Grounds of Challenge: – In Case of Show Cause Notice is Vague And Completely Lacks In Fulfilling The Ingredients of A Proper Show Cause Notice Under Section 74 of The CGST Act
1) It is submitted that the show cause notice (SCN) dated __________ is vague and does not disclose the offence and contraventions as it is a mere mechanical reproduction of the provisions of section 74 without striking of the irrelevant portions.
2) The impugned SCN is incapable of any reply and does not fulfil the ingredients of a notice in the eyes of law.
3) It is submitted that the noticee be denied the opportunity to properly defend itself. It is, therefore, in violation of the principles of natural justice. The essential requirements of the proper notice are that it should specifically state charges to which the notice has to reply.
4) It would be better to quote the provision of Section 74(1) of the Act of 2017 hereunder:-
“74. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts. – (1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice.”
5) A bare perusal of the provision indicates that in a case where it appears to a proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilized by reason of fraud or any willful misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax, which has not been paid or has been short paid or to whom refund has been erroneously made or who has wrongly availed or utilised input tax credit requiring him to show cause as to why he should not pay the amount specified in the notice along with the interest payable thereupon under Section 50 and a penalty equivalent to the tax specified in the notice. In contradistinction to the provision under Section 73 of the Act under the same Chapter-XIV relating to ‘Demands and Recovery’, the ingredients of Section 74 of the Act require either of the following ingredients to be satisfied for proceeding thereunder i.e. that the tax in question has not been paid or short paid or erroneously refunded or the ITC has been wrongly availed or utilized by reason of fraud or any willful misstatement or suppression of facts to evade tax.
6) A bare perusal of the impugned show-case notice creates a clear impression that it is a notice issued in a format without even striking out any irrelevant portions and without stating the contraventions committed by the petitioner i.e. whether its actuated by reason of fraud or any willful misstatement or suppression of facts in order to evade tax. Needless to say that the proceedings under Section 74 have a serious connotation as they allege punitive consequences on account of fraud or any willful misstatement or suppression of facts employed by the person chargeable with tax. In absence of clear charges which the person so alleged is required to answer, the noticee is bound to be denied proper opportunity to defend itself.
7) It is submitted that impugned SCN issued under section 74 of CGST Act is liable to be quashed being in violation of principles of natural justice and lacking in jurisdictional facts to initiate a proceeding under section 74 of the CGST Act.
8) It is submitted that what is not alleged in the show-cause notice under Section 74 cannot be part of such summary of show cause notice. As per Section 73(1)/74(1) the requirement is of ‘notice’ and not ‘knowledge’. Section 75(7) of the Act contemplates that no demand shall be confirmed on the grounds other than the grounds specified in the notice.
9) It is submitted that the expression used in Section 73/74 requires proper application of mind by the proper officer. The expression ‘appears to the proper officer’ has not to be a casual act but should show full application of mind by the ‘proper officer’.
10) It is further submitted that the CBEC Master Circular No.1053/2/2017-CX dated 10.03.2017 issued in exercise of powers under Section 37B of the Central Excise Act, 1944/Section 83 of the erstwhile Chapter V of the Finance Act, 1994 detailing guidelines for the authorities/field formation under the Central Excise Act, 1944 / Chapter V of the Finance Act, 1994 as to how a show-cause notice under Section 11A of the Act of 1944 and the Act of 1994 should be issued would apply to issuance of show cause notice under Section 73/74 of the JGST Act / CGST Act as the said provisions are pari materia. Learned counsel for the petitioner has further urged that the impugned SCN does not contain any foundational facts, such as allegations of fraud or willful misstatement or suppression of facts to evade tax which are sine qua non for assumption of jurisdiction to exercise the power under Section 74 of the Act. Therefore, the impugned show-cause notice lacking in jurisdictional fact is unsustainable in law.
11) It is submitted that as per the scheme of the Act, self-assessment is the rule and tax assessed by the registered person in the self-assessed return is directly enforceable under Section 5(12) and under Section 79 of the Act. Under the scheme of the Act, the self-assessment can be interfered only in the manner provided under Section 61 which contemplates scrutiny of the returns. It further contemplates service of notice in Form GST ASMT-10 so that discrepancy, if any, pointed out in the return can be rectified by the assessee. Only if he fails to do so and the ingredients of either Section 73 or Section 74 are made out, the proceeding under either of the Sections can be initiated as the foundational facts do suggest. In the instant case no GST ASMT-10 Form was ever served on the Appellant/petitioner. It is submitted that the proceedings in the instant case were initiated straight away under Section 74 of the Act by serving the impugned show-cause notice along with the summary of show cause notice in DRC-01 on the same date without service of Form GST ASMT-10. (Point in case of mismatch between GSTR-3B and 2A)
12) It is submitted that in the matter of Nkas Services Private Limited vs. State of Jharkhand (P.(T) No. 2444 of 2021), the Hon’ble Jharkhand High Court noted that the impugned SCN does not fulfil the ingredients of proper SCN and thus amounts to a violation of principles of natural justice. In order to proceed under the provisions of Section 74 of the Act, the specific ingredients enumerated thereunder have to be clearly asserted in the notice so that the noticee has an opportunity to explain and defend himself.
13) It is submitted that in the aforesaid matter, the Hon’ble Jharkhand High Court has observed as under-
“17. As observed herein above, the impugned notice completely lacks in fulfilling the ingredients of a proper show-cause notice under Section 74 of the Act. Proceedings under Section 74 of the Act have to be preceded by a proper show-cause notice. A summary of show-cause notice as issued in Form GST DRC-01 in terms of Rule 142(1) of the JGST Rules, 2017 (Annexure-2 impugned herein) cannot substitute the requirement of a proper show-cause notice. This court, however, is not inclined to be drawn into the issue whether the requirement of issuance of Form GST ASMT-10 is a condition precedent for invocation of Section 73 or 74 of the JGST Act for the purposes of deciding the instant case. This Court finds that upon perusal of Annexure-2 which is the statutory form GST DRC-01 issued to the petitioner, although it has been mentioned that there is mismatch between GSTR-3B and 2A, but that is not sufficient as the foundational allegation for issuance of notice under Section 74 is totally missing and the notice continues to be vague.
18. Since we are of the considered view that the impugned show-cause notice as contained in Annexure-1 does not fulfil the ingredients of a proper show-cause notice and thus amounts to violation of principles of natural justice, the challenge is entertainable in exercise of writ jurisdiction of this Court. Accordingly, the impugned notice at Annexure-1 and the summary of show-cause notice at Annexure-2 in Form GST DRC-01 are quashed. However, since this Court has not gone into the merits of the challenge, respondents are at liberty to initiate fresh proceedings from the same stage in accordance with law within a period of four weeks from today.”
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