Alternative remedy against order not applicable when SCN is issued in violation of principles of natural justice

The Hon'ble Jharkhand High Court in Santosh Kumar Roy v. the State of Jharkhand & Ors. [W.P.(T) No. 4782 of 2022 dated January 24, 2023] quashed and set aside the Show Cause Notice ("SCN") and the consequential order passed by the Revenue Department, on the grounds that the SCN issued to the assessee is not in strict compliance of Section 73 (1) of the Central Goods and Services Tax Act, 2017 ("the CGST Act"). Held that, stating specific charges in the SCN is part of due procedure and fair play in action which are essential requirements of rule of law and has its genesis in Article 14 of the Constitution of India and since the principles of natural justice is not complied with, the ground of alternative remedy is not acceptable. Remanded back the matter to pass a fresh order after following the due procedure of law from the stage of issuing fresh SCN.

Facts

Santosh Kumar Roy ("the Petitioner") is engaged in a construction work and for supply of taxable services and receives input services, inputs and capital goods for use in the course or furtherance of its business and claims Input Tax Credit ("ITC") on such inward supply in accordance with Section 16 of the CGST Act.

On February 9, 2021, a notice was issued to the Petitioner vide Section 61 of the CGST Act followed by a SCN under Section 73 of the CGST Act ("the Impugned SCN") on January 7, 2022 along with summary of SCN in Form GST DRC-01 for the tax period January 2019-February 2019. Subsequently, the Revenue Department ("the Respondent") proceeded to issue Summary of the order in Form GST DRC-07 ("the Impugned Summary Order") on February 9, 2022.

The Petitioner contended that, the Impugned SCN is in a format without striking out the irrelevant particulars, is vague and does not spell out the contravention for which the Petitioner is charged.

However, the Respondent contended that, the Petitioner the Impugned Order was passed due to non-reply to the Impugned SCN by the Petitioner, thus, there is no procedural lapse. Further, the Petitioner is having an alternative efficacious remedy under

Section 107 of the CGST Act, therefore, this petition should not have been preferred.

Issue

Whether the Impugned SCN along with Summary of SCN and the Impugned Summary Order passed by the Respondent are in violation of principles of natural justice?

Held

The Hon'ble Jharkhand High Court in W.P.(T) No.4782 of 2022 held as under:

• Relied on the judgment in NKAS Service Pvt. Ltd. v. the State of Jharkhand [W.P.(T) No.2444/21], wherein it was held that the SCN issued under Section 73(1) of the CGST Act is not mere a formality and the SCN must clearly state the specific reasons for the action being taken against the assessee as enumerated in the CGST Act in order for the assessee to have the opportunity to defend themselves.
• Stated that, the intent of legislature for issuing a SCN along with Form GST DRC-01i.e. a summary of SCN is that, the SCN should be in detail giving the facts and circumstances and the grounds for levying tax.
• Noted that, the Impugned SCN is in a format without striking out the irrelevant particulars and the Respondent issued the Impugned Summary Order, without giving any further opportunity to the Petitioner, which is certainly beyond the provisions of law.
• Further noted that, no adjudication order is on record and it is only the Impugned Summary Order issued which is on record.
• Stated that, stating specific charges in the SCN is part of due procedure and fair play in action which are essential requirements of rule of law and has its genesis in Article 14 of the Constitution of India.
• Held that, the Impugned SCN is in a format which is not in strict compliance of Section 73(1) of the CGST Act and Rule 142(1)(a) of the Central Goods and Services Tax Rules, 2017 ("the CGST Rules") and since the principle of natural justice has not been complied, the ground of alternative remedy is not acceptable.
• Quashed and set aside the Impugned SCN along with the summary of SCN and the Impugned Summary Order.
• Remanded back the matter to the Respondent to pass a fresh order after following due procedure of law from the stage of issuing fresh SCN strictly in accordance with law.

Relevant Provisions

Section 73(1) of the CGST Act

"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."
Rule 142(1) of the CGST Rules:

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

(1) 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,

(b) statement under sub-section (3) of section 73 or sub-section (3) of section 74, a summary thereof electronically in FORM GST DRC-02, specifying therein the details of the amount payable."