2022 (7) TMI 448 - HC - GST

Violation of principles of natural justice - Service of summary SCN - Search and seizure - irregular claim of input tax credit - it is alleged that the petitioner has claimed input tax credit without making payment of value and tax of the inputs to the supplier within six months which is in contravention of 2nd/3rd proviso to Section 16(2) of the JGST Act - HELD THAT - It appears that pursuant to the search conducted by the respondents in the premises of the petitioner-company under Section 67 of the JGST Act two summary of show cause notice in Form DRC-01 were issued, one for the period from 01.07.2017 to 13.8.2018 and another for the period from April, 2018 to 31.8.2018 under Section 74(1) of the JGST Act. It further transpires that the petitioner submitted a concise reply for both the DRC-01 vide its letter dated 11.10.2018 and finally two separate orders, both dated 25.2.2019, were passed. Subsequently, the petitioner also filed rectification application for both the period and fresh rectified orders were passed in respect of both these tax periods. The law is no more res-integra, inasmuch as, Rule 142(1)(a) of the JGST Rules provides that the summary of show cause notice in 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 show cause notice as well as summary thereof both have to be issued. As per Rule 142(1)(a) of the JGST Rules, the summary of show cause notice has to be issued electronically to keep track of the proceeding initiated against the registered persona whereas a show cause notice need not necessarily be issued electronically. This Court in the case of M/S. NKAS SERVICES PRIVATE LIMITED. VERSUS THE STATE OF JHARKHAND, THE COMMISSIONER OF STATE TAXES, RANCHI, DEPUTY COMMISSIONER OF STATE TAXES, GODDA 2021 (10) TMI 880 - JHARKHAND HIGH COURT was the member, has taken note of the said position of law and has categorically held that Summary of Show Cause Notice in Form DRC-01 is not a substitute of show cause notice under Section 74(1). The foundation of the proceeding in both the cases suffers from material irregularity and hence not sustainable being contrary to Section 74(1) of the JGST Act; thus, the subsequent proceedings/impugned Orders cannot sanctify the same. Though, the petitioner submitted their concise reply vide letter dated 11-10-2018; the respondent State cannot take benefit of the said action as summary of show cause notice cannot be considered as a show cause notice as mandated under Section 74(1) of the Act - it is well settled that there is no estoppels against statute. A bonafide mistake or consent by the assesse cannot confer any jurisdiction upon the proper officer. The jurisdiction must flow from the statute itself. The rules of estoppels is rule of equity which has no role in matters of taxation. The impugned show cause notice in both the cases does not fulfill the ingredients of a proper show- cause notice and thus amounts to violation of principles of natural justice, the challenge is maintainable in exercise of writ jurisdiction of this Court. Accordingly, the summary of show-cause notices dated 14.09.2018 issued in Form GST DRC-01 at Annexure-4 (in both cases), the orders dated 25.02.2019 issued under section 74(9) of JGST Act (in both cases) and also the final orders dated 3.3.2021 passed after rectification at Annexure-11 (in both cases), are hereby quashed and set aside. Application allowed.

Summary

Issues Involved:

1. Irregular claim of input tax credit (ITC) without payment.
2. Non-transportation of goods in heavy vehicles.
3. Purchases from a single supplier without proof of payment.
4. Difference in stock upon physical verification.
5. Issuance and service of mandatory show-cause notice under Section 74(1) of the JGST Act.
6. Validity of proceedings initiated based on summary show-cause notices in Form DRC-01.

Issue-wise Detailed Analysis:

1. Irregular Claim of Input Tax Credit (ITC) Without Payment:
The petitioner was accused of claiming ITC without making payment of value and tax of the inputs to the supplier within the stipulated six months, contravening the 2nd/3rd proviso to Section 16(2) of the JGST Act. The court noted that the search conducted under Section 67 of the JGST Act led to the issuance of summary show-cause notices in Form DRC-01, which the petitioner responded to, claiming that the ITC was legally claimed and the goods were physically received.

2. Non-Transportation of Goods in Heavy Vehicles:
The court observed that the petitioner was also accused of not transporting goods worth Rs. 27 lakh in heavy vehicles as per the vehicle numbers, constituting 1% of the total credit of Rs. 19.43 Cr. This was one of the grounds for the search and subsequent proceedings.

3. Purchases from a Single Supplier Without Proof of Payment:
In W.P. (T) No.1984/2021, the petitioner was accused of making purchases only from one supplier without proof of payment. Additionally, a physical verification revealed a discrepancy in the stock maintained in the books of accounts.

4. Difference in Stock Upon Physical Verification:
The court noted that during the physical verification, a difference in stock was found compared to the stock maintained in the books of accounts, which was another ground for the proceedings against the petitioner.

5. Issuance and Service of Mandatory Show-Cause Notice Under Section 74(1) of the JGST Act:
The petitioner contended that no show-cause notice under Section 74(1) was issued and served upon them, which is mandatory and imperative in character. The court emphasized that Form DRC-01 is not a substitute for a show-cause notice under Section 74(1) and that the entire proceedings were without jurisdiction due to the lack of a proper show-cause notice.

6. Validity of Proceedings Initiated Based on Summary Show-Cause Notices in Form DRC-01:
The court referred to Rule 142(1)(a) of the JGST Rules, which mandates that the summary of the show-cause notice in Form DRC-01 should be issued "along with" the show-cause notice under Section 74(1). The court cited previous judgments, including the case of M/S NKAS Services Pvt. Ltd. vs. State of Jharkhand & Ors., which held that a summary of the show-cause notice cannot substitute a proper show-cause notice. The court concluded that the proceedings initiated based on Form DRC-01 were not sustainable as they did not fulfill the requirements of a proper show-cause notice, thereby violating principles of natural justice.

Conclusion:
The court quashed the summary of show-cause notices dated 14.09.2018, the orders dated 25.02.2019 issued under Section 74(9) of the JGST Act, and the final orders dated 3.3.2021 passed after rectification. The court allowed the writ applications, stating that the respondents are at liberty to initiate fresh proceedings from the same stage in accordance with the law.