Revenue department cannot go beyond the scope of SCN to create new ground at the stage of adjudication

The Hon'ble Jharkhand High Court in M/s. CJ Darcl Logistics Limited v. Union of India [W.P.(T) No. 215 of 2022 dated February 9, 2023] has quashed and set aside the Show Cause Notice ("SCN") and the consequent orders demanding reversal of excess Input Tax Credit ("ITC"), on the ground that, the same were passed without providing the opportunity of personal hearing to the assessee. Hence, violative of principles of natural justice. Held that, the SCN was vague and cryptic in nature and the orders passed were beyond the scope of the SCN.

Facts

M/s. CJ Darcl Logistics Limited ("the Petitioner") is a public limited company engaged in the business of providing inter alia Goods Transportation Agency ("GTA") services registered under Reverse Charge Mechanism ("RCM") in Jharkhand and also registered under Forward Charge Mechanism ("FCM") as certain customers of Petitioner were willing to discharge the liability under RCM and some customers were not so willing. Thereafter, under a bonafide mistake, the Petitioner deposited the amount of GST totalling to INR 1,70,12,325/- in its Electronic Cash Ledger ("ECL") of RCM registration instead of depositing it in the ECL of the FCM Registration. The Petitioner again deposited the same amount in the ECL of the FCM registration to file GSTR-3B return. As there was double payment and the amount was lying as excess balance in the ECL of the Petitioner, an application for refund in FORM GST RFD-01 was filed on April 18, 2021.

Further, a SCN dated May 17, 2021 ("the Impugned SCN") on the refund application under Section 54 of the Central Goods and Services Tax Act, 2017 ("the CGST Act") was issued in respect of RCM Registration. The Petitioner furnished its reply to the Impugned SCN but the claim was rejected by Order-in-Original dated June 14, 2021 ("the OIO") in Form GST RFD-06 passed by the Revenue Department ("the Respondent") on the grounds that, the Petitioner had taken benefit of ITC of INR 4,57,27,369/- in excess due to the reason that, it had taken two GST Registrations in the same state. 

Subsequently, an appeal was filed by the Petitioner, which was rejected by the Appellate Authority vide Order-in-Appeal dated December 8, 2021 ("the OIA"). 

Being aggrieved this petition has been filed.

The Petitioner contended that the proceedings were vitiated in violation of principles of natural justice as no proper SCN has been issued and only after the reply of the Impugned SCN, the Respondent found about the alleged contraventions i.e. maintaining two GST registration numbers with two different rates of GST within the same state. 

Issue

Whether an order can be passed on the basis of allegations which were not mentioned in the Impugned SCN?

Held

The Hon'ble Jharkhand High Court in W.P.(T) No. 215 of 2022 held as under:

• Observed that, the Impugned SCN mentioned a different allegation and only after submissions of Petitioner's reply, the OIO was passed on the grounds which were never part and parcel of the Impugned SCN. 
• Noted that, it is settled principle of law that if an allegation or ground is not made at the time of issuance of SCN, the authority cannot go beyond the scope of SCN to create new ground at the later stage of adjudication.
• Stated that, the proceedings vitiated by the Respondent were in violation of principles of natural justice as neither a proper SCN was issued nor any opportunity of hearing was given to the Petitioner. Further, even the OIA did not deliberate on this issue and simply confirmed the OIO. 
• Further stated that, if any opportunity would have given to the Petitioner, the Respondent might have proceeded to issue a subsequent SCN.
• Further observed that, it is only after the submissions of Petitioner's reply, the Respondent decided the refund application, on the grounds of maintaining of two GSTIN number by the Petitioner, which were not the part of the Impugned SCN.
• Held that, the Impugned SCN is vague and cryptic in nature and the OIO of adjudication is bad in law for the reasons that it has been passed beyond the scope of the Impugned SCN.
• Quashed and set aside the Impugned SCN and consequent the OIO and the OIA.