Lack of clarity w.r.t. reasons/ contraventions in SCN violates the principles of natural justice

The Hon'ble Jharkhand High Court in the matter of M/s. Chitra Automobile v. the State of Jharkhand and Ors. [W.P.(T) No. 4784 of 2022 dated January 24, 2023] quashed and set aside the Show Cause Notice ("SCN"), and consequential summary of the SCN in Form GST DRC-01 and summary of order in Form GST DRC-07, issued to the assessee, on the grounds that the SCN did not fulfil the ingredients properly and thus amounted to the violation of the principles of natural justice. Held that, the SCN must clearly state the contravention for which the assessee is charged, in order to have the opportunity to the assessee for defending themselves.

Facts

M/s Chitra Automobile ("the Petitioner") is engaged in the business of trading of two wheeler bikes and its parts. For the furtherance of its business, the Petitioner receives input services and goods and claims Input Tax Credit ("ITC") on such inward supplies in accordance with Section 16 of the Central Goods and Services Act, 2017 ("the CGST Act").

The Petitioner was served with a SCN dated February 12, 2022 ("the Impugned SCN") along with the summary of the SCN in Form GST DRC-01, for alleged violation of the provisions of the CGST Act for the period March, 2019 and a total demand of INR 30,22,586/- including GST and interest was made. However, the Revenue Department ("the Respondent") issued summary of the order in Form GST DRC-07 dated February 12, 2022 ("the Impugned Order") for non-furnishing of reply to the SCN by the Petitioner.

The Petitioner contended that the Impugned SCN was vague and did not mention the reasons for which it was charged and for such reasons the Impugned SCN was in violation of the rule of law and principles of natural justice. Further, the Impugned Order was issued just within five days of issuance of the Impugned SCN.

The Respondent contended that the writ petition was not maintainable as the Petitioner has alternative remedy of filing appeal against any decision or order before the Appellate Authority under Section 107(1) of the CGST Act but it has not availed the same. Further, the Petitioner filed its Form GSTR 3B after the due-date and hence ITC to the tune of INR 22,01,732.12/- cannot be availed as it is in violation of Section 16(4) of the CGST Act and therefore the Petitioner is liable to pay the GST liability as issued in the Impugned Order.

Issue

Whether the Impugned SCN and the Impugned Order are sustainable?

Held

The Hon'ble Jharkhand High Court in W.P. (T) No. 4784 of 2022held as under:

• Noted that, the Impugned SCN did not spell out the contraventions for which the Petitioner was charged and thus it would not be an exaggeration in treating the same as vague.
• Observed that, the Respondent without giving the opportunity of hearing the Petitioner had issued the Impugned Order, just within five days of issuance of the Impugned SCN.
• Further observed that, according to Rule 142(1)(a) of the Central Goods and Services Tax Rules, 2017 ("the CGST Rules"), a summary of the SCN in Form GST DRC 01 should be issued along with the SCN under Section 73 of the CGST Act, which shall explain the contraventions in detail for which the assessee is being charged.
• Relied on its earlier Judgment in M/s NKAS Services Pvt. Ltd. v. State of Jharkhand & Ors. [W.P.(T) No. 2444 of 2021 dated October 6, 2021]wherein, it was observed that, if the SCN is not specific and contains vague or unintelligible allegations, it is sufficient to hold that the assessee is not given a proper opportunity to meet the allegations made in the SCN. It was held that, the SCN must clearly state the specific reasons for the action being taken against the assessee as enumerated in the CGST Actin order for the assessee to have the opportunity to defend themselves.
• Held that, the Impugned SCN does not fulfil the ingredients of a proper SCN and thus amounts to the violation of natural justice.
• Quashed and set aside the Impugned SCN, Summary of the SCN in Form GST DRC-01 and the Impugned Order.
• Allowed the Respondent to initiate fresh proceedings from the stage of issuance of SCN in accordance with law.

Relevant Provisions

Rule 142(1)(a) of the CGST Rules

"The proper officer shall serve, along with the

(a) notice issued under section 52 or section 73 or section 74 or section 76 or section 122 or section 123 or section 124 or section 125 or section 127 or section 129 or section 130, a summary thereof electronically in FORM GST DRC-01"
Section 73 of the CGST Act:

"73. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful-misstatement or suppression of facts. –

(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason, other than the reason of fraud or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty leviable under the provisions of this Act or the rules made thereunder.

(2) The proper officer shall issue the notice under sub-section (1) at least three months prior to the time limit specified in sub-section (10) for issuance of order.

(3) Where a notice has been issued for any period under sub-section (1), the proper officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for such periods other than those covered under sub-section (1), on the person chargeable with tax.

(4) The service of such statement shall be deemed to be service of notice on such person under sub-section (1), subject to the condition that the grounds relied upon for such tax periods other than those covered under sub-section (1) are the same as are mentioned in the earlier notice.

(5) The person chargeable with tax may, before service of notice under sub-section (1) or, as the case may be, the statement under sub-section (3), pay the amount of tax along with interest payable thereon under section 50 on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.

(6) The proper officer, on receipt of such information, shall not serve any notice under sub-section (1) or, as the case may be, the statement under sub-section (3), in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder.

(7) Where the proper officer is of the opinion that the amount paid under sub-section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-section (1) in respect of such amount which falls short of the amount actually payable.

(8) Where any person chargeable with tax under sub-section (1) or sub-section (3) pays the said tax along with interest payable under section 50 within thirty days of issue of show cause notice, no penalty shall be payable and all proceedings in respect of the said notice shall be deemed to be concluded.

(9) The proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten per cent. of tax or ten thousand rupees, whichever is higher, due from such person and issue an order.

(10) The proper officer shall issue the order under sub-section (9) within three years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within three years from the date of erroneous refund.

(11) Notwithstanding anything contained in sub-section (6) or sub-section (8), penalty under sub-section (9) shall be payable where any amount of self-assessed tax or any amount collected as tax has not been paid within a period of thirty days from the due date of payment of such tax."