GST UPDATE NO 261 on Summary SCN is not substitute of SCN

The adjudication proceedings including issues related to show cause notice is prone to litigations since inception of GST. The departmental authorities are unwilling to issue proper show cause notices which are fundamental leg of initiation of adjudicating proceedings. Time and again there had been various Judicial Pronouncements delivered by various High Courts demonstrating its need failing which can result into quashing the whole adjudication proceedings. On similar lines, recently a case was reported before Jharkhand High Court in the case of M/S JUHI INDUSTRIES PVT. LTD. V/S STATE OF JHARKHAND. The decision imparted in this case is the subject matter of discussion of our present update.
Search was conducted at the premises of the petitioner under section 67 of JGST Act, 2017 on the grounds that petitioner claimed input tax credit without making payment of value and tax of inputs to supplier thereby, contravening the provisions of Section 16(2)(b) of JGST Act, 2017. Furthermore, it was argued that for the purchases made from the single supplier, no proof of payment exists and on physical verification, stock found was different from as maintained in books of accounts.
The counsel of petitioner submitted that proceedings started with issuance of summary show cause notices. Further, bonafide mistake was committed by the taxpayer and they submitted their reply explaining ITC has been legitimately claimed and goods are received by the taxpayer. However, demand order along with interest and penalty was passed by the departmental officers. The petitioner also filed rectification application in respect of the demand orders. Subsequently, the errors were considered and revised demand order was passed by the revenue authorities.
It was submitted by the petitioner that no show cause notice was issued to them which is mandatory in accordance with the provisions of Section 74 of CGST Act, 2017. Since, Form DRC-01 is not a substitute of show cause notice, entire proceedings are irregular and not sustainable. It was argued that service of show cause notice is mandatory and principles of natural justice cannot be ignored. Further, the use of “shall” indicates that the provision is mandatory and imperative in nature. Reliance in this respect was placed on various judicial pronouncements as well.
The counsel of respondent argued that a detailed e-mail along with summary SCN containing gist of accusations was sent to the petitioner which is sufficient to establish that proper adjudication procedure was followed by the departmental authorities. Further, since appropriate relied upon documents were also supplied to petitioner during the entire proceedings, principles of natural justice were also complied with. Furthermore, demand orders were revised after taking into consideration the rectification application filed by the petitioner.
The Court analysed the current situation and held that the law is no longer res integra as Rule 142(1)(a) of JGST Rules, 2017 provides that summary show cause notice should be issued along with show cause notice. Therefore, both the notices are to be issued simultaneously. Further it was stated that summary show cause notice should be issued electronically to keep a track record of proceedings, while show cause notice need not necessarily be issued electronically. Reliance was placed on the decision of M/S NKAS SERVICES PVT. LTD. V/S STATE OF JHARKHAND & ORS. It was stated that the proceedings suffered from material irregularity and therefore, not sustainable being contrary to provisions of Section 74 of JGST Act, 2017. Therefore, the revenue department cannot take benefit of the fact that summary of show cause notice cannot be considered as show cause notice. Reference was further drawn to the decision of Apex Court in the case of UOI V/S MADHUMILAN SYNTEX PVT. LTD. Therefore, it was directed to quash the show cause notices since ingredients of proper show cause notice were not fulfilled resulting into violation of the principles of natural justice.
The above decision is yet another example of the fact that improper show cause notice can lead to vitiation of the entire adjudicating proceedings initiated against the taxpayer resulting into severe consequences. There had been plethora of judicial rulings wherein show cause notices were set aside on similar grounds as stated in above case. Reliance can be placed on decision of Jharkhand High Court in the case of GODAVARI COMMODITIES V/S STATE OF JHARKHAND. It Is worth mentioning over here that proper procedure of issuance of show cause notice should be established by the Government in order to streamline the adjudicating proceedings. On the other hand, the departmental authorities should also adhere to settled Judicial Pronouncements in this respect.

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GST UPDATE NO 261 on Summary SCN is not substitute of SCN

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