2023 (2) TMI 226 - HC - GST

Validity of summary of the show cause notice in Form GST DRC-01 and the summary of the order in GST DRC-07 - summaries in line with the provisions of Section 74 of the JGST Act, 2017 and Rule 142 (1)(a) of the JGST Act, 2017 or not - irregular availment of Input Tax Credit - several consignment pertaining to inward supply as well as outward supply, were either shown to have been transported through vehicle bearing no registration number, or registration number bearing to car and 2 wheeler - 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 June, 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 03.10.2018 and finally two separate orders, both dated 14.05.2019, 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. Now 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 Pvt. Ltd. vs. State of Jharkhand Ors., 2021 (10) TMI 880 - JHARKHAND HIGH COURT , 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). Thus, 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 03-10-2018; 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. 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 - the summary of show-cause notices dated 12.09.2018 issued in Form GST DRC-01 at Annexure-4 (in both cases), the orders dated 14.05.2019 issued under section 74(9) of JGST Act (in both cases) and also the final orders dated 18.10.2021 passed after rectification at Annexure-09 (in both cases), are hereby quashed and set aside. The matter is remanded to the adjudicating authority to pass a fresh order in accordance with law from the stage of issuance of proper show cause notice under Section 74 (1) of the JGST Act.

Summary

Issues:
Challenges to show cause notices and orders under Section 74 of JGST Act, 2017 and Rule 142(1)(a) of JGST Act, 2017. Allegations of irregular availment of Input Tax Credit. Violation of principles of natural justice.

Analysis:
1. W.P.(T) No. 1071 of 2022 (July 2017 to March 2018): The petitioner challenged the summary of the show cause notice and order as per Section 74 of JGST Act, 2017 and Rule 142(1)(a) of JGST Act, 2017. The court noted that the summary of show cause notice in Form GST DRC-01 is not a substitute for a proper show cause notice. The court referred to a previous judgment highlighting the importance of clear charges in such notices to ensure the right to defend against allegations. The court found a violation of principles of natural justice and quashed the impugned notices and orders.

2. W.P.(T) No. 1091 of 2022 (April 2018 to June 2018): Similar to the previous case, the petitioner contested the show cause notice and order under Section 74 of JGST Act, 2017. The court observed that the petitioner's participation in the proceedings by submitting replies did not cure the irregularities in the foundation of the proceedings. The court emphasized the necessity of a proper show cause notice with clear charges. The court held that the impugned notices and orders were not sustainable due to material irregularity and violation of Section 74(1) of the Act. Consequently, the court quashed the impugned notices and orders, allowing the authorities to initiate fresh proceedings.

3. Common Observations: The court reiterated that a summary of show cause notice is not a substitute for a proper notice under Section 74 of the JGST Act. It emphasized the need for clear charges to afford the noticee an opportunity to defend against allegations. The court found the impugned notices and orders lacking in fulfilling the requirements of a proper show cause notice, leading to a violation of principles of natural justice. Therefore, the court quashed the impugned notices and orders in both cases, allowing for fresh proceedings to be initiated from the proper stage in accordance with the law.

In conclusion, the court allowed both applications, remanding the matter to the adjudicating authority to pass fresh orders in compliance with the law, starting from the issuance of proper show cause notices under Section 74(1) of the JGST Act.