Demand order not sustainable without issuance of SCN and fair opportunity to respond

The Allahabad High Court has quashed a demand order issued by the Revenue Department because a crucial Show Cause Notice (SCN) in Form GST DRC-01A was not served. The court found that the absence of this initial notice, which details tax, interest, and penalties, fundamentally flawed the proceedings. Even a subsequent reminder could not rectify this defect, leading to the cancellation of the order and allowing the Revenue Department to restart the process correctly.

The Hon'ble Allahabad High Court in Skyline Automation Industries v. State of Uttar Pradesh [Writ Tax No. - 1512 of 2022 dated January 2, 2023] quashed the demand order passed in Form DRC-07, by the Revenue Department, on the grounds that a notice in Part A of FORM GST DRC-01A under Rule 142(1A) of Central Goods and Services Rules, 2017 ("the CGST Rules") was not issued. Held that, subsequent reminder would not have cured inherent defect in proceedings initiated against the assessee as the initiation of proceedings itself are bad, thus, the order passed consequent thereto will also fall.

Facts

This writ petition has been filed by the Skyline Automation Industries ("the Petitioner") challenging the order dated November 10, 2022 ("the Impugned Order") passed by the Revenue Department ("the Respondent") under Section 74(9) of the Central Goods and Services Tax Act, 2017 ("the CGST Act"). The Petitioner stated that in terms of the provisions of Rule 142(1A) of the CGST Rules, before passing any order under Section 74 of the CGST Act, a Show Cause Notice ("SCN") in Part A of FORM GST DRC-01A is required to be issued, which was not issued to the Petitioner therefore, fair opportunity to respond was not granted to the Petitioner.

Issue

Whether the non-issuance of SCN to the Petitioner violates the fair opportunity to respond?

Held

The Hon'ble Allahabad High Court in the matter of Writ Tax No. - 1512 of 2022 held as under:

• Noted that, for initiation of proceedings against the Petitioner a notice as provided for under Rule 142(1A) of the CGST Rules in Part A of FORM GST DRC-01A was not issued, which provides for communication of details of any tax, interest and penalties as ascertained by the officer.
• Stated that, any subsequent reminder will not cure inherent defect in proceedings initiated against the Petitioner.
• Relied on the judgment of Hon'ble Delhi High Court in Gulati Enterprises v. Central Board of Indirect Taxes and Customs & others [W.P.(C) 5407/2020 & CM APPL. 19473/2020 Dated May 18, 2022], wherein on the identical facts, the SCN was set aside and the matter was remitted back to initiate fresh proceedings in accordance with law.
• Stated that, in the present matter, the only difference is that an Impugned Order has also been passed, which will not make any difference. As the initiation of proceedings itself are bad, the order passed consequent thereto will also fall.
• Quashedthe Impugned Order.
• Permitted the Respondent to initiate fresh proceedings against the Petitioner in accordance with law.

Relevant Provisions

Rule 142(1A) of the CGST Rules

"Notice and order for demand of amounts payable under the Act-

(1A) The proper officer may, before service of notice to the person chargeable with tax, interest and penalty, under sub-section (1) of Section 73 or sub-section (1) of Section 74, as the case may be, communicate the details of any tax, interest and penalty as ascertained by the said officer, in Part A of FORM GST DRC-01A."