GST update No 186 on validity of adjudication on basis of summary SCN

It is well settled principle that the show cause notice lays the foundation for initiation of any proceedings against taxpayer and therefore, needs to be communicated effectively to the concerned taxpayers. Time and again various Courts had upheld the ideology that the “Notice is the first limb of the adjudication proceedings and therefore, must be precise and unambiguous”, failure of which will result into violation of principles of natural justice. The revenue authorities are reluctant to make a note of this principle thereby leading to knocking the doors of the courts repeatedly. Recently, the validity of the adjudication order was challenged before hon’ble Jharkhand High Court in the case of M/S GODAVARI COMMODITIES LTD. V/S STATE OF JHARKHAND on the grounds that summary SCN was issued and no personal hearing was granted. The decision imparted is subject matter of discussion of our present update. The petitioner is engaged in trading of coal and purchases the same from various Governmental entities. The petitioner was directed to produce documents pertaining to the movement of goods relating to sale and purchase of the coal but they were unable to do so. Consequently, the petitioner was issued an intimation in DRC-01A dated 29.01.2020 directing the petitioner to make payment of tax, interest and penalty. Subsequently, a “summary of show cause notice” was issued on 14.03.2020 and a later on “summary of the Order” in Form-GST DRC-07 dated 11.09.2020 was also issued. An order sheet was issued on 14.03.2020 and thereafter straightaway order sheet was next issued on 14.08.2020. The petitioner failed to make the payment. An adjudication order was dated 11.09.2020 instead of 13.08.2020 which was communicated to the petitioner for the first time. It was further noticed that no SCN or “Summary SCN” was issued to the petitioner. Hence, the entire adjudication proceedings were being CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??4 questioned on the grounds that sufficient opportunity was not provided to the petitioner for defending their case thereby leading to violation of the principles of natural justice. The petitioner argued that since no SCN was issued, it results into violation of principles of natural justice. Reliance was placed on the following Judicial Pronouncements: • M/s. Prime Alloys V/s. The State Tax Officer being W.P. Nos. 26250 & 26252 of 2021 and W.M.P. Nos. 27700 & 27701 of 2021 passed by the Hon’ble High Court of Judicature at Madras. • Hon’ble High Court of Judicature at Madras in the case of Akanksha Distributers Private Limited V/s. Assistant Commissioner (ST), Chennai being W.P. Nos. 22507 & 22512 of 2021 and W.M.P. Nos. 23732 of 2021. • Hon’ble High Court of Judicature at Madras in the case of Akanksha Distributers Private Limited Vs. Assistant Commissioner (ST), Chennai being W.P. Nos. 22507 & 22512 of 2021 and W.M.P. Nos. 23732 of 2021. • M/s. OCEAN SPARKLE LIMITED Vs. ASSISTANT COMMISSIONER (ST) reported in 2021- VIL-356-AP • Hon’ble Andhra Pradesh High Court in the case of KorrapathiJanardhana Naidu Vs. State of Andhra Pradesh reported in (2021) 35 TAXLOC.COM 100 (AP). • Alkem Laboratories Limited Vs. Union of India by the Hon’ble Gujarat High Court reported in 2021- VIL-120-GUJ. • Hon’ble Madras High Court in the case of B.M. Patel and Company Vs. State Tax Officer being Writ Petition No. 13652 of 2020 and WMP No. 16973 of 2020 • In the case of Enprocom Enterprises Ltd. Vs. The Assistant Commissioner of State Tax reported in 2020- VIL-25-GUJ • In the case of Enprocom Enterprises Ltd. Vs. The Assistant Commissioner of State Tax reported in 2020- VIL-25-GUJ The Counsel of the department argued that the investigation was initiated against the petitioner wherein the petitioner was directed to issue relevant documents related to movement of goods. However, the petitioner failed to furnish the same. Therefore, a summary SCN was issued. However, since it was also not replied by petitioner, adjudicating authorities CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??5 passed adjudication order dated 13.08.2020. But there was no recording of the same in the order sheet. The Court analysed that the issue is related to the fact that the initiation of adjudication proceedings without issuance of the SCN is void ab initio and the order passed thereon is non-est in the eyes of law. Reliance was placed on the decision of Coordinate Bench of Jharkhand High Court in the case of M/S NKAS SERVICES PRIVATE LIMITED VS/. STATE OF JHARKHAND AND ORS, reported in 2021-VIL-732-Jhr. The Court opined that the said the present petition is required to be dealt in accordance with the Judgement since the procedure prescribed under GST Act is not followed by GST authorities. It was held that the manner in which the adjudication order is passed by the authorities demonstrates serious lacuna existing in the law. It was stated that the Adjudication order was passed in gross violation of the provisions of the Law and without issuance of SCN. It was held that on 14.03.2020, DRC—01 was issued without specifying any date of hearing and thereafter, on 13.08.2020, Adjudication Order was passed straightaway which showcases that the provisions of Law and principles of natural justice were being violated. Further, there was no satisfactory explanation provided for the order mentioning the date as 11.09.2020 instead of 13.08.2020. It was directed by the Court to the revenue authorities to follow proper procedures and guidelines regarding the manner of issuance of show cause notices and proceedings thereon since a huge revenue of state is also involved in the said matters. Directions were given to quash the summary orders since the summary SCN was not having ingredients of proper SCN and entire proceedings deserves to be set aside. The above decision is yet another epitome of the fact that improper issuance of Show Cause Notice can lead to quashing the entire proceedings. Recently, Department of Trade and Taxes (Delhi) has also issued Indicative Guidelines for Issuance of Show Cause Notices F. No. 1(2)/DTT/L&J/Misc./2019-20/77-79 dated 01.02.2022 which are to be strictly adhered to by the lower authorities to avoid contravention of provisions of Law. It is observed that the authorities are following wrong practices and thereby initiate proceedings on vague subject lines. Looking at the present scenario, a strict action to streamline proper adjudication process is anticipated CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??6 from the Government’s end at the earliest possible.

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GST update No 186 on validity of adjudication on basis of summary SCN

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