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December 13, 2022

Show cause notice issued without stating the contravention was invalid

by CA Shivam Jaiswal in GST, Legal Court Judgement

Show cause notice issued without stating the contravention was invalid

Facts of the case

The facts of the case Petitioner, a registered GST Dealer involved in the business of Works Contracts and mining related activities, is registered with the State Taxes Department, Government of Jharkhand under Jharkhand Goods and Services Tax Act, 2017 (‘JGST’ for short). It has utilized the amount of Input Tax Credit (ITC) against output tax liability on the amount of taxes paid on purchase, as per GSTR-3B. However, his return were scrutinized for the Financial Year 2018-19 and discrepancy of Rs. 6.17 lakhs was found on account of mismatch / difference between GSTR-2A and GSTR-3B which he was asked to explain by notice issued in Form GST ASMT-10 dated 18.10.2019 (Annexure-2). Petitioner replied on 04.11.2019 enclosing Summary of Difference between GSTR-3B and GSTR-2A claiming that it is only Rs. 44,303/- and not Rs. 6.17 lakhs, as claimed by the Department. However, no response was received from the Department for more than a year. But the petitioner was surprised to receive a Summary of Show Cause Notice in Form GST DRC-01 dated 20.10.2020 alleging that he has claimed excess ITC for the period April 2018 to March 2019 and was asked to reply as to why tax, interest and penalty to the tune of Rs. 14,36,896/- be not imposed upon him. A show notice under section 73 of JGST Act, 2017 was also served upon the petitioner on the same day 20.10.2020 (Annexure-4) directing him to furnish a reply with supporting documents. Petitioner furnished its reply on 29.10.2020 requesting the Respondents to recalculate the difference in GSTR-2A and GSTR-3B and agreed to pay any excess ITC claimed by him, if it was in excess of the taxes paid.

Observation of court

According to the petitioner, discrepancy mentioned in GST ASMT-10 differs from the demand details in the Summary of Show Cause Notice (Annexure-4) and Show Cause Notice under section 73 (Annexure-5). However, according to the petitioner, without taking notice of the reply, a summary order has been issued in Form GST DRC-07 on 14.12.2020 imposing tax, interest and penalty to the tune of Rs. 14,36,896/- on account of excess ITC availed. Petitioner has further averred that its Electronic Credit Ledger has been blocked to the extent of Rs. 12,30,238/- on 05.03.2020 and again an amount of Rs. 4,21,698/- was blocked. Such ITC remains blocked for more than a year in teeth of Rule 86A(3) of JGST Rules, 2017

Aggrieved by such demand order , the petitioner  filed this writ petition before the High Court

Learned counsel for the petitioner has, at outset, taken a plea that the proceedings under Section 73 of the Act are not in accordance with law as the show-cause notice under section 73 issued on 20.10.2020 (Annexure-5) by the Deputy Commissioner, Godda does not indicate any contravention committed by the petitioner. The SCN is in a format and none of the irrelevant grounds have been struck off. He submits that Summary of Show Cause Notice in Form GST DRC-01 cannot be a substitute of show cause notice statutorily required to be issued under Section 73(1) of the Act. Learned counsel for the petitioner has relied upon the decision of this Court rendered in the case of M/s NKAS Services Private Limited versus The State of Jharkhand and others vide order dated 06.10.2021 passed in W.P (T) No. 2444/2021 and also in the case of the same petitioner in W.P (T) No. 2659/2021 vide order dated 09.02.2022 relating to the similar show cause notice issued under sections 74 and 73 of JGST Act, 2017 in the respective writ petitions. Learned counsel for the petitioner submits that the writ petition is maintainable despite availability of statutory remedy available under section 107 of the Act as there is violation of principles of natural justice and procedure prescribed in law to initiate such a proceeding under section 73 of the Act

 Respondents have appeared and filed counter affidavit. Learned counsel for the Respondents has referred to the contents of the counter affidavit and the Gazette Notification dated 10.02.2020 issued by the Government of Jharkhand which brought into force Rule 86A into the statute book which empowers blocking of Electronic Credit Ledger on condition specified under sub-rule (1) thereof. Learned counsel for the Respondents however, does not dispute that the Electronic Credit Ledger of the petitioner has remained blocked for more than one year. Learned counsel for the Respondents has submitted that on account of difference or mismatch in the amount of Rs. 6,17,515.03 in GSTR-2A and return filed in GSTR-3B, show-cause notice was issued on the petitioner.

Summary of the Order in Form GST DRC-07 was issued after service of notice upon the petitioner, against which remedy of appeal lies. However, learned counsel for the Respondents does not dispute that the case of the petitioner stands covered by the decision of this Court in the case of M/s NKAS Services Private Limited versus The State of Jharkhand and others passed in W.P (T) No. 2444/2021 in relation to a show-cause notice issued under section 74 of JGST Act, 2017 and also in the case of the same petitioner in W.P (T) No. 2659/2021, wherein this Court has categorically held that the impugned notice lack in fulfilling the ingredients of proper show-cause notice under section 73 of the Act. This Court has also held that Summary of Show Cause Notice issued in Form GST DRC-01 in terms of rule 100 (2) and 142(1) (a) of JGST Rules, 2017 cannot substitute the requirement of proper show cause notice. Learned A.A.G-II submits that in that event, matter may be remanded to the State Tax Officer to initiate fresh proceeding in accordance with law after service of a proper show-cause notice under section 73 of the Act

Conclusion

After Hearing to both the parties the Court held that since SCN was issued without indicating  the contravention and without striking off irrelevant grounds, it was liable to be quashed. Further, the order passed in violation of the principle of natural justice and mandatory procedures prescribed by the law was quashed and accordingly, the writ petition was allowed.

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