2025 (10) TMI 1120 - HC - GST

FORM GST DRC-01 summary cannot substitute for a signed SCN; Sections 73, 75(4), Rule 142 and Rule 26(3) require it

Diganta Kumar Deka Versus The State of Assam, The Principal Commissioner State Tax Guwahati, The Assistant Commissioner of State Tax Guwahati.

HC set aside the impugned order of 27.12.2023, holding that a summary in FORM GST DRC-01 and an attached Statement cannot substitute a duly issued, signed ... Violation of principles of natural justice - proper service of SCN - no proper SCN was attached to the Summary of the SCN in the portal - attachment as well as the Summary of the Order uploaded in GST DRC-01 and GST DRC-07 were not authenticated by any signature of the Proper Officer - 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. From a perusal of the Rule 142 of CGST Rules 2017, it would show that 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). The question arises whether Rule 26(3), though located under Chapter III (Registration), can apply to Chapter XVII (Demand and Recovery). In the case of M/s Silver Oak Villas LLP, [2024 (4) TMI 367 - TELANGANA HIGH COURT] it was held that Rule 26(3) applies even to Chapter XVIII, requiring authentication through digital or e-signature for all notices and orders and this view was endorsed in the case of A.V. Bhanoji Row [2023 (2) TMI 1224 - ANDHRA PRADESH HIGH COURT]. It was laid down that signatures cannot be dispensed with, and Sections 160 and 169 (which deal with procedural lapses) cannot cure an unsigned notice or order - 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. 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. This Court has also noted that the impugned order contravenes Section 75(4) of the Act which mandates that a reasonable opportunity of hearing must be provided either when an adverse decision is contemplated or when a written request is made by the assessee. In the present case, although the DRC-01 summary specifies the date for filing a reply, it leaves the field regarding the date and time of personal hearing as “NA”. In a situation where no reply is submitted, the Proper Officer cannot proceed to pass an adverse order without granting an opportunity of hearing, as doing so would render the safeguards under Section 75(4) ineffective and violate principles of natural justice. The impugned order dated 27.12.2023 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 PRESENTED AND CONSIDERED 1. Whether a Summary of Show Cause Notice in FORM GST DRC-01 with an attached determination of tax (statement) can, by itself, constitute a valid Show Cause Notice under Section 73 of the GST Act. 2. Whether documents (Show Cause Notice, Statement of determination, and final Order) issued/uploaded as attachments to GST DRC-01 and GST DRC-07 must be authenticated by the Proper Officer in accordance with Rule 26(3) CGST Rules, 2017, and whether absence of such authentication vitiates the notices/orders. 3. Whether an opportunity of hearing was mandated under Section 75(4) of the GST Act when an adverse decision was contemplated and whether passing an order without affording such hearing violates principles of natural justice. 4. Whether Rule 142(1)(a) (requirement to issue a summary in FORM GST DRC-01) can dispense with the statutory requirement of issuing a proper SCN and Statement under Section 73. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of DRC-01 Summary with Attached Determination as SCN Legal framework: Section 73 (paras (1)-(4), (9), (10)) prescribes conditions triggering issuance of a Show Cause Notice (SCN), mandates reasons for issuance, requires issuance of statement under sub-section (3) in specified cases, and provides timelines for passing orders; Rule 142(1)(a) requires serving, along with notice under Section 73, a summary electronically in FORM GST DRC-01. Precedent treatment: Decisions of the Jharkhand and Karnataka High Courts (Nkas Services; LC Infra) and other High Courts have held that a summary in DRC-01 cannot substitute a proper SCN or that a proper SCN is essential before recovery proceedings. Interpretation and reasoning: A combined reading of Section 73(1)-(4), (9) and (10) shows the legislature contemplates separate instruments: (a) SCN under Section 73(1) stating reasons and circumstances justifying invocation of Section 73; (b) Statement under Section 73(3) of tax determination; and (c) final Order under Section 73(9) after considering representations. Rule 142 mandates issuance of a summary (DRC-01) in addition to these instruments, not in substitution. The attachment containing tax determination appended to DRC-01 is a statement and lacks the statutory content and form of an SCN; therefore initiation relying solely on such attachment is inadequate to invoke Section 73. Ratio vs. Obiter: Ratio - A DRC-01 summary with attached determination does not, by itself, constitute a valid SCN under Section 73; the SCN must be a distinct, properly issued document. Obiter - Observations on practical sufficiency of details in attachments where a full SCN might be present (not applicable here because attachment lacked required form). Conclusion: The attached determination in DRC-01 cannot be treated as the SCN; issuance of a proper SCN is mandatory. The impugned order based solely on the attachment/summary is contrary to Section 73 and Rule 142(1)(a). Issue 2: Requirement of Authentication under Rule 26(3) and Effect of Absence of Signature Legal framework: Rule 26(3) CGST Rules, 2017 prescribes that notices, certificates and orders under the Chapter must be issued electronically by the Proper Officer or authorized officer using digital signature/e-signature/Board-notified mode; Chapter III (Registration) contains Rule 26, while Demand and Recovery provisions fall in a different Chapter. Precedent treatment: Several High Court decisions (including those relied upon in submissions) have held that unsigned notices/orders lose efficacy and digital signatures/e-signatures are necessary; some benches extended Rule 26(3) requirements to demand and recovery documents. Interpretation and reasoning: Section 73 requires that SCN, the Statement under Section 73(3), and final Order under Section 73(9) be issued by the Proper Officer. While Rule 26(3) is located in Chapter III (Registration), no specific authentication mode is provided in Chapter XVIII (Demand and Recovery). Absent a specific alternative rule, there is a regulatory lacuna regarding authentication of demand/recovery documents. Given the statutory insistence that the Proper Officer issue these documents and the Board's power to notify authentication mechanisms, the Court applied Rule 26(3) by default to ensure authenticity, traceability and legal validity. Where attachments bear no digital signature but only a pro forma 'Sd-Proper Officer' notation and the portal itself requires digital authentication for operation, such unsigned attachments lack the statutory authentication and thus legal efficacy. Ratio vs. Obiter: Ratio - Notices, statements and orders issued under Section 73 must be properly authenticated by the Proper Officer; in the absence of specific Chapter XVIII rules, Rule 26(3) authentication requirements apply by default to demand and recovery documents. Obiter - Observations recognizing the Board could fill the regulatory gap by specific rulemaking and that procedural sections (Sections 160/169) cannot cure an unsigned notice. Conclusion: Attachments to DRC-01/DRC-07 lacking authentication by the Proper Officer as required (digital/e-signature or Board-notified mode) are invalid; the impugned orders based on such unauthenticated documents are unenforceable. Issue 3: Requirement of Hearing under Section 75(4) and Natural Justice Legal framework: Section 75(4) mandates that an opportunity of hearing be granted when a written request is made by the person chargeable or 'where any adverse decision is contemplated against such person'; the provision is a statutory safeguard for procedural fairness in adjudicatory proceedings. Precedent treatment: Decisions (including a Division Bench ruling referenced) hold that when statute mandates hearing as a requirement of natural justice, it cannot be bypassed; failure to afford hearing renders orders vulnerable. Interpretation and reasoning: FORM GST DRC-01 contains fields for reply, date/time of personal hearing and venue. In the present case, only the reply submission field was filled; hearing particulars were left 'NA'. Section 75(4) has two limbs: (i) when a written request for hearing is made, and (ii) when an adverse decision is contemplated. The second limb imposes an independent duty to grant hearing even if no written request is filed. Passing an adverse order without affording hearing where such an adverse decision is contemplated defeats the statutory protection and violates principles of natural justice. Presuming that personal hearing is required only if the recipient requests it reduces the second limb to redundancy and is inconsistent with the statutory scheme. Ratio vs. Obiter: Ratio - When an adverse decision is contemplated, an opportunity of hearing must be afforded under Section 75(4) irrespective of a request; failure to do so invalidates the order. Obiter - Practical permutations of combining reply-only responses with hearing requirements and portal-based communications. Conclusion: The impugned order, passed without granting a hearing though an adverse decision was evidently contemplated, violates Section 75(4) and principles of natural justice and is therefore vitiated. Issue 4: Interaction of Rule 142(1)(a) Summaries and Statutory Requirements of Section 73 Legal framework: Rule 142(1)(a) mandates serving a summary (FORM GST DRC-01) electronically along with the notice under Section 73; Rule 142(1)(b) deals with FORM GST DRC-02 for statements under Section 73(3). Precedent treatment: High Courts have treated DRC-01 summaries as supplementary and not substitutive of full statutory notices; summary cannot supplant the substantive requirements of Section 73. Interpretation and reasoning: Rule 142(1)(a) is permissive only for an additional summary in DRC-01 and does not dispense with the requirement of issuing the substantive SCN and Statement as required by Section 73. The legislative scheme contemplates distinct roles for SCN, Statement and Summary; relying solely on the summary and attached statement to initiate demand fundamentally alters the statutory safeguard structure. Ratio vs. Obiter: Ratio - Rule 142 summaries are supplementary and do not eliminate the statutory obligation to issue a distinct, properly authenticated SCN and Statement under Section 73. Obiter - Remarks on technical compliance practices and portal metadata. Conclusion: Rule 142(1)(a) does not authorize substituting a DRC-01 summary (with attached determination) for the SCN mandated by Section 73; compliance with Section 73's document issuance requirements remains mandatory. Relief and Practical Consequence Because the impugned order was passed without a proper SCN, without authentication as required, and without granting hearing where an adverse decision was contemplated, the order was set aside. Liberty was granted to initiate de novo proceedings under Section 73, and the period between issuance of the summary and service of a certified copy of the judgment was excluded for computation of limitation under Section 73(10) to preserve respondents' ability to proceed lawfully.