GST Update No 266 on issuance of SCN without striking off irrelevant particulars

It is trite principle of law that the show cause notice serves as an essential element to commence the adjudication proceedings. Consequently, if the allegations raised in show cause notice are not specific and vaguely drafted, it is sufficient to hold that proper opportunity of hearing was not offered to the aggrieved thereby resulting into violation of principles of and further increases the trouble of the tax officers. Recently, one case was reported before Jharkhand High Court in the case of M/s Bla Project Pvt. Ltd. V/s State of Jharkhand. The decision imparted in this case is subject matter of our today’s update.

The petitioner is registered under GST and is involved in the business of Works Contract and mining related activities. The input tax credit is utilised against output tax liability as per GSTR-3B. However, upon scrutiny of return, for the Financial Year 2018-19, discrepancy of Rs. 6.17 Lakhs was discovered on account of mismatch between GSTR-2A and GSTR-3B for which GST ASMT-10 was issued. The petitioner for the same and enclosed a summary of difference between GSTR-3B and GSTR-2A and contended that the difference is of Rs. 44,303/- and not of Rs. 6.17 Lakhs. However, no further response was received from the department for more than one year. Subsequently, to the surprise of petitioner, summary show cause notice in DRC-01 was issued alleging that excess input tax credit for the period April 2018 to March 2019 was issued. Further, a show cause notice under section 73 of the CGST Act, 2017 was also served on the same day directing the assessee to furnish the reply along with the supporting documents. The petitioner requested the respondent to re-calculate the difference in GSTR-2A and GSTR-3B. It was submitted that the discrepancy as notices in ASMT-10 differs from details as mentioned in summary show cause notice and show cause notice u/s 73 of the Act. However, no attention was paid to the explanations furnished by the petitioner and summary order in DRC-07 was issued on account of excess availment of input tax credit. It was further argued that the electronic credit ledger of the assessee was blocked for more than 1 year in violation of provisions of Rule 86A of CGST Act, 2017.

The counsel of petitioner submitted that proceedings are not undertaken in line with the provisions of Section 73 of CGST Act, 2017 since show cause notice does not indicate any contravention committed by the petitioner. It was argued that none of the irrelevant grounds were struck off. It was further submitted that summary show cause notice in DRC-01 cannot substitute show cause notice statutorily. Reliance was placed on decision of Apex Court in the case of M/s NKAS Services Private Limited V/s The State of Jharkhand and others. It was further submitted that the writ petition is maintainable despite of the statutory remedy available under Section 107 of CGST Act, 2017 since there is violation of principles of natural justice. Further, reliance was placed on decision of Hon’ble Supreme Court in the case of Assistant Commissioner of State Tax and Others V/s Commercial Steel Limited, Gujarat High Court in the case of M/s Alfa Enterprises V/s State of Gujarat. Further reference was made to the decision of Uttarakhand High Court in the case of Vimal Petrothin Pvt. Ltd. V/s Commissioner, CGST wherein it was held that input tax credit cannot be blocked for a period exceeding one year as per Rule 86A of CGST Rules, 2017. It was further stated that an appeal can be preferred under Section 73 of the CGST Act, 2017 only in case proper order instead of summary order is passed.

The Counsel of respondent referred to provisions of Rule 86A of CGST Rules, 2017 and the Gazette Notification dated 10.02.2020. It was further argued that mismatch of the above said amount is because of difference in GSTR-2A and GSTR-3B.

The Court held that the impugned notice does not fulfils the ingredients of proper show cause notice issued under Section 73 of the Act. Further, the summary show cause notice cannot substitute the proper show cause notice. It was therefore decided to remand the case back to the State Tax Officer and initiate fresh proceedings. It was held that the present writ petition is maintainable since there was violation of principle of natural justice. Reference in this respect was drawn to the recent decision of Apex Court in the case of Magadh Sugar & Energy Ltd. V/s State of Bihar & Others.

The above decision is one more addition on the subject matter upholding the view that the show cause notice is the fundamental leg of adjudication proceedings and hence, should be properly drafted. There had been catena of cases wherein the Judicial members decided on the similar issue. It is high time that these revenue authorities understand and inculcate the practice of issuing prompt show cause notices failing which will lead to pendency of cases in the Court of law and ultimately wasting the time of Court and the taxpayers.

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GST Update No 266 on issuance of SCN without striking off irrelevant particulars

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