2025 (8) TMI 157 - HC - GST

Summary of Show Cause Notice under GST Section 73(1) cannot replace formal SCN; proper hearing required under Section 75(4)

Naser Ali Mondal Versus The State Of Assam, The Principal Commissioner Of State Tax Assam, The Assistant Commissioner Of State Tax Bongaigaon.

The HC held that a Summary of the Show Cause Notice in GST DRC-01 does not replace a proper SCN required under Section 73(1). The impugned orders passed ... Violation of principles of natural justice - proper service of SCN or not - no proper SCN attached to the Summary of the SCN - SCN were issued prior to passing the Impugned Order under Section 73 (9) or not - impugned orders under Section 73 (9) of the State Act is in conformity with Section 75(4) of the State Act and is in consonance with the principles of natural justice or not. HELD THAT:- The Proper Officer is mandated to issue a SCN only under specific circumstances as outlined in Section 73. Therefore, the SCN must clearly state the reasons and circumstances justifying its issuance under this section. Only then can the recipient effectively respond, particularly if they wish to challenge the applicability of Section 73. Section 73(9) requires the Proper Officer to determine the tax, interest, and penalty after considering the representation. Section 73(2) and 73(10) are interconnected, while Section 73(10) allows passing the order within three years from the due date of the annual return, Section 73(2) mandates that the SCN must be issued at least three months before the deadline. Furthermore, a combined reading of subsections (1) to (4) of Section 73 shows that the legislature has made a clear distinction between a Show Cause Notice and a Statement. Even if a Statement is issued under Section 73(3), a separate and proper SCN is still required. In addition to the Show Cause Notice to be issued under Section 73 (1) and the Statement of determination of tax under Section 73 (3), there is an additional requirement of issuance of a Summary of the Show Cause Notice in GST DRC-01 and the Summary of the Statement in GST DRC-02. The natural corollary from the above analysis is that the issuance of the Show Cause Notice and the Statement of determination of tax by the Proper Officer are mandatory requirement in addition to the Summary of Show Cause Notice in GST DRC-01 and Summary of the Statement in GST DRC-02. The Division Bench of the Hon’ble Jharkhand High Court in Nkas Services Pvt. Ltd. [2022 (2) TMI 1157 - JHARKHAND HIGH COURT] held that a summary in GST DRC-01 cannot replace a proper SCN. Similarly, in LC Infra Projects Pvt. Ltd. [2019 (8) TMI 84 - KARNATAKA HIGH COURT], the Hon’ble Karnataka High Court emphasized that issuing a proper SCN is essential before the recovery of interest or penalty under the Act. The Court holds that merely attaching a tax determination order to the summary in DRC-01 does not amount to valid initiation under Section 73. The summary is only supplementary to a full SCN. Thus, the impugned orders, having been passed without a proper SCN, are in violation of Section 73 and Rule 142(1)(a). 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 Case Notice and Order respectively? - HELD THAT:- Section 73 mandates that the Proper Officer must issue the SCN, the Statement under Section 73(3), and the final Order under Section 73(9). As per Section 2(91), a Proper Officer is the Commissioner or someone entrusted by him. Therefore, unless these documents are duly authenticated by the Proper Officer, they fail to meet the statutory requirements and are rendered invalid and unenforceable. Section 73 of the Act requires that notices and order be issued by the Proper Officer but it does not prescribe the mode of authentication outside Chapter III of the Rules. Since no specific rule under Chapter XVIII (relating to Demand and Recovery) governs authentication, a regulatory gap exists. Given the critical importance of authentication by the Proper Officer, the Court held that, until proper rules or notifications are issued by the Board to address this gap, Rule 26(3), which requires digital or e-signature, must be applied by default. This ensures that any notice, statement or order issued under the Act maintains its legal validity and enforceability. Whether the impugned orders under Section 73(9) conform to Section 75(4) of the State Act and is according to the principles of natural justice? - HELD THAT:- The Court observed that the Summary of the Show Cause Notice did not mention any date of hearing, leaving the relevant column blank. The petitioner was merely asked to submit a reply, without being offered a cleared opportunity for personal hearing. Section 75(4) of both the Central and State GST Acts mandates that an opportunity of hearing must be granted when a written request is made by the person chargeable with tax or penalty, or when any adverse decision is contemplated against such person - Failing to provide a hearing renders the second part of Section 75(4) meaningless, and thus, passing an adverse order without a hearing in such circumstances violated both the statutory mandate and the principles of natural justice. This Court, upon detailed analysis, hold that the Summary of the SCN 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 Statement of tax determination under Section 73(3), which is attached to the summary in the present case cannot be treated as a valid SCN. Therefore, initiating proceedings solely based on such a statement is not in conformity with law. The impugned order dated 29.04.2024 is interfered with and set aside. However, as it appears that the respondents have proceeded under the mistaken impression that attaching the determination of tax to the summary constitutes a valid Show Cause Notice, the Court grants them liberty to initiate de novo proceedings under Section 73, if considered appropriate - Petition allowed. ISSUES: Whether Show Cause Notices (SCNs) were validly 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 the Summary of the Order in GST DRC-07 can be considered as valid Show Cause Notice and Order respectively.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 of hearing. RULINGS / HOLDINGS: The Court held that the Summary of the Show Cause Notice issued in FORM GST DRC-01 does not substitute a proper SCN required under Section 73(1) of the Central and State GST Acts, and the attachment of tax determination to the summary cannot be treated as a valid SCN. The impugned orders were passed without a proper SCN, violating Section 73 and Rule 142(1)(a).The determination of tax and the order attached to the Summary in GST DRC-01 and GST DRC-07 respectively cannot be considered valid SCN or orders as they lack authentication by the Proper Officer, contrary to Rule 26(3) of the CGST Rules, 2017, which mandates issuance through digital signature or e-signature. Unsigned documents lose their efficacy and are invalid and unenforceable.The impugned orders contravene Section 75(4) of the Act, which mandates that an opportunity of hearing must be granted either upon a written request or when an adverse decision is contemplated. Passing adverse orders without granting a hearing violates statutory requirements and the principles of natural justice. RATIONALE: The Court applied the statutory framework of the Central Goods and Services Tax Act, 2017 and the corresponding State Act, particularly Sections 73 and 75, and Rules 26 and 142 of the CGST Rules, 2017. Section 73 mandates issuance of a proper SCN by the Proper Officer before passing an order for tax determination, interest, or penalty. Rule 142 requires a summary of the SCN to be issued electronically in FORM GST DRC-01, which supplements but does not replace the SCN.Rule 26(3) requires all notices, certificates, and orders to be electronically issued by the Proper Officer with digital or e-signature, ensuring authentication and validity. Although Rule 26 falls under Chapter III (Registration), judicial precedents have extended its applicability to Chapter XVIII (Demand and Recovery), filling a regulatory gap and ensuring enforceability of notices and orders.The Court relied on precedents from various High Courts which held that unsigned SCNs and orders are invalid and that summaries cannot replace proper SCNs. It also emphasized the mandatory nature of the opportunity of hearing under Section 75(4), interpreting the use of 'or' in the provision to mean that hearing is required even if no written request is made when an adverse decision is contemplated.The Court recognized a procedural gap in the Rules regarding authentication of notices under Demand and Recovery but held that Rule 26(3) must be applied by default until specific rules are enacted. The Court also excluded the period between issuance of the defective Summary of SCN and service of the judgment from the limitation period under Section 73(10) to enable fresh proceedings.