2025 (1) TMI 126 - HC - GST

Issuance of a Summary of Show Cause Notice in Form GST DRC-01 without a proper Show Cause Notice - requirements under Section 73 of the CGST/AGST Act, 2017 satisfied or not - infraction to the various provisions of the Central Act, the State Act as well as the Rules framed thereunder - principles of natural justice have been violated as is not only a statutory mandate but also violative of Article 21 of the Constitution - lack of signatures on the attachments - whether the said attachment can be said to be a Show Cause Notice as per the mandate of both the Central Act as well as the State Act and the Rules made therein under? HELD THAT - From a perusal of the Rule 142 of the Rules of 2017, it would show that in addition to the Show Cause Notice to be issued under Section 73 (1) and the Statement of determination of tax under Section 73 (3), there is an additional requirement of issuance of a Summary of the Show Cause Notice in GST DRC-01 and the Summary of the Statement in GST DRC-02. The natural corollary from the above analysis is that 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 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. In the instant writ petitions, the attachment to the Summary of Show Cause Notice in GST DRC-01 is only the Statement of the determination of tax in terms with Section 73 (3). The issuance of the Summary of the Show Cause Notice, Summary of the Statement and Summary of the Order do not dispense with the requirement of issuance of a proper Show Cause Notice and Statement as well as passing of the Order as per the mandate of Section 73 by the Proper Officer. 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 - A proper Show Cause Notice is mandatory under Section 73, and digital signatures are required for authentication under Rule 26(3). The impugned order dated 30.04.2024 issued by the respondent no.3 is hereby set aside and quashed - Petition disposed off.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the issuance of a Summary of Show Cause Notice in Form GST DRC-01 without a proper Show Cause Notice satisfies the requirements under Section 73 of the CGST/AGST Act, 2017.
Whether the lack of signatures on the attachments to the GST DRC-01 and GST DRC-07 invalidates the proceedings.
Whether the petitioner was denied an opportunity of hearing, violating Section 75(4) of the CGST/AGST Act, 2017 and principles of natural justice.
Whether Rule 26(3) of the Central Goods and Services Tax Rules, 2017, which mandates digital signatures, applies to the issuance of notices and orders under Chapter XVIII of the Rules.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Summary of Show Cause Notice

Relevant Legal Framework and Precedents: Section 73 of the CGST/AGST Act, 2017 requires a proper Show Cause Notice for tax determination. Rule 142 of the Rules of 2017 mandates a summary of the Show Cause Notice in Form GST DRC-01.
Court's Interpretation and Reasoning: The Court held that a Summary of the Show Cause Notice cannot substitute the requirement of a proper Show Cause Notice as per Section 73(1).
Key Evidence and Findings: The attachments to the Summary of the Show Cause Notice did not constitute a proper Show Cause Notice.
Application of Law to Facts: The Court found that the proceedings initiated without a proper Show Cause Notice were not in compliance with the statutory requirements.
Treatment of Competing Arguments: The respondent's argument that the attachment constituted a valid Show Cause Notice was rejected.
Conclusions: The Court concluded that the proceedings were invalid due to the absence of a proper Show Cause Notice.

Issue 2: Lack of Signatures on Attachments

Relevant Legal Framework and Precedents: Rule 26(3) requires digital signatures for authentication. Relevant precedents include judgments from the Telangana, Andhra Pradesh, and Delhi High Courts.
Court's Interpretation and Reasoning: The Court held that the lack of digital signatures rendered the notices and orders ineffective.
Key Evidence and Findings: The attachments lacked digital signatures, violating the authentication requirements.
Application of Law to Facts: The Court applied Rule 26(3) to the notices and orders, finding them invalid due to lack of authentication.
Treatment of Competing Arguments: The respondent's claim that digital signatures were not necessary was dismissed.
Conclusions: The Court concluded that the lack of digital signatures invalidated the proceedings.

Issue 3: Denial of Opportunity for Hearing

Relevant Legal Framework and Precedents: Section 75(4) mandates an opportunity for a hearing. The Chhattisgarh High Court's judgment in Mahindra & Mahindra Limited was considered.
Court's Interpretation and Reasoning: The Court opined that not providing a hearing violated statutory mandates and principles of natural justice.
Key Evidence and Findings: The petitioner requested a hearing, but it was not granted.
Application of Law to Facts: The Court found that the statutory requirement for a hearing was not met.
Treatment of Competing Arguments: The respondent's failure to provide a hearing was deemed unjustifiable.
Conclusions: The Court concluded that the denial of a hearing violated the petitioner's rights.

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

Relevant Legal Framework and Precedents: Rule 26(3) pertains to Chapter III, but its applicability to Chapter XVIII was considered.
Court's Interpretation and Reasoning: The Court extended the applicability of Rule 26(3) to Chapter XVIII due to the necessity for authentication.
Key Evidence and Findings: The lack of specific rules for Chapter XVIII necessitated applying Rule 26(3).
Application of Law to Facts: The Court applied Rule 26(3) to ensure proper authentication of notices and orders.
Treatment of Competing Arguments: The respondent's argument against the applicability of Rule 26(3) was rejected.
Conclusions: The Court concluded that Rule 26(3) applies to Chapter XVIII for authentication purposes.

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: A proper Show Cause Notice is mandatory under Section 73, and digital signatures are required for authentication under Rule 26(3).
Final Determinations on Each Issue: The impugned order was set aside due to the lack of a proper Show Cause Notice, absence of digital signatures, and denial of a hearing.

The Court granted liberty to the respondent authorities to initiate de novo proceedings under Section 73, excluding the period from the issuance of the Summary of the Show Cause Notice to the date of the judgment for computing the time limit for passing the order under Section 73(10).

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