The Hon’ble High Court of Jharkhand vide its order dated 11.07.2022 in the matter of M/s. Shyam Hardware Store versus The State of Jharkhand., Joint Commissioner of State Tax (Administration), Hazaribagh, Deputy Commissioner of State Tax, Investigation Bureau, Hazaribagh, Deputy Commissioner of State Tax, Ramgarh Circle, Ramgarh. State Tax Officer, Ramgarh Circle, Ramgarh in W.P. (T) No. 1117 of 2021, held that the inspection report does not fulfil the ingredients of a proper show cause notice and it amounts to violation of principles of natural justice.  Further, where the principles of natural justice is at stake, the words such as deemed, tantamount, does not hold merit.

The petitioner filed the present writ application challenging and praying for quashing/setting aside the summary of the order contained in Form GST DRC 07 dated 04.12.2020 as well as summary of rectification/withdrawal order contained in Form GST DRC-08 dated 07.12.2020 issued by the respondents for the period 2017-18, 2018-19, 2019-20 & 2020-21, whereby the petitioner has been directed to make payment of tax, interest and penalty on the alleged grounds of purported adjudication order.  Further, it was also prayed to declare the said purported order passed in exercise of powers under Section 61 & 73 of JGST Act, 2017 and the rectification/withdrawal order dated 07.12.2020 is without authority and is wholly illegal and arbitrary being passed in utter violation of provisions of JGST Act, and utter violation of principles of natural justice.

Facts: –

• That by an order dated 11.01.2020 of Joint Commissioner of State Tax (Admin), Hazaribagh Division, Hazaribagh, an inspection was conducted by the joint team of officers of Investigation Bureau and Ramgarh Circle in the premises of the petitioner and inspection report was prepared, and through it the petitioner was directed to appear on 17.01.2020 before the Joint Commissioner of State Tax (Admin.), failing which proceedings under Section 73, 50(1) & 125 of JGST Act would be initiated.
• That three discrepancies were alleged against the petitioner in the inspection report by the inspecting team, namely ‘short of goods in physical stock to the tune of Rs. 4,26,734.01, short of goods in summary stock for Rs.19918.00 and failure to declare additional place of business’, and the petitioner was directed to submit its explanations with respect to aforesaid discrepancies before the Joint Commissioner of State Tax (Admin).
• That in pursuance of the inspection report, an inquiry was initiated against the petitioner by the respondents and the petitioner was asked to appear before the authority with requisite books of accounts and the same was duly complied by the petitioner.
• Thereafter, based on the inspection dated 11.01.2020, petitioner was served summary of the order in Form GST DRC 07 separately for the period 2017-18, 2018-19, 2019-20 and 2020-2021, all dated 04.12.2020, levying alleged amount of tax, interest and penalty, in spite of the fact that the petitioner was regularly appearing before the respondent authority pursuant to the said inspection. Moreover, the petitioner was also served with three rectification orders as well as the summary of rectification/withdrawal order in Form GST DRC 08, all dated 07.12.2020, with respect to the three of the Form GST DRC 07 issued to the petitioner previously.  The petitioner being aggrieved of above filing the present writ-application. 

Petitioner’s Submissions: –

• It was submitted on the behalf of the petitioner that in the instant case no pre show cause notice in form GST DRC-01A, intimating the tax liability, interest and penalty, was issued to the petitioner. Thus, the petitioner was debarred from filing its objections in part B of the Form GST DRC-01A against the same.
• That no show cause notice under Section 73(1) was issued to the petitioner and the proper officer, to determine the tax, has not initiated the adjudication process as provided under Section 73 of JGST Act.
• The petitioner is highly prejudiced as the prescribed procedure under Section 73(1) has not been followed, resulting in violation of principles of natural justice.

Respondents’ submissions: –

• That relying on concluding paras of the inspection report dated 11.01.2020, submitted that these concluding paras provides the information with regard to notices under Section 73, 50(1) and Section 125 of the JGST Act and the same may be treated as notice under Section 73 to the petitioner.
• Further, reliance was place on the paras 6 to 8 of supplementary counter affidavit which states ‘ That, it is further submitted that, the said inspection dated 11.01.2020 was carried out in the physical presence of the petitioner proprietor, 7. That it is further submitted that the concluding paras of the said inspection report dated 11.01.2020 itself provide the information as regard to the notices u/s 73, 50(1) and Section 125 and therefore, it shall be treated that notice u/s 73 has already been issued and served upon the petitioner, 8. That therefore, the notices u/s 73, 50(1) and 125 were deemed to have been issued to the petitioner proprietor on the day of inspection i.e.”
• Lastly, it was clarified that issue in the present case pertains to financial year 2017-18, 2018-19, 2019-20 and the financial year 2020-21 is not being referred. However, the petitioner has challenged the summary of order in Form GST DRC – 07 and summary of rectification/withdrawal order in Form GST DRC 08 for all afore-mentioned years.

Held: –

• The Hon’ble Court after considering the submissions made, facts of the case and law applicable, found that the respondents have unsuccessfully tried to defend their action by submitting that the concluding paras of the inspection report dated 11.01.2020 were treated as notice under Section 73 upon the petitioner, wherein it was informed that if the petitioner fails to appear before the prescribed authority on prescribed date, the proceedings under Section 73, 50(1) and 125 would be initiated.
• Further the respondents have failed to establish that on any date the petitioner has not appeared on the date as prescribed in the inspection report or has ignored the directions given in the inspection report. The same is quite evident from the order sheet, the adjudicating officer nowhere in the order sheet has mentioned that the petitioner has failed to appear.
• It was found that on contrary the order sheet mentions that the proceedings under Section 73, 50(1) and 125 has been initiated by the inspecting team itself, however from the concluding paras of the inspection report, it is clear that if the petitioner fails to appear as per the directions, proceedings under section 73, 50(1), 125 would be initiated. That nowhere it has been mentioned that the said direction will suo motto convert into proceedings under Section 73, 50(1) and 125, if the petitioner fails to appear.
• That the contention of the respondents that the directions in the inspection report shall be treated as notice under Section 73 served upon the petitioner, is nothing but an attempt to misrepresent the facts of the case and is not accepted by this court.
• Further it is pertinent to mention here that in the matter where the principles of natural justice are at stake, words such as deemed, tantamount etc. hold no merit. Moreover, under Rule 142 of JGST Rules, 2017 procedure of notice under Section 73 has already been prescribed hence any other such deemed notice, can be treated no notice in the eye of law.
• The Hon’ble Court referred to the judgment of this court in M/s Godavari Commodities Ltd. Vs. the State of Jharkhand & Ors. W.P.(T) No.3908 of 2020, wherein it was categorically held that ‘any order passed without complying the requirement prescribed under rule 142 of the JGST Rules is against the principles of natural justice.’. Moreover, in the series of judgments passed by this court, it has been categorically held that any adjudication order is non est in the eye of law, if the same is passed without issuance of proper show cause notice.
• Lastly, it was held that since the inspection report does not fulfil the ingredients of a proper show cause notice and it amounts to violation of principles of natural justice.

The Hon’ble Court with the above findings held that challenge is maintainable in exercise of writ jurisdiction of this Court and the instant writ application deserves to be allowed. Consequently, set aside and quashed the summary of the order in Form GST DRC-07 dated 04.12.2020 as well as summary of rectification/withdrawal order as contained in Form GST DRC-08 dated 07.12.2020 with a liberty to the respondents to initiate fresh proceedings from the stage of issuing proper show cause notice as laid down in the JGST Act, 2017 following principles of natural justice.