Summary of Show Cause Notice In Form DRC-01 Is Not A Substitute Of Section 74(1) Show Cause Notice: Jharkhand High Court

The division bench of Justice Aparesh Kumar Singh and Justice Deepak Roshan has observed that though the petitioner submitted their concise reply, the respondent cannot take benefit of the action as a summary of show cause notice cannot be considered as a show cause notice as mandated under Section 74(1). It is well settled that there is no estoppel against statute, and a bonafide mistake or consent by the assessee cannot confer any jurisdiction upon the proper officer. The jurisdiction must flow from the statute itself. The rules of estoppel are the rules of equity, which have no role in matters of taxation.

The petitioner's premises were searched under Section 67 of the JGST Act for an erroneous claim of input tax credit.The search was mainly on the ground that the petitioner had claimed ITC without making payment of value and tax on the inputs to the supplier within six months. It was in contravention of Section 16(2) of the JGST Act. It was also held that credit of Rs.27 lakh (out of a total of Rs.19.43 Crores, constituting 1%) was not transported in heavy vehicles as per the vehicle numbers.

The petitioner submitted that the proceeding started with the issuance of summary show-cause notice on Form DRC-01 under Section 74(1) of the JGST Act, 2017. The petitioner, under a bonafide and mistaken belief of law, submitted its concise reply on Form DRC-06 explaining that the ITC has been legally claimed by them and the goods have been physically received by them. The respondent passed orders under Section 74(9) of the JGST Act and confirmed tax demand, interest, and penalty and issued a summary of orders.

The petitioner contended that no show cause notice under Section 74(1) was issued and served upon the petitioner. The issuance of a show cause notice under section 74(1) of the JGST Act, 2017 is mandatory and imperative in character. Form DRC-01 is not a substitute for a show cause notice under section 74(1). Thus, the entire proceeding was without jurisdiction. Since the foundation of the two proceedings suffers from material irregularity, they are not sustainable, being contrary to Section 74(1) of the JGST Act.

The petitioner contended that there is no estoppel against the statute and reiterated that the issuance of a show-cause notice under section 74(1) of the JGST Act, 2017 is mandatory and imperative in character. Form DRC-01 is not a substitute for a show cause notice under section 74(1). Thus, the entire proceeding is without jurisdiction.

The court ruled that Rule 142(1)(a) of the JGST Rules provides that the summary of show cause notice on Form DRC-01 should be issued "along with" the show cause notice under Section 74(1). The word "along with" clearly indicates that in a given case, both a show cause notice and a summary thereof have to be issued. As per Rule 142(1)(a) of the JGST Rules, the summary of a show cause notice has to be issued electronically to keep track of the proceeding initiated against the registered person, whereas a show cause notice need not necessarily be issued electronically.

The court held that the show cause notice does not fulfil the ingredients of a proper show-cause notice. This amounts to a violation of the principles of natural justice.

Case Title: M/s. Juhi Industries Pvt. Ltd. Versus The State of Jharkhand

Case No: W.P.(T) No. 1991 of 2021

Citation: 2022 LiveLaw (Jha) 63

Dated: 27.06.2022

Counsel For Appellant: Advocate Kartik Kurmi

Counsel For Respondent: AAG-II Sachin Kumar

Click Here To Read/Download Order