One of the persistent concerns under the GST regime has been the practice whereby the same officer who conducts an audit under Section 65 of the Central Goods And Services Tax Act, 2017 proceeds to adjudicate the very same matter under Sections 73 or 74 of the Act. This practice raises serious questions relating to fairness, impartiality, and adherence to the principles of natural justice, particularly the well-established rule that no person should be a judge in his own cause.
A foundational principle of administrative law is embodied in the maxim nemo judex in causa sua, which mandates that no person can be a judge in his own cause. When an officer conducts an audit, records findings alleging short payment of tax, and thereafter adjudicates upon those very findings, the officer effectively sits in judgment over his own conclusions. Such a process gives rise to institutional bias, even in the absence of personal malice. It creates a reasonable apprehension of a pre-determined or closed mind at the adjudication stage, thereby eroding the statutory requirement of independent application of mind that is expected in quasi-judicial proceedings. Courts have repeatedly held that even the likelihood or appearance of bias is sufficient to vitiate adjudicatory proceedings, as justice must not only be done but must also be seen to be done.
Recognising these structural concerns, the Central Board of Indirect Taxes and Customs, through Circular No. 169/01/2022-GST dated 12 March 2022, has consciously institutionalised the separation between audit or investigation and adjudication under the GST framework. The Circular amends the earlier Circular No. 31/05/2018-GST and clearly delineates the functional boundaries between different wings of the department.
The Circular clarifies that officers of the Audit Commissionerate and the Directorate General of GST Intelligence are empowered only to issue show cause notices under the CGST Act. Adjudication of such notices is not to be undertaken by the audit or investigating officers themselves. Where a show cause notice pertains to a registered person whose place of business falls within the jurisdiction of a single Executive Commissionerate, adjudication is required to be carried out by the competent Central Tax officer of the Executive Commissionerate having jurisdiction over the noticee.
Multi-Jurisdiction DGGI Case
The Circular further addresses situations involving show cause notices issued by the DGGI where the principal place of business of the noticee falls under the jurisdiction of multiple Central Tax Commissionerates, or where multiple notices on the same issue are issued to different noticees, including entities having the same PAN but different GSTINs across jurisdictions. For such cases, a special adjudication mechanism has been prescribed. Additional Commissioners or Joint Commissioners of Central Tax of specified Commissionerates have been vested with All India jurisdiction for the purpose of adjudication, in terms of Notification No. 02/2022-Central Tax dated 11 March 2022. These officers may adjudicate such show cause notices irrespective of the amount of tax involved. The Principal Commissioners or Commissioners of the notified Commissionerates are required to allocate the charge of adjudication in DGGI cases to one of the Additional or Joint Commissioners posted in their jurisdiction. Where the principal place of business of the noticee involving the highest tax demand falls within a particular Central Tax Zone, adjudication is to be undertaken by the designated Additional or Joint Commissioner corresponding to that Zone. In respect of show cause notices issued by Audit Commissionerate officers involving multiple jurisdictions, a proposal for appointment of a common adjudicating authority may be forwarded to the Board.
The practical working of this framework can be illustrated through a simple example. Consider a registered taxpayer, M/s ABC Private Limited, having its principal place of business in Delhi. The entity is subjected to an audit under Section 65 by officers of the Central Tax Audit Commissionerate, who raise objections alleging short payment of GST for a particular financial year. Upon completion of the audit, the audit officer issues a show cause notice under Section 73 or 74 based on the audit findings. At this stage, the role of the audit officer comes to an end. In terms of Circular No. 169/01/2022-GST, the adjudication of the show cause notice cannot be undertaken by the same audit officer. Instead, the notice is required to be adjudicated by the jurisdictional Central Tax officer of the Executive Commissionerate in Delhi. The adjudicating authority independently examines the audit objections, the taxpayer’s written reply, and the submissions made during the course of personal hearing, thereby ensuring that the matter is decided with an open and unbiased mind, free from prior conclusions formed at the audit stage.
A similar principle applies in cases involving investigation by the DGGI across multiple jurisdictions. For instance, where DGGI issues show cause notices to a group entity having GST registrations in Mumbai, Pune, and Bengaluru, all involving identical allegations of wrongful availment of input tax credit, adjudication cannot be undertaken by local officers of each Commissionerate. In such circumstances, the Circular mandates appointment of a common adjudicating authority having All India jurisdiction. All notices are adjudicated by one independent authority, ensuring uniformity of decisions, administrative efficiency, and avoidance of bias.
The importance of this separation cannot be overstated. If, contrary to the Circular, the same audit officer proceeds to adjudicate the case, the adjudication risks degenerating into a mere confirmation of audit objections. The statutory right to personal hearing becomes illusory, and the adjudicatory process loses its credibility. Such adjudication would be contrary to the binding administrative instructions issued by the CBIC, suffer from institutional bias, and be vulnerable to challenge as violative of the principles of natural justice.
Although the CGST Act does not expressly prohibit an audit officer from adjudicating, it is well settled that administrative instructions issued by the CBIC are binding on departmental officers. Once the Board has consciously allocated audit functions to one wing and adjudicatory functions to another, any adjudication undertaken by the audit officer himself would be contrary to the prescribed administrative framework. Such action would be ultra vires the administrative allocation of functions and open to challenge on grounds of procedural impropriety and violation of natural justice.
In conclusion, Circular No. 169/01/2022-GST represents a significant step towards strengthening fairness and credibility in GST adjudication. By consciously separating audit and adjudication, the CBIC has reaffirmed a core constitutional principle: those who investigate or audit cannot be permitted to adjudicate upon their own findings. Any adjudication order passed by an audit officer in respect of his own audit findings would therefore run contrary to the Board’s binding instructions as well as settled principles of natural justice, and would be liable to be set aside by constitutional courts.
Time limitation and procedural compliance for Show Cause Notices issued by Audit / DGGI Officers
The Circular clarifies that officers of the Audit Commissionerate and the Directorate General of GST Intelligence are empowered only to issue show cause notices under the CGST Act, while adjudication of such notices must be undertaken by the competent officers of the Executive Commissionerate or by a designated common adjudicating authority. This demarcation of functions naturally gives rise to an important legal question: whether show cause notices issued by audit or investigating officers must still comply with the statutory time limits prescribed under Sections 73 and 74 of the CGST Act, 2017, as well as the procedural requirements laid down in the Act and the Rules.
Statutory time limits remain fully applicable
Sections 73 and 74 of the CGST Act prescribe mandatory limitation periods for issuance of show cause notices. These provisions do not distinguish between:
- audit officers,
- investigating officers, or
- jurisdictional officers.
They uniformly apply to all proper officers empowered to issue show cause notices. The Circular merely allocates administrative responsibility for issuance and adjudication; it does not, and cannot, dilute or override the statutory limitation prescribed by Parliament.
Accordingly, any show cause notice issued by officers of the Audit Commissionerate or DGGI must be issued within the time frame prescribed under Sections 73(1) or 74(1), as the case may be. A notice issued beyond the statutory period would be time-barred and liable to be quashed, irrespective of the subsequent adjudication mechanism.
Procedural requirements cannot be dispensed with
In addition to limitation, all procedural safeguards under the CGST Act and Rules remain applicable. This includes:
- proper invocation of Section 73 or Section 74,
- compliance with Rule 142 regarding service of notice and issuance of DRC-01,
- prior intimation in Form DRC-01A, where applicable,
- clear and specific allegations supported by material, and
- adherence to principles of natural justice.
The fact that adjudication is to be carried out by a different officer does not legitimise any procedural lapse at the stage of issuance of the show cause notice.
Show Cause Notice (SCN), DRC-01 and DRC-01A under GST – Legal Position
A Show Cause Notice is a mandatory statutory notice issued by the proper officer under Sections 73 or 74 of the CGST Act, 2017, calling upon the taxpayer to explain why tax, interest, and penalty allegedly short-paid, unpaid, or wrongly availed should not be demanded. The SCN forms the foundation of adjudication and must clearly set out the factual allegations, legal provisions invoked, and the basis of the proposed demand.
Form GST DRC-01 is merely the electronic summary of the SCN, uploaded on the GST portal in terms of Rule 142(1) of the CGST Rules, 2017. It is a procedural requirement intended to facilitate electronic communication of the demand and recovery process. DRC-01 is not, and cannot substitute, a proper SCN.
Form GST DRC-01A is a pre-SCN intimation, introduced to give the taxpayer an opportunity to either make voluntary payment with reduced penalty or submit a response before issuance of a formal SCN. Importantly, issuance of DRC-01A does not dispense with the statutory requirement of issuing a formal SCN under Sections 73 or 74.
The Courts have consistently held that issuance of only a DRC-01 summary, along with a statement or annexure, does not fulfil the statutory mandate of issuing a proper Show Cause Notice. Under Section 73 read with Rule 142, the department must issue a formal, reasoned SCN prior to passing any adjudication order.
In law, DRC-01 is only a facilitating and consequential form; it cannot be treated as the SCN itself. Any adjudication order passed without issuance of a proper SCN is vitiated for violation of statutory procedure and principles of natural justice, and is liable to be set aside.
Circular cannot override the Statute
It is settled law that a circular cannot override statutory provisions. While Circular No. 169/01/2022-GST is binding on departmental officers for administrative purposes, it cannot extend limitation periods, relax statutory requirements, or validate notices issued in contravention of the Act or Rules.
Courts have consistently held that where a show cause notice is issued beyond limitation or in violation of mandatory procedure, the defect is incurable, and the subsequent adjudication by a competent authority cannot salvage such notice.
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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the author whatsoever and the content is to be used strictly for informational and educational purposes. While due care has been taken in preparing this article, certain mistakes and omissions may creep in. the author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.
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