issued by the Proper Officer, further invalidating the proceedings. The court stressed the necessity for the Proper Officer's involvement to maintain the integrity and legality of the process.Conclusion:The court set aside and quashed the impugned order dated 31.12.2023 due to procedural irregularities, including the lack of a proper Show Cause Notice, absence of required authentication, and denial of a hearing. The court granted liberty to the respondent authorities to initiate fresh proceedings under Section 73, if deemed appropriate, while excluding the period from the issuance of the Summary of the Show Cause Notice to the date of the judgment from the time limit for passing an order under Section 73(10). The writ petition was disposed of with these observations and directions.