2026 (3) TMI 832 - HC - GST

Show Cause Notice requirement: a DRC-01 summary cannot substitute and orders without hearing are vitiated.

A summary in Form GST DRC-01 or an attached tax determination does not satisfy the statutory requirement for a show cause notice under the Act; the formal ... Validity of show cause notices issued prior to passing the impugned order under Section 74(9) - violation of Section 74 and Rule 142(1)(a) - circumstances and procedural requirements for issuance of a show cause notice - Statement of tax determination - determination of tax and the order attached to the summary in Form GST DRC-01/DRC-07 - Statutory right to hearing - breach of the requirement to grant an opportunity of hearing under Section 75(4). Requirement of a formal show cause notice under Section 74 - HELD THAT: - The Court held that Section 74 mandates issuance of a proper SCN stating reasons when proceedings under that section are initiated and that the statutory scheme (subsections (1) to (4) and (9)) distinguishes between a SCN and a Statement of determination. A summary alone does not fulfil the mandatory requirement to issue a SCN under Section 74 read with Rule 142(1)(a), and therefore proceedings initiated without a proper SCN violated the statutory requirement. [Paras 10, 12, 14] Issuance of only a summary with an attached tax determination did not constitute a valid SCN under Section 74; initiation without a proper SCN was contrary to law. Summary in FORM GST DRC-01 is supplementary and cannot substitute a full SCN - HELD THAT:- Relying on the text of Rule 142 and Section 74 the Court concluded that the summary in FORM GST DRC-01 is an additional, supplementary communication and cannot replace the separate, formal SCN required under Section 74(1). The Statement of determination under Section 74(3) attached to the summary cannot be treated as a valid SCN and initiation based solely on such attachment is misconceived. [Paras 11, 12, 16, 22] The attached tax determination/statement in the DRC-01 summary is not a substitute for a proper SCN and cannot validly initiate proceedings under Section 74. Statutory right to hearing when an adverse decision is contemplated under Section 75(4) - HELD THAT:- The Court found that Section 75(4) mandates an opportunity of hearing either on written request or when an adverse decision is contemplated; the DRC-01 summary left personal hearing details blank and provided only for filing a reply. The second limb of Section 75(4) applies even where no reply is filed, and passing an adverse order without granting a hearing in such circumstances undermines the statutory safeguard and violates natural justice. [Paras 18, 19, 20, 21, 23] Non-compliance with Section 75(4) and failure to grant a hearing vitiated the impugned order. Remedial consequence and limitation exclusion for de novo proceedings - HELD THAT:- Having held the impugned order invalid for lack of a proper SCN and hearing, the Court set aside the order but granted the authorities liberty to initiate proceedings de novo under Section 74. The Court directed that the period between issuance of the DRC-01 summary and service of a certified copy of the judgment on the Proper Officer be excluded for computing limitation under Section 74(10), enabling fresh proceedings if appropriate. [Paras 24] Impugned order set aside; respondents permitted to initiate de novo proceedings and the specified period excluded for limitation computation. Final Conclusion: The Court set aside the impugned order passed under Section 74(9) because a formal SCN was not issued and the statutory right to hearing under Section 75(4) was violated; the respondents are permitted to initiate fresh proceedings under Section 74 and the court excluded the interregnum for computation of limitation. Issues: (i) Whether show cause notices were issued prior to passing the impugned order under Section 74(9) of the Act? (ii) Whether the determination of tax and the order attached to the summary in Form GST DRC-01/DRC-07 can be treated as the Show Cause Notice and Order respectively? (iii) Whether the impugned orders under Section 74(9) comply with Section 75(4) and the principles of natural justice?Issue (i): Whether show cause notices were issued prior to passing the impugned order under Section 74(9) of the Act?Analysis: Section 74 prescribes circumstances and procedural requirements for issuance of a show cause notice and distinguishes between a show cause notice under subsection (1) and a statement under subsection (3). Rule 142(1)(a) requires that a summary in Form GST DRC-01 be served along with the notice issued under Section 74. A summary by itself does not discharge the statutory requirement of issuing a proper and separate show cause notice under Section 74(1).Conclusion: No valid show cause notice under Section 74(1) preceded the impugned order; the summary alone did not satisfy the statutory requirement.Issue (ii): Whether the determination of tax and the order attached to the summary in Form GST DRC-01/DRC-07 can be treated as the Show Cause Notice and Order respectively?Analysis: The statute and rules differentiate between a statement of determination and a show cause notice; prior decisions of High Courts support that a summary or attached tax determination cannot substitute for a proper SCN. The attachment described as a tax determination lacks the formal attributes of an SCN required by Section 74(1) and therefore cannot qualify as the statutory show cause notice.Conclusion: The attached determination of tax and the summary in DRC-01/DRC-07 do not amount to a valid show cause notice or a lawful substitute therefor.Issue (iii): Whether the impugned orders under Section 74(9) comply with Section 75(4) and the principles of natural justice?Analysis: Section 75(4) mandates an opportunity of hearing either on a written request by the person chargeable or when an adverse decision is contemplated. Form GST DRC-01 provides fields for personal hearing details; marking those as 'NA' while contemplating adverse orders renders the second limb of Section 75(4) ineffective. A hearing is a statutory safeguard and a requirement of natural justice when an adverse decision is contemplated, and passing an adverse order without granting such an opportunity contravenes the statutory mandate and principles of natural justice.Conclusion: The impugned orders failed to comply with Section 75(4) and violated principles of natural justice.Final Conclusion: The impugned order dated 26.11.2025 is set aside for lack of a proper show cause notice and for denial of the mandated opportunity of hearing; respondents are permitted to initiate fresh proceedings under Section 74 subject to the limitation adjustments directed.Ratio Decidendi: A summary in Form GST DRC-01 or an attached statement of tax determination cannot substitute for a formal show cause notice required under Section 74(1); additionally, Section 75(4) requires that a hearing be granted whenever an adverse decision is contemplated, and failure to provide such hearing vitiates the resulting order.