[Tax Not Paid/ Short Tax] 'Summary Of Show Cause Notice' In GST DRC-01 Not A Substitute For SCN U/S 73(1) CGST Act: Gauhati HC

“The Summary of the Show Cause Notice in GST DRC-01 is not a substitute to the Show Cause Notice to be issued in terms with Section 73(1) of the Central Act as well as the State Act. Irrespective of issuance of the Summary of the Show Cause Notice, the Proper Officer has to issue a Show Cause Notice to put the provision of Section 73 into motion,” said a single-judge bench of Justice Devashis Baruah.

Under Section 73 of CGST Act, SCN is issued to an assessee for determination of tax not paid or short paid. The Proper Officer is required to issue a SCN, specifically mentioning the reason(s) and the circumstances why the provision has been set into motion.

Court held that the SCN to be issued in terms with Section 73(1) cannot be confused with the Statement of the determination of tax to be issued in terms with Section 73(3).

The Court also held that the SCN, the Statement in terms of 73(3) and the order under Section 73(9) determining tax chargeable- are required to be issued only by the Proper Officer, authenticated in the manner stipulated in Rule 26 (3) of the CGST Rules 2017.

Moreover, the above has to be additionally accompanied by 'Summary of SCN' in GST DRC-01, 'Summary of Statement' in GST DCR-02 under Section 73(3) and 'Summary of Order' in GST DRC-07 passed in terms with Section 73(9), respectively.

Background

In the case at hand, the Petitioners were issued a 'Summary of show cause' in GST DRC-01 for short tax, along with an attachment of the 'determination of tax'.

Subsequently, orders were passed under Section 73(9) and the 'Summary of Order' in GST DRC-07 was forwarded to the petitioners along with attachment, reasoning that reply to show cause was not satisfactory.

Whether 'summary of SCN' and determination of tax qualify as SCN?

Petitioners submitted that no SCN was issued to them. They argued that in terms of Rule 142 of the Central Goods and Services Tax Rules 2017, the notice under Section 73 has to be issued and a summary thereof is to be “additionally issued” electronically in Form GST DRC-01.

It was contended that under no circumstances the attachment to GST DRC-01 can be said to be a SCN in as much as in the said attachment, there is no mention that the petitioner is required to show cause.

Reliance was placed on Nkas Services Private Limited vs. State of Jharkhand & Others (2022) where a Division Bench of the Jharkhand High Court held that summary of the Show Cause Notice as issued in Form GST DRC01 cannot be a substitute to the requirement of a proper SCN.

The Revenue on the other hand submitted that Summary of SCN in Form DRC-01 was accompanied by the determination of tax, which would have provided all the details so that the petitioners could have submitted the reply.

It placed an instruction issued by the Joint Commissioner of Taxes, Assam mentioning that the attachment to the GST DRC-01 is the SCN. It was submitted that in the said attachments, the case of under-declared tax amount was given along with reasons, in order to give the petitioners an opportunity to clarify their case.

At the outset, the High Court pointed out that in Section 73, there is no mention of issuance of a Summary of SCN.

It therefore held that issuance of SCN and Statement of determination of tax by the Proper Officer are “mandatory requirements”. Issuance of a Summary of SCN in GST DRC-01 is an “additional requirement” in terms of Rule 142 of the CGST Rules.

“Legislature had categorically distinguished the Show Cause Notice from the Statement which is required to be issued by the Proper Officer or in other words, irrespective of Statement to be issued in terms with Sub-section (3) of Section 73, there is a requirement of issuance of a Show Cause Notice by the Proper Officer.”

Court cited LC Infra Projects Pvt. Limited v. Union of India (2022), where the Karnataka High Court had also observed that the issuance of a SCN is sine qua non to proceed with the recovery of interest payable under Section 50 of the Act and penalty leviable under the provisions of the Act or the Rules.

It finally held, “Summary of the Show Cause Notice along with the attachment containing the determination of tax cannot be said to be a valid initiation of proceedings under Section 73 without issuance of a proper Show Cause Notice.”

Whether authentication by Proper Officer is mandatory?

Petitioners further pointed out that both the attachments, i.e. the attachments to the GST DRC-01 as well as the attachment to the GST DRC-07 were not authenticated by any signature of the Proper Officer, contrary to Rule 26 of the CGST Rules of 2017.

Reliance was placed on M/s Silver Oak Villas LLP vs. the Assistant Commissioner ST (2024) where the Telangana High Court had held that since the impugned order therein was an unsigned document, it lost its efficacy in the light of Rule 26 (3) of the Rules of 2017 as well as the Telangana Goods and Services Tax Act, 2017 and the Rules framed therein under.

Reliance was also placed upon A.V. Bhanoji Row vs. Assistant Commissioner (ST) & Others (2024) where a Division Bench of the Andhra Pradesh High Court had observed that as there was no signature of the Proper Officer, the order was treated to be void and inoperative.

Revenue submitted that the attachments were signed as 'Sd- Proper Officer'. It was contended that when the Summary of SCN as well as the Summary of the Order are uploaded in GST DRC-01 and GST DRC-07, the same are duly authenticated in the portal with digital signatures and without such authentication, the portal cannot be operated.

The High Court observed that as per Section 73, the Show Cause Notice is required to be issued by the Proper Officer, the Statement under Section 73 (3) is to be issued by the Proper Officer as well as the Order under Section 73 (9) is required to be passed by the Proper Officer.

“As it is the statutory mandate that it is only the Proper Officer who has the authority to issue Show Cause Notice and the Statement and pass the order, the authentication in the Show Cause Notice, Statement as well as the Order by the Proper Officer is a must and failure to do so, makes the Show Cause Notice, Statement and Order ineffective and redundant,” Court held.

Reliance was placed on Railsyls Engineers Private Limited vs. Additional Commissioner of Central goods and Services Tax (Appeals-11) and Anr., (2023) where a Division Bench of Delhi High Court held that there was a requirement of at least putting the digital signatures on the Show Cause Notice and Order in Original.

Coming to the manner in which the Proper Officer would authenticate the notice(s) or the order(s), the Court said unless appropriate insertions are made in the Rules to fill the void, the authentication in the manner stipulated in Rule 26(3) has to be applied.

The Rule prescribes that all notices, certificates and orders shall be issued electronically by the proper officer through digital signature certificate or through E-signature.

Whether the impugned orders under Section 73(9) of the State Act is in conformity with Section 75(4) of the State Act?

Petitioners had contended that no opportunity of hearing in terms of Section 75 (4) CGST Act and the Assam GST Act was given to them.

The Court referred to Section 75 (4) of both the CGST Act and the Assam GST Act which mandate that an opportunity of hearing should be granted when a request is received in writing from the person against whom an adverse decision is contemplated.

In this case, the Court noted that in the Summary of SCN petitioners were asked to file their reply on a date specified but there was no mention as to the date of hearing and the Column was kept blank. In two writ petitions, the petitioners had sought for an opportunity of hearing which was however not given.

“This Court is of the opinion that when the statute is clear to provide an opportunity of hearing, there is a requirement of providing such opportunity. In fact a perusal of the Form GST DRC-01 enclosed to the writ petitions shows details have been given as regards the date by which the reply has to be submitted; date of personal hearing; time of personal hearing and venue of personal hearing. It is seen that in the Summary of the Show Cause Notice only the date for submission of reply has been mentioned. In respect to other details as stated above have been mentioned to as 'NA'.”

Court cited Mahindra & Mahindra Limited vs. Union of India and Others (2024) where a Division Bench of the Chhattisgarh High Court had categorically observed that when the statute contains a mandate of hearing, the same has to be granted, else it would render the provision porous.

It finally held that the impugned Orders were passed in violation of Section 75(4) of CGST Act as well as Assam GST Act.

Accordingly, the Gauhati High Court allowed the batch of petitions challenging orders passed by Assistant Commissioner of State Tax under Section 73(9) CGST Act as being violative of Section 73(1) and Section 75(4) thereof, and the impugned orders were set aside.

The Court also granted liberty to Revenue to initiate fresh proceedings under Section 73 for the relevant financial year, if deemed fit.

Appearance: Advocates Nitu Hawelia, ML Gope and A. Goyal for Petitioners; Staading Counsel Finance and Taxation B. Gogoi and Advocates Dr. BN Gogoi and K. Phukan

Case title: Construction Catalysers Private Limited v. State of Assam & Ors.

Case no.: WP(C)/3912/2024

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