2021 (10) TMI 880 - HC - GST

Validity of SCN - Jurisdiction to issue SCN - validity of proceeding initiated without service of FORM GST-ASMT-10 - Section 74 of the JGST Act, 2017 - violation of principles of natural justice - HELD THAT - A bare perusal of the impugned show-case 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 which the person so alleged is required to answer, the noticee 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. The impugned notice completely lacks in fulfilling the ingredients of a proper show-cause notice under Section 74 of the Act. Proceedings under Section 74 of the Act have to be preceded by a proper show-cause notice. A summary of show-cause notice as issued in Form GST DRC-01 in terms of Rule 142(1) of the JGST Rules, 2017 (Annexure-2 impugned herein) cannot substitute the requirement of a proper show-cause notice. This court, however, is not inclined to be drawn into the issue whether the requirement of issuance of Form GST ASMT-10 is a condition precedent for invocation of Section 73 or 74 of the JGST Act for the purposes of deciding the instant case. This Court finds that upon perusal of Annexure-2 which is the statutory form GST DRC-01 issued to the petitioner, although it has been mentioned that there is mismatch between GSTR-3B and 2A, but that is not sufficient as the foundational allegation for issuance of notice under Section 74 is totally missing and the notice continues to be vague. The impugned show-cause notice as contained in Annexure-1 does not fulfill the ingredients of a proper show-cause notice and thus amounts to violation of principles of natural justice, the challenge is entertainable in exercise of writ jurisdiction of this Court - petition allowed.

Summary

Issues Involved:
1. Vagueness of the Show Cause Notice (SCN)
2. Jurisdiction of the SCN
3. Validity of proceedings initiated without service of FORM GST-ASMT-10

Detailed Analysis:

1. Vagueness of the Show Cause Notice (SCN):
The petitioner challenged the SCN dated 7th June 2021 under Section 74 of the JGST Act, 2017, claiming it was vague and did not disclose specific charges or contraventions. The notice was described as a mechanical reproduction of the statutory provisions without striking out irrelevant portions, thus making it incapable of any meaningful reply. The petitioner argued that this vagueness violated the principles of natural justice by denying the opportunity to properly defend. The court agreed, noting that the SCN did not specify whether the alleged non-payment or short payment of tax was due to fraud, willful misstatement, or suppression of facts. This lack of specificity was deemed insufficient to meet the legal requirements for a proper SCN under Section 74, which necessitates clear and explicit charges to be communicated to the noticee.

2. Jurisdiction of the SCN:
The petitioner argued that the SCN lacked jurisdictional facts necessary to invoke Section 74 of the JGST Act, which requires allegations of fraud, willful misstatement, or suppression of facts. The court found merit in this argument, stating that the SCN did not contain any foundational facts to support the invocation of Section 74. The court emphasized that specific allegations of fraud or suppression must be clearly pleaded to provide the noticee with a fair opportunity to respond. The absence of such allegations rendered the SCN jurisdictionally defective.

3. Validity of Proceedings Initiated Without Service of FORM GST-ASMT-10:
The petitioner contended that the proceedings were void ab initio as they were initiated without the service of FORM GST-ASMT-10, which is required under Section 61 of the JGST Act for scrutiny of returns. The court did not delve into whether the issuance of FORM GST-ASMT-10 is a condition precedent for invoking Section 73 or 74, focusing instead on the inadequacy of the SCN itself. The court noted that the summary of the SCN in FORM DRC-01, which mentioned a mismatch between GSTR-3B and 2A, was insufficient as it did not address the foundational allegations required for a Section 74 notice.

Conclusion:
The court concluded that the SCN and the summary of the SCN did not meet the legal requirements for a proper notice under Section 74 of the JGST Act. The SCN's vagueness and lack of specific allegations constituted a violation of the principles of natural justice, warranting judicial intervention despite the availability of alternative remedies. Consequently, the court quashed the impugned SCN and the summary of the SCN but allowed the respondents the liberty to initiate fresh proceedings from the same stage in accordance with the law within four weeks. The writ petition was allowed to the extent indicated.