[Tax Not Paid/ Short Tax] 'Summary Of Show Cause Notice' In GST DRC-01 Not A Substitute For SCN U/S 73(1) CGST Act: Gauhati HC

The Gauhati High Court has held that Summary of Show Cause Notice in Form GST DRC-01 along with an attachment of the 'determination of tax' does not constitute a valid Show Cause Notice (SCN) under Section 73 of the Central Goods and Services Tax (CGST) Act, 2017. “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,” said a single-judge bench of Justice Devashis Baruah. Under Section 73 of CGST Act, SCN is issued to an assessee for determination of tax not paid or short paid. The Proper Officer is required to issue a SCN, specifically mentioning the reason(s) and the circumstances why the provision has been set into motion. Court held that the SCN to be issued in terms with Section 73(1) cannot be confused with the Statement of the determination of tax to be issued in terms with Section 73(3). The Court also held that the SCN, the Statement in terms of 73(3) and the order under Section 73(9) determining tax chargeable- are required to be issued only by the Proper Officer, authenticated in the manner stipulated in Rule 26 (3) of the CGST Rules 2017. Moreover, the above has to be additionally accompanied by 'Summary of SCN' in GST DRC-01, 'Summary of Statement' in GST DCR-02 under Section 73(3) and 'Summary of Order' in GST DRC-07 passed in terms with Section 73(9), respectively. Background In the case at hand, the Petitioners were issued a 'Summary of show cause' in GST DRC-01 for short tax, along with an attachment of the 'determination of tax'. Subsequently, orders were passed under Section 73(9) and the 'Summary of Order' in GST DRC-07 was forwarded to the petitioners along with attachment, reasoning that reply to show cause was not satisfactory. Whether 'summary of SCN' and determination of tax qualify as SCN? Petitioners submitted that no SCN was issued to them. They argued that in terms of Rule 142 of the Central Goods and Services Tax Rules 2017, the notice under Section 73 has to be issued and a summary thereof is to be “additionally issued” electronically in Form GST DRC-01. It was contended that under no circumstances the attachment to GST DRC-01 can be said to be a SCN in as much as in the said attachment, there is no mention that the petitioner is required to show cause. Reliance was placed on Nkas Services Private Limited vs. State of Jharkhand & Others (2022) where a Division Bench of the Jharkhand High Court held that summary of the Show Cause Notice as issued in Form GST DRC01 cannot be a substitute to the requirement of a proper SCN. The Revenue on the other hand submitted that Summary of SCN in Form DRC-01 was accompanied by the determination of tax, which would have provided all the details so that the petitioners could have submitted the reply. It placed an instruction issued by the Joint Commissioner of Taxes, Assam mentioning that the attachment to the GST DRC-01 is the SCN. It was submitted that in the said attachments, the case of under-declared tax amount was given along with reasons, in order to give the petitioners an opportunity to clarify their case. At the outset, the High Court pointed out that in Section 73, there is no mention of issuance of a Summary of SCN. It therefore held that issuance of SCN and Statement of determination of tax by the Proper Officer are “mandatory requirements”. Issuance of a Summary of SCN in GST DRC-01 is an “additional requirement” in terms of Rule 142 of the CGST Rules. “Legislature had categorically distinguished the Show Cause Notice from the Statement which is required to be issued by the Proper Officer or in other words, irrespective of Statement to be issued in terms with Sub-section (3) of Section 73, there is a requirement of issuance of a Show Cause Notice by the Proper Officer.” Court cited LC Infra Projects Pvt. Limited v. Union of India (2022), where the Karnataka High Court had also observed that the issuance of a SCN is sine qua non to proceed with the recovery of interest payable under Section 50 of the Act and penalty leviable under the provisions of the Act or the Rules. It finally held, “Summary of the Show Cause Notice along with the attachment containing the determination of tax cannot be said to be a valid initiation of proceedings under Section 73 without issuance of a proper Show Cause Notice.” Whether authentication by Proper Officer is mandatory? Petitioners further pointed out that both the attachments, i.e. the attachments to the GST DRC-01 as well as the attachment to the GST DRC-07 were not authenticated by any signature of the Proper Officer, contrary to Rule 26 of the CGST Rules of 2017. ...

[Tax Not Paid/ Short Tax] 'Summary Of Show Cause Notice' In GST DRC-01 Not A Substitute For SCN U/S 73(1) CGST Act: Gauhati HC

Kapil Dhyani

Tags