Summary SCN under GST Section 73(1) is invalid without proper notice and hearing under Section 75(4)

The HC held that a Summary of the Show Cause Notice (SCN) in GST DRC-01 does not substitute a proper SCN under Section 73(1) of the Act. The impugned orders passed without issuance of a duly authenticated SCN by the Proper Officer violated statutory requirements and principles of natural justice. The Court emphasized that the SCN must clearly state reasons and be issued at least three months before the deadline, and mere attachment of tax determination to the summary is insufficient. Further, failure to grant an opportunity of hearing as mandated under Section 75(4) rendered the orders invalid. The impugned order was set aside, but liberty was granted to initiate fresh proceedings in conformity with the law. Petition allowed.

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ISSUES:

Whether valid Show Cause Notices (SCNs) were issued prior to passing the impugned order under Section 73(9) of the State GST Act.Whether the determination of tax and the order attached to the Summary of the Show Cause Notice in GST DRC-01 and Summary of the Order in GST DRC-07 respectively can be treated as valid Show Cause Notice and Order.Whether the impugned orders under Section 73(9) comply with Section 75(4) of the State GST Act and conform to the principles of natural justice, particularly regarding the opportunity for hearing.Whether the absence of authentication (digital or e-signature) on the Show Cause Notice, Statement, and Order violates Rule 26(3) of the CGST Rules, 2017 and affects their validity.Whether Rule 26(3) of the CGST Rules, 2017, though located under Chapter III (Registration), applies to notices and orders issued under Chapter XVIII (Demand and Recovery).

RULINGS / HOLDINGS:

The Court held that the Summary of the Show Cause Notice issued in FORM GST DRC-01 does not substitute the proper SCN required under Section 73(1) of both the Central and State GST Acts; a formal and duly authenticated SCN is mandatorily required to initiate proceedings under Section 73.The determination of tax and order attached to the Summary in GST DRC-01 and GST DRC-07 cannot be said to be the Show Cause Notice and Order respectively, as these attachments lack the required authentication and do not meet statutory requirements.The impugned orders under Section 73(9) violate Section 75(4) of the State GST Act and principles of natural justice by failing to provide an opportunity of hearing when an adverse decision was contemplated, especially since the date and time of hearing were left blank in the Summary of the Show Cause Notice.Rule 26(3) of the CGST Rules, 2017 mandates that all notices, certificates, and orders must be electronically issued with digital or e-signature by the Proper Officer or authorized officer; absence of such authentication renders the documents invalid and unenforceable.Despite Rule 26(3) being under Chapter III (Registration), the Court, following precedents, applied it to Chapter XVIII (Demand and Recovery) to fill the regulatory gap and ensure validity of notices and orders issued under the Act.

RATIONALE:

The Court relied on the statutory framework of Section 73 of the GST Act, which requires issuance of a proper SCN before passing any demand order, distinguishing clearly between a Show Cause Notice and a Statement of determination of tax.Rule 142 of the CGST Rules, 2017 mandates issuance of a summary of the SCN electronically in FORM GST DRC-01, but this summary is supplementary and cannot replace the requirement of a proper SCN under Section 73(1).Precedents from various High Courts (Telangana, Andhra Pradesh, Jharkhand, Karnataka, and Chhattisgarh) were followed, emphasizing the necessity of proper authentication of SCNs and orders and the mandatory nature of opportunity of hearing under Section 75(4).The Court identified a regulatory gap as Rule 26(3) is under Chapter III, while Demand and Recovery fall under Chapter XVIII, but held that Rule 26(3) must be applied by default to ensure legal validity until specific rules or notifications are issued.The Court underscored that Section 75(4) mandates an opportunity of hearing "when any adverse decision is contemplated," irrespective of whether the person chargeable requests it, aligning with the principles of natural justice and preventing procedural lapses.Failure to provide a hearing in such circumstances renders the impugned order violative of statutory provisions and natural justice, warranting interference and setting aside of the order.

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