Jharkhand HC quashes vague SCN on wrongful availment of ITC

The Jharkhand High Court has quashed a Show Cause Notice (SCN) issued to M/s Nkas Services Private Limited concerning the wrongful availment of Input Tax Credit (ITC). The court found the SCN to be vague, lacking specific details of the alleged offense, and a mere reproduction of legal provisions. This failure to clearly state the charges was deemed a violation of natural justice, preventing the petitioner from adequately defending themselves. While the notice was quashed, the authorities were permitted to initiate fresh proceedings if conducted correctly.

The Jharkhand High Court (Jharkhand HC) in the matter of M/S. Nkas Services Private Limited v. The State of Jharkhand and Ors. [WP (T) No. 2444 of 2021 dated October 06, 2021] quashed the Show Cause Notice ("SCN") in respect of wrongful availment of Input Tax Credit ("ITC") as it was vogue, unclear and lacked serious details.

M/s Nkas Services Private Limited ("the Petitioner") has challenged the SCN issued under Section 74 of the Jharkhand Goods and Services Tax Act ("the JGST Act") on the grounds that it was vague and does not disclose the offense and contraventions as it is a mere mechanical reproduction of the provisions of Section 74 without striking of the irrelevant portions. It was contended, by the Petitioner that the impugned SCN is incapable of any reply and does not fulfill the ingredients of a notice in the eyes of law.

As per the said SCN, the Petitioner would be denied the opportunity to properly defend itself. It is, therefore, in violation of the principles of natural justice. The essential requirements of the proper notice are that it should specifically state charges to which the notice has to reply.

The Petitioner has sought to quash the impugned SCN issued under Section 74 of the JGST Act being in violation of principles of natural justice and lacking in jurisdictional facts to initiate a proceeding under Section 74 of the CGST Act on the allegations that the Petitioner has wrongfully availed the ITC by reason of fraud or any willful misstatement or suppression of facts to evade tax or not paid or short paid or erroneously got a refund of any tax.

After taking perusal of all the facts and evidences, the Honorable Jharkhand HC noted that the impugned SCN does not fulfill the ingredients of proper SCN and thus amounts to a violation of principles of natural justice, the challenge, by the Petitioner, was taken to be entertainable in the exercise of writ jurisdiction of the Court.

Accordingly, the Court ruled that the impugned notice and the summary of SCN in Form GST DRC-01 are quashed.

"However, since this Court has not gone into the merits of the challenge, respondents are at liberty to initiate fresh proceedings from the same stage in accordance with law within a period of four weeks from today," the Court said.