2025 (6) TMI 668 - HC - GST

Violation of principles of natural justice - order passed without issuing any SCN u/s 73(1) of the CGST Act 2017 - without giving any opportunity of hearing the summary of order has been passed - HELD THAT - This writ petition is having similar issue the determination made in said Construction Catalysers Pvt. Ltd. 2024 (10) TMI 279 - GAUHATI HIGH COURT shall cover the present case where it was held that This Court also cannot be unmindful of the fact that it is on account of certain technicalities and the manner in which the impugned orders were passed this Court interfered with the impugned orders and hence set aside and quashed the same. It is also relevant to take note of that the respondent authorities were under the impression that issuance of attachment of the determination of tax which was attached to the Summary of the Show Cause Notice would constitute a valid Show Cause Notice. The issue raised in Construction Catalysers Pvt. Ltd and the present petition is similar and therefore the determination made in Construction Catalysers Pvt. Ltd shall accordingly cover the present petition and as agreed to by the learned counsel for the parties the present writ petition stands disposed of by setting aside the impugned order dated 24.02.2025 and the summary of show cause notice dated 28.11.2024 in terms of the determination and conclusion arrived at para 29 of Construction Catalysers Pvt. Ltd. Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

• Whether the issuance of a Summary of Show Cause Notice (GST DRC-01) can substitute the mandatory issuance of a Show Cause Notice under Section 73(1) of the Central Goods and Services Tax (CGST) Act, 2017.
• Whether the Statement of determination of tax issued under Section 73(3) can replace the requirement of a Show Cause Notice under Section 73(1).
• Whether the absence of an opportunity of hearing prior to passing the order under Section 73 violates the procedural safeguards under the CGST Act, specifically Section 75(4).
• Whether the impugned orders passed without adherence to the procedural requirements under Section 73 and Section 75(4) are legally valid.
• The authority and role of the Proper Officer as defined under Section 2(91) in issuing Show Cause Notices, Statements, and Orders under Section 73.
• The consequences of non-compliance with the procedural mandates including authentication requirements under Rule 26(3) of the CGST Rules, 2017.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Validity of Summary of Show Cause Notice and Statement of Determination as substitutes for Show Cause Notice under Section 73(1)

Relevant Legal Framework and Precedents: Section 73(1) of the CGST Act mandates issuance of a Show Cause Notice by the Proper Officer before initiating proceedings for recovery of tax not paid or short paid. Section 73(3) requires issuance of a Statement of determination of tax. The Rules under the CGST Act prescribe formats such as GST DRC-01 for Summary of Show Cause Notice and GST DRC-02 for Summary of Statement of determination.

Court's Interpretation and Reasoning: The Court emphasized that the Summary of Show Cause Notice (GST DRC-01) is not a substitute for the Show Cause Notice mandated under Section 73(1). Similarly, the Statement of determination under Section 73(3) cannot replace the Show Cause Notice. The Court held that the procedural requirement of issuing a proper Show Cause Notice by the Proper Officer is mandatory and cannot be dispensed with by issuing only a summary or attachment.

Key Evidence and Findings: The impugned order was passed without issuance of a Show Cause Notice under Section 73(1), relying instead on the Summary of Show Cause Notice and the attached Statement of determination. This procedural lapse formed the basis for challenge.

Application of Law to Facts: The Court applied the statutory provisions strictly, holding that initiation of proceedings without a proper Show Cause Notice under Section 73(1) is bad in law. The Summary documents do not fulfill the statutory requirement.

Treatment of Competing Arguments: The respondent authorities argued that the Summary documents sufficed as Show Cause Notices. The Court rejected this, clarifying the distinction between summaries and statutory notices.

Conclusions: The issuance of Summary of Show Cause Notice and Statement of determination does not substitute the mandatory Show Cause Notice under Section 73(1). Proceedings initiated without such notice are invalid.

Issue 3: Violation of Opportunity of Hearing under Section 75(4)

Relevant Legal Framework: Section 75(4) of the CGST Act provides for an opportunity of hearing before passing any order under the Act.

Court's Interpretation and Reasoning: The Court noted that the impugned order was passed without affording the petitioner an opportunity of hearing, which is a fundamental procedural safeguard. This violation renders the order unsustainable.

Key Evidence and Findings: The petitioner sought an opportunity of hearing which was denied. The order was passed summarily.

Application of Law to Facts: The Court held that failure to provide hearing violates principles of natural justice and statutory mandates.

Treatment of Competing Arguments: The respondent did not dispute the absence of hearing but relied on the Summary documents. The Court rejected this justification.

Conclusions: Passing of orders without opportunity of hearing under Section 75(4) is unlawful.

Issue 4 & 5: Role and Authority of Proper Officer and Authentication Requirements

Relevant Legal Framework: Section 2(91) defines the Proper Officer authorized to issue Show Cause Notices, Statements, and Orders under Section 73. Rule 26(3) of the CGST Rules, 2017 mandates authentication of these documents.

Court's Interpretation and Reasoning: The Court underscored that only the Proper Officer can issue the Show Cause Notice, Statement, and Order under Section 73. The Summary documents issued are not a substitute and must be authenticated as per Rule 26(3). The absence of such authentication and issuance by unauthorized persons invalidates the proceedings.

Key Evidence and Findings: The impugned orders and summaries lacked proper authentication and were not issued by the Proper Officer as defined.

Application of Law to Facts: The Court applied these procedural requirements strictly to ensure legality and validity of proceedings.

Treatment of Competing Arguments: The respondents' reliance on Summary documents without authentication was rejected.

Conclusions: Only the Proper Officer can validly issue notices and orders under Section 73, and such documents must be duly authenticated.

Issue 6: Consequences of Non-Compliance and Remedies

Court's Reasoning: The Court acknowledged that the impugned orders were set aside due to technical non-compliance with procedural mandates. However, recognizing the respondent authorities' misconception that Summary documents sufficed as Show Cause Notices, the Court granted liberty to initiate de novo proceedings under Section 73, if deemed fit.

Additional Directions: The Court directed exclusion of the period from issuance of Summary Show Cause Notices till service of certified copy of the judgment while computing limitation under Section 73(10).

Conclusions: The impugned orders are quashed, but authorities may initiate fresh proceedings complying with statutory requirements.

3. SIGNIFICANT HOLDINGS

The Court's crucial legal reasoning is preserved verbatim from Para 29 of the cited judgment:

"(A) The Summary of the Show Cause Notice in GST DRC-01 is not a substitute to the Show Cause Notice to be issued in terms with Section 73(1) of the Central Act as well as the State Act. Irrespective of issuance of the Summary of the Show Cause Notice, the Proper Officer has to issue a Show Cause Notice to put the provision of Section 73 into motion.

(B) The Show Cause Notice to be issued in terms with Section 73(1) of the Central Act or State Act cannot be confused with the Statement of the determination of tax to be issued in terms with Section 73(3) of the Central Act or the State Act. ... initiation of the proceedings under Section 73 against the petitioners ... without the Show Cause Notice is bad in law and interfered with.

(C) ... The issuance of the Summary of the Show Cause Notice, Summary of the Statement and Summary of the Order do not dispense with the requirement of issuance of a proper Show Cause Notice and Statement as well as passing of the Order as per the mandate of Section 73 by the Proper Officer. ... The Show Cause Notice, Statement as well as the Order are all required to be authenticated in the manner stipulated in Rule 26 (3) of the Rules of 2017.

(D) The Impugned Orders ... are in violation of Section 75(4) as no opportunity of hearing was given ...

(E) The impugned orders ... are set aside and quashed.

(F) ... liberty to the respondent authorities to initiate de novo proceedings under Section 73, if deemed fit ... The period from the date of issuance the Summary of the Show Cause Notices ... till the date a certified copy of the instant judgment is served ... be excluded while computing the period prescribed for passing of the order under Section 73(10) ..."

Core principles established:

• Mandatory issuance of a proper Show Cause Notice under Section 73(1) by the Proper Officer is a prerequisite to initiation of recovery proceedings.
• Summary notices and statements cannot substitute statutory notices and determinations.
• Opportunity of hearing under Section 75(4) is essential before passing orders affecting the taxpayer.
• Authentication of notices and orders as per Rule 26(3) is mandatory.
• Non-compliance with these procedural safeguards renders orders invalid and liable to be quashed.
• Authorities have the right to initiate fresh proceedings in compliance with statutory mandates.

Final determinations:

• The impugned order dated 24.02.2025 and the Summary of Show Cause Notice dated 28.11.2024 are set aside and quashed.
• The respondent authorities are permitted to initiate