SHOW CAUSE NOTICE WITHOUT STRIKING OUT IRRELEVANT PARTICULARS IN RELEVANT FORM - VAGUE

[Mr. M. GOVINDARAJAN]

The Supreme Court in ‘KHEM CHAND VERSUS. THE UNION OF INDIA AND OTHERS - 1957 (12) TMI 24 - SUPREME COURT held that it is well settled that a quasi judicial authority, while acting in exercise of its statutory power must act fairly and must act with an open mind while initiating a show cause proceeding. A show cause proceeding is meant to give the person proceeded against a reasonable opportunity of making his objection against the proposed charges indicated in the notice.

If the show cause notice is in a format then all the points of the show cause notice shall be filled in without fail by the proper officer who is issuing a show cause notice. If there is a fall out in this regard then the show cause notice is liable to be quashed by Court.

In 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 the High Court observed that a bare perusal of the impugned show cause notice creates a clear impression that it is a notice issued in a format without even striking out any irrelevant portions and without stating the contraventions committed by the petitioner i.e., whether its actuated by reason of fraud or any willful misstatement or suppression of facts in order to evade tax. Needless to say that the proceedings under Section 74 have a serious connotation as they allege punitive consequences on account of fraud or any willful misstatement or suppression of facts employed by the person chargeable with tax. In absence of clear charges the notice is bound to be denied proper opportunity to defend itself. This would entail violation of principles of natural justice which is a well recognized exception for invocation of writ jurisdiction despite availability of alternative remedy.

In M/S. CHITRA AUTOMOBILE, VERSUS THE STATE OF JHARKHAND, THE COMMISSIONER OF STATE TAXES, RANCHI, THE STATE TAX OFFICER - 2023 (1) TMI 1131 - JHARKHAND HIGH COURT, the petitioner is engaged in trading of two wheeler bikes and its parts sold to various customers. The petitioner claims input tax credit on input services, inputs and capital goods for the use in the course or furtherance of the business of the petitioner. The petitioner regularly filed its monthly returns and outward supplies.

The petitioner, all of a sudden, received a show cause notice from the Department under Section 73 of the JGST Act on 12.02.2022 along with Form GST DRC - -01. The show cause notice alleged that the petitioner has violated the provisions of the JGST Act, 2017 for the period March 2019. The petitioner was directed to reply the show cause notice. The show cause notice demanded a sum of Rs.30,22,586/- including interest. The Department finalized the case and issued summary of order in Form GST DRC - 07 on 17.02.2022.

Against these the petitioner filed the present writ petition before Jharkhand High Court with the following prayers-

• To set aside the show cause notice dated 12.02.2022;
• To set aside the summary of show cause notice in Form GST DRC -01, dated 12.02.2022;
• To set aside the summary of order dated 17.02.2022; and
• To issue appropriate directions to the Department not to attach the bank account of the petitioner running in the State Bank of India, Deoghar Branch.

The petitioner submitted the following before the High Court-

• The show cause notice, in a format, issued by the Department without striking out the irrelevant particulars is vague.
• The show cause notice does not spell out the contravention for which the petitioner is charged.
• The summary of show cause notice is of the same date of show cause notice.
• The summary of order has been issued on 17.02.2022 i.e., within 5 days from the date of issue of show cause notice.
• The show cause notice issued is in violation of law and the principles of Natural Justice.
• The initiation of proceedings under Section 73(1) of the Act is not an empty formality or a mere pretext but integral of principles of Natural Justice and fair play.

The petitioner prayed that in view of the above submissions that the show cause notice, summary of show cause notice and summary of order are liable to be quashed.

The Department submitted the following before the High Court-

• The writ petition is not maintainable as the petitioner has an efficacious and alternative remedy of filing the appeal against any decision or order before the Appellate Authority.
• The petitioner despite having knowledge of the issuance of summary order has not availed the same.
• The petitioner availed the input tax credit to the tune of Rs.22,01,732.12 lying in the electronic credit ledger for the financial year 2018 - 19, the last date for availing of the said credit is 20.10.2019. The petitioner filed his GSTR-3B return after 20.10.2019 and availed the said ITC. This is in violation of section 16(4) of the Act.
• Therefore ASMT - 10 notice was issued with directions to the petitioner to give reply.
• Since the petitioner has not given any reply to the show cause notice a summary of order in Form GST DRC - 07 under Rule 142(5) was issued on 17.02.2022.
• The petitioner is liable to pay the tax liability as issued by the Department in Form GST DRC - 07 as the same is legal and fully justified.

The High Court considered the submissions of both the parties to the present writ petition. The High Court observed that the show cause notice was issued to the petitioner which was issued in a format without striking out the irrelevant particulars and thus the show cause notice may be treated as vague as it does not spell out the contraventions for which the petitioner is charged. As a matter of facts, it is worse than the summary of show cause notice issued under Form GST DRC - 01 of the even date. The High Court further observed that without giving any opportunity of being heard the State Tax Officer was in so hurry that the finally issued summary of order in Form GST DRC - 07 on 17.02.2022 i.e., within five days from issuance of show cause.

Rule 142(1)(a) provides that the summary of show cause notice in Form DRC-01 should be issued along with the show cause notice under Section 73(1) of the Act which will spell out the contraventions in details for which the registered person is charged.  The word ‘along with’ clearly indicates that in a given case show cause notice as well as summary thereof both have to be issued.

The High Court further observed that the show cause notice was issued in a format without striking out irrelevant particulars which is not the intention of the legislature. Therefore the High Court held that the foundation of the proceeding in this case suffers from material irregularity and therefore not sustainable being contrary to Section 73(1) of the Act. Thus the subsequent proceedings issued under DRC - 07 cannot sanctify the same and liable to be quashed and set aside.

The High Court was of the considered view that the impugned show cause notice does not fulfill the ingredients of the proper show cause notice and thus amounts to violation of principles of nature justice. Therefore the writ petition is maintainable. The High Court set aside the show cause notice, summary of show cause notice and summary of order. The High Court further held that the Department is at liberty to initiate fresh proceeding from the stage of issuance of show cause notice in accordance with law.