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

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 without a duly authenticated SCN violated statutory requirements and principles of natural justice, as no proper hearing opportunity was provided per Section 75(4). The Court emphasized that the Proper Officer must issue a formal SCN, Statement, and final Order under Section 73, all properly authenticated, preferably digitally signed under Rule 26(3). The orders dated 29.04.2024 were set aside for non-compliance with these mandates. However, liberty was granted to the respondents to initiate fresh proceedings under Section 73 in accordance with the law. Petition allowed.

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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.

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