Summary SCN not fulfilling the ingredients of a proper SCN and thus violative of principles of natural justice

The Jharkhand High Court has ruled that an Adjudication Order against M/s. Godavari Commodities Ltd. was invalid because it was issued without a proper Show Cause Notice (SCN). This failure to provide adequate notice violated the principles of natural justice. Consequently, the court quashed the Adjudication Order and related notices. However, the tax department has been given the liberty to initiate fresh proceedings if they choose to do so.

The Hon'ble High Court of Jharkhand at Ranchi in M/s. Godavari Commodities Ltd. vs. The State of Jharkhand [W.P.(T) No. 3908 of 2020 dated April 18, 2022], held that the Adjudication Order is non est in the eye of law, as the same has been passed without issuance of proper Show Cause Notice ("SCN") and thus, amounts to violation of principles of natural justice.

Facts

The M/s. Godavari Commodities Ltd. ("the Petitioner") is a Public Limited Company and is primarily engaged in the business of trading of coal. The Petitioner for the purpose of trading of coal, purchases coal primarily from various subsidiaries of Coal India Limited including various Government entities like Jharkhand State Mineral Development Corporation, Heavy Engineering Corporation Limited as well as other similarly situated coal traders.

There were inter-state purchases and sales transactions by and between the Petitioner and other coal traders.

The state of Jharkhand tax department ("the Respondents") carried out an inspection under Section 67 of the Jharkhand Goods Service Tax Act, 2017 ("the Jharkhand GST Act") in the registered premises of the Petitioner with primary allegation of having availed ITC on goods without its actual movement.

Vide inspection report dated January 28, 2019 the Petitioner was directed to produce documents pertaining to movement of goods relating to purchase and sale transactions of the Petitioner in exercise of powers.

However, the Respondents were not convinced with the documents furnished by the Petitioner and issued pre-show cause notice consultation in Form GST DRC 01A dated January 29, 2020 ("the pre- SCN consultation notice") directing the Petitioner to make payment of the amount of tax along with applicable interest and penalty.

Subsequently, summary of show cause notice was issued in Form GST DRC-01 dated March 14, 2020 ("Summary SCN"). Thereafter, straightaway, an Adjudication Order was passed dated August 13, 2020 ("the Adjudication Order") fastening liability of tax, interest, and penalty upon the Petitioner however, the same was never communicated to the Petitioner and only Form DRC-07 dated September 11, 2020 ("the Summary Order") was issued. From the order sheet, it is evident that no opportunity of personal hearing was granted to the Petitioner.

Being aggrieved, the Petitioner filed appealed against the Adjudication Order.

Issue

Whether the very initiation of the adjudication proceeding without issuance of SCN is void ab initio?

Held

The Hon'ble Jharkhand high court in W.P.(T) No. 3908 of 2020 dated April 18, 2022held as under:

• Relied on the judgement of Hon'ble Jharkhand High Court in M/s. NKAS Services Private Limited v. The State of Jharkhand and Ors [WP (T) No. 2444 of 2021 dated October 06, 2021], wherein the Court quashed the SCN in respect of wrongful availment of Input Tax Credit ("ITC") as it was vogue, unclear and lacked serious details.
• There is serious lacuna in the proceeding conducted under the Jharkhand GST Act which has ultimately entailed adverse consequences upon the Petitioner stated that the entire adjudication proceedings have been carried out in stark disregard to the mandatory provisions of the Central Goods and Services Tax Act, 2017 ("the CGST Act") and in violation of the principles of natural justice.
• Quashed and set aside the Summary Order, Adjudication Order and Summary SCN.
• Held that the Adjudication Order is non est in the eye of law, as the same has been passed without issuance of proper SCN and, thus, amounts to violation of principles of natural justice.
• However, the Respondents would have the liberty to initiate a fresh proceeding in accordance with the law, if so advised.