Demand Order Quashed: Summary SCN Not a Substitute for Proper Show Cause Notice Under Section 73(1)

Issue:

Whether a demand order passed under Section 73 of the Central Goods and Services Tax Act, 2017 (CGST Act), is valid if it is based solely on a “summary of show cause notice” (Form GST DRC-01) and passed without providing a proper opportunity of hearing, as opposed to a full-fledged show cause notice under Section 73(1).

Facts:

The petitioner contended that respondent No. 3 had passed an order without issuing any proper show cause notice under Section 73(1) of the CGST Act, 2017. Furthermore, the petitioner argued that they had sought an opportunity of hearing, but without granting such an opportunity, only a “summary of order” had been passed.

Decision:

The court ruled in favor of the assessee. It heavily relied on a Co-ordinate Bench decision in Construction Catalysers (P.) Ltd. v. State of Assam (Gauhati), which explicitly held that:

A summary of show cause notice in Form GST DRC-01 is not a substitute for the show cause notice to be issued in terms of Section 73(1).
Irrespective of the issuance of a summary of show cause notice, the proper officer must issue a proper show cause notice to put the provisions of Section 73 into motion.
The show cause notice to be issued in terms of Section 73(1) cannot be confused with the statement of determination of tax to be issued in terms of Section 73(3).
The summary of show cause notice, summary of statement, and summary of order do not dispense with the requirement of issuance of a proper show cause notice and statement, as well as the passing of an order as per the mandate of Section 73 by the proper officer.

The court found that the present petition was covered by the aforesaid decision. Accordingly, the impugned order was set aside and quashed.

Key Takeaways:

Mandatory Nature of Proper SCN: This judgment unequivocally establishes that the issuance of a comprehensive show cause notice under Section 73(1) is a mandatory prerequisite for initiating demand proceedings under the CGST Act. A mere summary in Form GST DRC-01 is insufficient and cannot substitute the detailed SCN.
DRC-01 is Not the SCN: Form GST DRC-01 (Summary of Show Cause Notice) is an intimation of a proposed demand and serves to facilitate communication, but it is not the actual SCN itself. The SCN must provide detailed grounds, quantification, and particulars as required by law.
Violation of Natural Justice: Passing an order without a proper SCN means the assessee is not adequately informed of the case against them, thereby denying them a meaningful opportunity to be heard. This is a fundamental violation of natural justice.
Procedural Compliance: The decision emphasizes strict adherence to procedural requirements under the GST Act. Non-compliance with the issuance of a proper SCN under Section 73(1) is a fatal flaw.
Consequences of Invalid SCN: An order passed without a valid SCN is without jurisdiction and is liable to be set aside and quashed.
Favor of Assessee: The outcome is highly beneficial to the assessee, as the entire demand order is quashed due to procedural invalidity.

HIGH COURT OF GAUHATI

Merle Construction and Marketing (P.) Ltd.

State of Assam

Arun Dev Choudhury, J.

WP(C) No. 2532 of 2025

MAY 26, 2025

Ms. M.L. Gope, Ms. N. Hawelia, S.K. Saha, Ms. H. Jain and M. Baruah, Advs. for the Petitioner. B. Choudhury and B Gogoi, learned Additional Advocate for the Respondent.

ORDER

1. Heard Ms. M.L. Gope, learned counsel for the petitioner and Mr. B. Choudhury & Mr. B Gogoi, learned Additional Advocate General, Assam for the respondent Nos. 1 to 3.

2. The case of the petitioner herein is that the respondent No. 3 has passed the order dated 24.02.2025, without issuing any show cause notice under Section 73 (1) of the CGST Act, 2017. It is further case of the petitioner that he has sought for an opportunity of hearing, however, without giving any opportunity of hearing, the summary of order has been passed.

3. Both the learned counsels for the parties submit that similar issue has already been dealt in Para 29 of the judgment and order (oral) dated 26.09.2024 passed by a Coordinate Bench in Construction Catalysers (P.) Ltd. v. State of Assam GSTL 213 (Gauhati)/ WP(C) No.3912/2024 and other connected petitions. Accordingly, this writ petition is having similar issue, the determination made in said Construction Catalysers Pvt. Ltd (supra), shall cover the present case, more particularly, the conclusion and direction arrived at Para 29.

4. Para 29 of Construction Catalysers Pvt. Ltd (supra), being bone of contention, is quoted herein below:-

“CONCLUSION

29. On the basis of the above analysis and determination, this Court disposes of the instant batch of writ petitions with the following observations and directions:-

(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. In the instant writ petitions, the attachment to the Summary of Show Cause Notice in GST DRC-01 is only the Statement of the determination of tax in terms with Section 73 (3). The said Statement of determination of tax cannot substitute the requirement for issuance of the Show Cause Notice by the Proper Officer in terms with Section 73 (1) of the Central or the State Act. Under such circumstances, initiation of the proceedings under Section 73 against the petitioners in the instant batch of writ petitions without the Show Cause Notice is bad in law and interfered with.

(C)

It is also noticed that the Show Cause Notice and the Statement in terms with Section 73 (1) and 73 (3) of both the Central Act or the State Act respectively are required to be issued only by the Proper Officer as defined in Section 2 (91). Additionally, the order under Section 73 (9) is also required to be passed by the Proper officer. The Summary of the Show Cause Notice, the Summary of the Statement under Section 73 (3) and the Summary of the Order passed in terms with Section 73 (9) are to be issued in GST DRC-01, GST DCR-02 and GST DRC-07 respectively. 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 Page passing of the Order as per the mandate of Section 73 by the Proper Officer. As initiation of a proceedings under Section 73 and passing of an order under the same provision have consequences. 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 challenged in the writ petitions are in violation of Section 75 (4) as no opportunity of hearing was given as already discussed herein above.

(E)

The impugned orders challenged in the instant batch of writ petitions, the details of which are given in the Appendix attached to the instant judgment are set aside and quashed.

(F)

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. Under such circumstances, in the interest of justice, this Court while setting aside the impugned Orders-in-Original as detailed out in the Appendix, grants liberty to the respondent authorities to initiate de novo proceedings under Section 73, if deemed fit for the relevant financial year in question. This Court further observes and directs that the period from the date of issuance the Summary of the Show Cause Notices upon the petitioners till the date a certified copy of the instant judgment is served upon the Proper Officer, be excluded while computing the period prescribed for passing of the order under Section 73 (10) of the Central Act as well as the State Act as the case may be.”

5. The issue raised in Construction Catalysers Pvt. Ltd (supra) and the present petition is similar and therefore, the determination made in Construction Catalysers Pvt. Ltd (supra), 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 (supra).