30.03.2022 – Mere Summary In Form DRC-01 Cannot Substitute The Requirements Of A Proper Show Cause Notice Under Section 73 or 74 – Jharkhand High Court

The Hon’ble High Court of Jharkhand vide its order dated 09.02.2022 in the matter of M/s NKAS Services Private Limited Vs. State of Jharkhand & ors. held that a summary of show cause notice in Form DRC-01 cannot substitute the requirement of a proper show cause notice and the show cause notice being silent on allegations or contraventions of the provisions by the assessee, is not sustainable and hence liable to be quashed.

The petitioner preferred the Writ before the Hon’ble High Court challenging the impugned show cause notice dated 14.06.2021 issued under Section 73 of the Jharkhand Goods and Service Tax (JGST) Act, 2017 and the summary of show cause notice in Form DRC-01 dated 14.06.2021.

Facts:

  • A show cause notice dated 14.06.2021 with a summary of show cause notice in Form DRC 01 was issued to the petitioner without stating the facts of the case or the grounds alleged showing evasion of payment of tax to the Government.
  • The department issued the impugned show cause notice proposing demand on a payment received by the petitioner.
  • The show cause notice indicates that as per the statistics received from the headquarter/government treasury, it has come to the knowledge of the department that the petitioner has received a payment from the government treasury during the period April 2020 to March 2021 for the works contract services provided and the amount shown in the return is less than the actual amount received to evade the payment of tax.
  • The summary of show cause notice also does not mention that from which government treasury and against which works contract service the petitioner has not disclosed the amount in the return filed under GSTR – 3B.

Petitioner Plea: –

  • The impugned show cause notice dated 14th June 2021 issued under Section 73 and the summary of the show cause notice dated 14th June 2021 in FORM – DRC 01 lacks in the very ingredient of a proper show cause notice as required under Section 73 of the Act.
  • The impugned show cause notice has been issued in the exercise of power under rule 142(1) (a) of the Jharkhand Goods and Service Tax Rules, 2017, without striking the any relevant portions and without mentioning the contraventions of provisions committed by the petitioner.
  • The summary of show cause notice in FORM GST DRC-01 is to be issued in an electronic form and cannot be substitute to a proper show cause notice.
  • The petitioner relying on the decision of the same court in W.P.(T) No. 2444 of 2021 dated 6th October 2021 in the case of petitioner itself wherein the similar issue was involved, submitted that the impugned show cause notice and also the summary does not contain the specific facts and allegations showing evasion of tax by the petitioner.
  • The proceeding initiated through a show cause notice which does not contain specific facts and allegations would not be in interest of revenue and could end up in vague result.
  • It was further submitted on the behalf of the petitioner that the authorities are preoccupied with a notion that the details facts and charges cannot be uploaded or inserted in a format of issuance of show cause notice on GST Portal and a summary of show cause notice is sufficient.
  • Referring to Section 75(7) it was submitted that no amount in excess of tax, interest and penalty specified in the notice can be demanded.
  • The petitioner relied on Gorkha Security Servies Vrs. Government (NCT of Delhi) – (2014) 9 SCC 105, Metal Forging & another Vrs. Union of India & others – 2003(2) SCC 36, Commissioner of Central Excise, Chandigarh Vrs. Shital International (2011) 1 SCC 109, wherein what constitutes a proper show cause notice has been elucidated by the Hon’ble Supreme Court.
  • Further the petitioner, to counter the contentions of the respondents in the counter affidavit, relied on the decision of Hon’ble Supreme Court in Union of India Vrs. Bharti Airtel Ltd 2021(54) G.S.T.L 257 (S.C.) and submitted that the respondent authorities are under a mistaken belief that the ingredients of a proper show cause notice is replaced by the summary of show cause notice under DRC – 01.
  • Finally the petitioner profusely relied upon the decision in its own matter of the same court in P.T. No. 2444 of 2021 dated 6.10.2021(mentioned supra), wherein the similar challenge was there against the show cause notice under Section 74 of the JGST, Act, 2017, and submitted that if the show cause notice is vague not only the petitioner is denied the proper opportunity of defending the case but it could end up in vague result.
  • With all above contentions submitted that impugned show cause notice not being a proper show cause notice is not sustainable and liable to quashed.

Revenue Plea:

  • On the other hand, it was submitted on the behalf of the respondents that the show cause notice and its summary have been issued in accordance with the JGST Act, 2017 and its rules.
  • The show cause notice clearly mentions about the payment received by the petitioner and same was not disclosed in the return, hence amounts to evasion of payment of due tax to Government.
  • The summary of the show cause notice has elaborately mentioned about contraventions of provision by the petitioner and is in consonance with Section 73 of the Act.
  • The GSTN portal for issuance of show cause notice in DRC01 is built on a standard format, so the proper officer can make his comment in the summary.
  • The officer has followed the due procedure by mentioning the violations and charges on the petitioner.
  • The judgment of the Hon’ble court relied on by the petitioner in its own case i.e. P.(T) No. 2444 of 2021, was in respect of issuance of show cause notice under section 74 however in the present case the issuance of show cause notice is under Section 73 of JGST Act.

Held:

  • The Hon’ble Court after considering the submissions from the both sides and the law applicable observed that the impugned show cause notice has been issued in the prescribed format without striking the any relevant portion and without stating the contraventions of provision by the petitioner.
  • The Summary of the show cause notice under DRC-01 states that as per the statistics received, the petitioner has received a payment from Government treasury for providing Works contract service which has not been disclosed properly in the returns filed under GSTR – 3B, amounting to evasion of payment of tax by the petitioner.
  • Referring to the P.(T) No. 2444 of 2021 relied on by the petitioner in its own case, the Hon’ble Court noticed that we have already held in the case of same petitioner with respect to show cause notice under Section 74 that a summary of show cause notice in FORM DRC 01 cannot substitute the requirement of proper show cause notice.
  • Further the Hon’ble Court referring to the decision of Hon’ble Apex Court in the case of Gorkha Securities (supra) observed the Hon’ble court has laid down the ingredients of a proper show cause notice and the requirement of principles of natural justice can only be met if (i) a show cause notice contains the materials / grounds, which according to the Department necessitate an action; (ii) the particular penalty/ action which is proposed to be taken. Even if it is not specifically mentioned in the show cause notice, but it can be clearly and safely discerned from the reading thereof that would be sufficient to meet this requirement.
  • The Hon’ble Court found that the show cause notice and its summary are completely silent on the violations and contraventions of the provisions committed by the petitioner, also the summary of show cause notice does not contain the necessary facts and do not disclose that in respect of which works contract the demand has been proposed and not reflected in the returns i.e., GSTR – B.
  • The summary of show cause notice cannot be a substitute of proper show cause notice however if the show cause notice itself does not contain the ground for proceedings, no tax, penalty, interest can be imposed  in excess of amount specified in the notice as per Section 75(7).
  • The Hon’ble Court referring to the decisions relied upon by the petitioner in the case of Bharti Airtel, Shital International (Supra), Khem Chand versus Union of India [AIR 1958 SC 300], Oryx Fisheries P. Ltd. Vs. Union of India (2010) 13 SCC, held that it is a trite law that unless the foundation of a case is laid down in a show cause notice, the assessee would not be able to defend the charges in a vague show cause notice and would lead to violation of principles of natural justice.
  • The Hon’ble High Court relying on Magadh Sugar & Energy Ltd. Vrs. State of Bihar & others – 2021 SCC Online SC 801 held that the challenge is entertainable in exercise of Writ jurisdiction of the Court as the impugned show cause notice does not fulfill the ingredients of a proper show cause notice and amounts to violation of principles of natural justice.

The Hon’ble High Court with the above findings and without going into the merits of the case quashed the impugned show cause notice with a liberty to the respondents to initiate fresh proceedings in accordance with law within a period of four weeks.

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