SCN without containing allegations of Violations, Amt to violation of Principles of Natural Justice

The Jharkhand High Court bench consisting of Justice Aparesh Kumar Singh and Justice Deepak Roshan has quashed the show cause notice issued under Goods and Service Tax (GST) for not containing the allegations of violation, amounting to a violation of principles of natural justice.

The petitioner/assessee challenged the impugned show cause notice issued by the respondent/department under Section 73 of the Jharkhand Goods & Services Tax Act, 2017 and the summary of show cause notice in FORM-DRC-01 was also issued by the department in exercise of power under Rule 142 (1) (a) of the Jharkhand Goods and Services Tax (JGST) Rules, 2017.

Counsel for the assessee submitted that while the show cause notice does not even contain the brief facts of the case or the grounds alleged, even the summary of the show cause notice does not contain specific facts and allegations showing evasion of payment of due tax to the government. In the absence of the ingredients of a proper show cause notice, the petitioner is being denied a proper opportunity to defend himself. Such a proceeding could end up in vague results and would also not be in the interest of the revenue.

Counsel for the petitioner contended that the State Tax Authorities are fixated on the notion that since the show cause notice has to be issued in a format on the GSTN Portal, the ingredients of the show cause notice containing the detailed facts and the charges cannot be uploaded or inserted by them, and instead a summary of the show cause notice would suffice.

While defending the notices, the counsel for the department stated that the show cause notice and summary of the show cause notice have been issued in accordance with the JGST Act, 2017 and its rules. Referring to the summary of the show cause notice, he submitted that it was clearly mentioned that the petitioner had received payment which it has not disclosed in its return and hence evaded the payment of due tax to the government.

The court observed that in a notice under Section 74 of the JGST Act, the necessary ingredients relating to fraud or willful misstatement or suppression of fact to evade tax have to be impleaded, whereas in a notice under Section 73 of the JGST Act, the Revenue has to specifically allege the violations or contraventions that have led to tax not being paid or short-paid or erroneously refunded or input tax credit wrongly availed or utilised.

“It is trite law that unless the foundation of a case is laid down in a show cause notice, the assessee would be precluded from defending the charges in a vague show cause notice. That would entail a violation of the principles of natural justice,” the court said.

Case Title: M/s Nkas Services Private Limited Versus State of Jharkhand

Source form -  https://www.livelaw.in/tax-cases/jharkhand-high-court-jharkhand-goods-services-tax-act-goods-and-service-tax-gst-194182