2025 (1) TMI 725 - HC - GST

Valid service of SCN - attachment to the Summary of the Show Cause Notice (SCN) in GST DRC-01 can be considered a valid Show Cause Notice under Section 73 of the CGST/AGST Act, 2017 or not - HELD THAT - The Proper Officer is required to issue a Show Cause Notice, therefore, the Show Cause Notice is required to specifically mention the reason(s) and the circumstances why the provision of Section 73 had been set into motion. The person against whom the said Show Cause Notice is issued would only have an adequate opportunity to submit a representation justifying that the prerequisites for issuance of Show Cause Notice is not there if and only if the reason(s) for issuance of the Show Cause is specifically mentioned in the Show Cause Notice. The issuance of the Show Cause Notice and the Statement of determination of tax by the Proper Officer are mandatory requirement in addition to the Summary of Show Cause Notice in GST DRC-01 and Summary of the Statement in GST DRC-02. This Court is of the view that the 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. The Summary of the Show Cause Notice is in addition to the issuance of a proper Show Cause Notice. Under such circumstances, this Court is of the opinion that the impugned order challenged in the instant writ petition is contrary to the provisions of Section 73 as well as Rule 142 (1) (a) of the Rules as the said impugned Orders were passed with issuance of a proper Show Cause Notice. Whether Rule 26 (3) can be applicable to Chapter-XVIII when the said Sub-Rule on refers to Chapter-III? - HELD THAT - This Court has duly perused the Summary of the Show Cause Notices wherein the petitioner was only asked to file his reply on a date specified. There was no mention as to the date of hearing and the Column was kept blank. However, the petitioner had sought for an opportunity of hearing which was however not given. In this regard, if this Court takes note of Section 75 (4) of both the Central Act as well as State Act, it would be seen that it is the mandate of the said provision that an opportunity of hearing should be granted when a request is received in writing from the person chargeable with tax or penalty or when any adverse decision is contemplated against such person. The mandate of Section 75 (4) of both the Central and State Act are safeguards provided to the assessees so that they can have a say in the hearing process. 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 petition shows that 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. This Court is of the view that 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. The Show Cause Notice to be issued in terms with Section 73 (1) of the Central Act or State Act cannot be confused with the Statement of the determination of tax to be issued in terms with Section 73 (3) of the Central Act or the State Act - As initiation of a proceedings under Section 73 and passing of an order under the same provision have consequences. The Show Cause Notice, Statement as well as the Order are all required to be authenticated in the manner stipulated in Rule 26 (3) of the Rules of 2017. Accordingly, this Court is of the opinion that the Impugned Order challenged in the writ petition are in violation of Section 75 (4) as no opportunity of hearing was given. Conclusion - The 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. Petition disposed off.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the attachment to the Summary of the Show Cause Notice (SCN) in GST DRC-01 can be considered a valid Show Cause Notice under Section 73 of the CGST/AGST Act, 2017.
Whether the lack of a signature on the attachments to GST DRC-01 and GST DRC-07 affects the validity of the notices and orders.
Whether the petitioner was denied the opportunity of a hearing as mandated under Section 75(4) of the CGST/AGST Act, 2017.
Whether Rule 26(3) of the Central Goods and Services Tax Rules, 2017 applies to the authentication of notices and orders under Chapter XVIII, which deals with Demand and Recovery.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Attachment as a Show Cause Notice

Relevant Legal Framework and Precedents: Section 73 of the CGST/AGST Act, 2017 requires the issuance of a Show Cause Notice by the Proper Officer when it appears that tax has not been paid, short paid, or erroneously refunded. Rule 142 of the Rules of 2017 mandates the issuance of a Summary of the SCN electronically in Form GST DRC-01.
Court's Interpretation and Reasoning: The court held that the attachment to the Summary of the SCN cannot be considered a valid Show Cause Notice. The issuance of a proper SCN is mandatory under Section 73, and the Summary in GST DRC-01 is supplementary.
Key Evidence and Findings: The court noted that the attachment lacked specific reasons and circumstances for the tax determination, which are essential for a valid SCN.
Application of Law to Facts: The court found that the respondents' claim that the attachment constituted a valid SCN was misconceived and contrary to Section 73(1) and 73(3).
Treatment of Competing Arguments: The respondents argued that the attachment provided sufficient details for a reply. However, the court emphasized that a proper SCN is a prerequisite for proceedings under Section 73.
Conclusions: The court concluded that the proceedings initiated without a proper SCN were invalid.

Issue 2: Lack of Signature on Attachments

Relevant Legal Framework and Precedents: Rule 26(3) of the Rules of 2017 requires electronic authentication of notices and orders through digital signature or e-signature.
Court's Interpretation and Reasoning: The court held that the lack of a signature rendered the attachments ineffective and redundant, as authentication by the Proper Officer is essential.
Key Evidence and Findings: The court referenced judgments from other High Courts that emphasized the necessity of signatures for validity.
Application of Law to Facts: The court determined that the unsigned attachments did not meet the statutory requirements for valid notices and orders.
Treatment of Competing Arguments: The respondents contended that the documents were authenticated on the portal. The court, however, required explicit signatures as per Rule 26(3).
Conclusions: The court found the unsigned documents void and inoperative.

Issue 3: Opportunity of Hearing

Relevant Legal Framework and Precedents: Section 75(4) of the CGST/AGST Act, 2017 mandates an opportunity for a hearing if requested by the taxpayer or if an adverse decision is contemplated.
Court's Interpretation and Reasoning: The court emphasized that the statutory mandate for a hearing must be honored, and failure to provide such an opportunity violates the principles of natural justice.
Key Evidence and Findings: The court noted that the petitioner requested a hearing, which was not granted, violating Section 75(4).
Application of Law to Facts: The court found that the absence of a hearing opportunity rendered the proceedings defective.
Treatment of Competing Arguments: The respondents did not provide a valid justification for the lack of a hearing.
Conclusions: The court concluded that the denial of a hearing opportunity was a significant procedural lapse.

Issue 4: Application of Rule 26(3) to Chapter XVIII

Relevant Legal Framework and Precedents: Rule 26(3) pertains to the electronic issuance of notices and orders, primarily under Chapter III. The court considered its applicability to Chapter XVIII.
Court's Interpretation and Reasoning: The court opined that the authentication requirements of Rule 26(3) should apply to Chapter XVIII, given the necessity for proper officer authentication.
Key Evidence and Findings: The court referenced judgments that applied Rule 26(3) beyond Chapter III.
Application of Law to Facts: The court held that proper authentication is crucial for the validity of notices and orders under Chapter XVIII.
Treatment of Competing Arguments: The respondents did not effectively counter the applicability of Rule 26(3) to Chapter XVIII.
Conclusions: The court determined that Rule 26(3) applies to the authentication of notices and orders in this context.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The 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."
Core Principles Established: The issuance of a proper SCN is mandatory under Section 73, and the Summary in GST DRC-01 is supplementary. Authentication by the Proper Officer is essential for validity.
Final Determinations on Each Issue: The court set aside and quashed the impugned order due to the lack of a proper SCN, absence of signatures, and denial of a hearing opportunity. The court granted liberty for de novo proceedings under Section 73, excluding the period from the issuance of the Summary of the SCN to the judgment date from the time limit for passing the order under Section 73(10).

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