Initiation Of Adjudication Proceeding Without Issuance Of Show Cause Notice Is Void Ab Initio: Jharkhand High Court

The petitioner/assessee, a public limited company, is in the business of trading coal. For the purpose of trading in coal, the petitioner purchases coal primarily from various subsidiaries of Coal India Limited, including various government entities like Jharkhand State Mineral Development Corporation and Heavy Engineering Corporation Limited, as well as other similarly situated coal traders.

The department carried out an inspection under Section 67 of the Jharkhand Goods Service Tax Act, 2017 on the registered premises of the petitioner. The petitioner was directed to produce documents pertaining to the movement of goods relating to purchase and sale transactions of the petitioner in the exercise of powers under Section 71(2) of the CGST Act. In the inspection report itself, it was mentioned that if the petitioner fails to produce the relevant documents as directed, proceedings for adjudication under Section 73 or 74, as the case may be, would be initiated against the petitioner.

Various communications were exchanged between the petitioner and the respondents, State Tax Authorities, and the petitioner produced several documents to demonstrate its claim towards the genuineness of the transactions of purchase and sale of coal made by the petitioner. However, the respondent-authorities were not convinced by the petitioner's documents and, as a result, issued an intimation to the petitioner on Form GST DRC-01A dated 29.01.2020 directing the petitioner to pay the amount of tax stated in the notice, plus applicable interest and penalty, in accordance with the provisions of Section 73(5)/74(5) of the GST Act read with Rule 142(1A).In the intimation itself, it was stated that if the petitioner fails to pay the amount demanded, a "show cause notice" will be issued to the petitioner under Section 74(1) of the GST Act.

The department issued a "summary of show cause notice" to the petitioner on Form GST DRC-01 in terms of Rule 142(1) of the GST Rules on March 14th, 2020. The specific case of the petitioner was that no show cause notice was ever issued to the petitioner, and even in the summary of the show cause notice, no time line was provided as to when the petitioner was to submit its reply. Subsequently, the petitioner was issued a "summary of order" on Form GST DRC-07. Although GST DRC-07 was issued to the petitioner, the copy of the adjudication order was not communicated to the petitioner.

The petitioner contended that on March 14th, 2020, there was a recording that the petitioner was issued a "summary of show cause notice" on Form GST DRC-01. Thereafter, straightaway in the order-sheet, the next date mentioned was August 14th, 2020, and the order-sheet records, inter alia, that despite service of Form GST DRC-01, the petitioner has not taken any steps for payment of the due amount and, further, that due to COVID-19, more than one opportunity has been given to the petitioner.

The petitioner urged that no show cause notice in terms of Section 74 of the JGST Act, 2017 read with Rule 142(1) of the JGST Rules, 2017 was issued to the petitioner and, thus, the entire proceeding was bad in law.

The respondent submitted that an investigation was initiated against the petitioner and that, despite the fact that the petitioner was directed to produce the documents for the movement of goods, it failed to produce the said documents. Consequently, the state tax authorities were compelled to issue an intimation to the petitioner under Section 73(5)/74(5) of the JGST Act, 2017 read with Rule 142(1)(A) of the JGST Rules on 29.01.2020, directing the petitioner to discharge the liability for tax, interest, and penalty, but the petitioner failed to discharge the said liability. Accordingly, the department issued the summary of show cause notice on Form GST DRC-01 in terms of Rule 142(1) on March 14, 2020, and even after the issuance of the summary of show cause notice, no reply was filed by the petitioner and the department was left with no option but to pass an adjudication order dated August 13, 2020.

The issue raised was whether the very initiation of the adjudication proceeding without issuance of show cause notice is void ab initio and any consequential adjudication order passed thereto is nonest in the eye of law.

The court held that a summary of show-cause notice as issued in Form GST DRC-01 in terms of Rule 142(1) of the CGST/JGST Rules, 2017 cannot substitute the requirement of a proper show-cause notice. The very initiation of the adjudication proceeding without issuance of show cause notice was void ab initio and consequential adjudication order passed was non est in the eye of law as the same has been passed without issuance of proper show cause notice and, thus, amounts to violation of principles of natural justice.

Case Title: M/s. Godavari Commodities Ltd. Versus The State of Jharkhand

Case No: W.P.(T) No. 3908 of 2020 with W.P.(T) No. 3909 of 2020

Citation: 2022 LiveLaw (Jha) 39

Dated: 18 /04/2022

Counsel For Petitioner: Advocate Sumeet Gadodia

Counsel For Respondent: Advocate Ashok Kr. Yadava

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