GST Demand Order Quashed: Summary SCN Not a Substitute for Statutory SCN

Demand Order Quashed: Summary SCN Not a Substitute for Statutory SCN; De Novo Proceedings Permitted.

Issue:

Whether a demand order passed under Section 73 of the CGST/Assam GST Act, 2017, is valid if it was issued solely on the basis of a summary of the show cause notice in Form GST DRC-01, without a proper statutory show cause notice under Section 73(1), and without providing a personal hearing.

Facts:

The assessee filed a writ petition challenging a demand order passed by the respondent department. The assessee’s primary contention was that the respondents had passed the order without issuing a proper show cause notice under Section 73(1) of the Act. Instead, the show cause notice, from which the impugned order arose, was allegedly presented only as a “summary of order” or a summary in Form GST DRC-01. Furthermore, the assessee claimed that they had sought an opportunity for a personal hearing, but this opportunity was not granted before the summary of the order was passed. Both parties agreed that this specific issue had been dealt with in the case of Construction Catalysers (P.) Ltd. v. State of Assam (Gauhati).

Decision:

In favor of the assessee: The court, in line with the agreed precedent of Construction Catalysers (P.) Ltd. v. State of Assam (Gauhati), held that a summary of the show cause notice in Form GST DRC-01 cannot substitute the statutory requirement of a proper show cause notice under Section 73(1) of the CGST Act. The court effectively adopted the determination and conclusion from the Construction Catalysers judgment. Accordingly, the present writ petition was disposed of by setting aside the impugned demand order. The authorities were, however, granted liberty to initiate de novo (fresh) proceedings under Section 73, if deemed fit, after fulfilling all statutory requirements, including issuing a proper show cause notice and providing an opportunity of hearing.

Key Takeaways:

• Form GST DRC-01 is a Summary, Not a Statutory SCN: This judgment unequivocally reiterates a critical procedural point: Form GST DRC-01, which is a summary of the show cause notice, cannot substitute the detailed and proper statutory show cause notice required under Section 73(1) of the CGST Act. The statutory notice must clearly articulate the grounds and details of the demand.
• Violation of Natural Justice: The failure to provide a personal hearing, especially when requested, coupled with the absence of a proper SCN, constitutes a significant violation of the principles of natural justice.
• Procedural Compliance is Mandatory: The ruling emphasizes that the GST authorities must strictly adhere to the procedural requirements laid down in the Act for issuing notices and conducting adjudication. Any shortcut, such as relying solely on summary forms, can lead to the invalidation of the entire demand.
• Remand for De Novo Proceedings: When an order is quashed due to procedural defects, courts typically allow the department to initiate fresh proceedings from the stage where the defect occurred, provided the limitation period permits. This ensures that the revenue’s legitimate claims are not permanently lost due to procedural errors.
• Significance of Construction Catalysers (P.) Ltd. v. State of Assam: This case serves as a crucial precedent, establishing that merely serving Form GST DRC-01 is insufficient for initiating demand proceedings under Section 73 and that a proper show cause notice and opportunity of hearing are indispensable. This judgment from the Gauhati High Court has been widely followed by other courts to ensure procedural fairness in GST assessments.