Nkas Services Private Limited Vs State of Jharkhand (Jharkhand High Court)
Proceedings under Section 74 of GST Act have to be preceded by a proper SCN – Jharkhand High Court quashed the Show Cause Notice (SCN) in respect of wrongful availment of Input Tax Credit (ITC) as it was vogue, unclear and lacked serious details.
M/s Nkas Services Private Limited (“the Petitioner”) has challenged the SCN issued under Section 74 of the Jharkhand Goods and Services Tax Act (“the JGST Act”) on the grounds that it was vague and does not disclose the offense and contraventions as it is a mere mechanical reproduction of the provisions of Section 74 without striking of the irrelevant portions. It was contended, by the Petitioner that the impugned SCN is incapable of any reply and does not fulfill the ingredients of a notice in the eyes of law.
As per the said SCN, the Petitioner would 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.
The Petitioner has sought to quash the impugned SCN issued under Section 74 of the JGST Act being in violation of principles of natural justice and lacking in jurisdictional facts to initiate a proceeding under Section 74 of the CGST Act on the allegations that the Petitioner has wrongfully availed the ITC by reason of fraud or any willful misstatement or suppression of facts to evade tax or not paid or short paid or erroneously got a refund of any tax.
After taking perusal of all the facts and evidences, the Honorable Jharkhand HC noted that the impugned SCN does not fulfill the ingredients of proper SCN and thus amounts to a violation of principles of natural justice, the challenge, by the Petitioner, was taken to be entertainable in the exercise of writ jurisdiction of the Court.
Accordingly, the Court ruled that the impugned notice and the summary of SCN 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,” the Court said.
FULL TEXT OF THE JUDGMENT/ORDER OF JHARKHAND HIGH COURT
Heard learned counsel for the petitioner and the respondents.
2. The Show-cause notice under Section 74 of the JGST Act, 2017 dated 7th June 2021 for the tax period July 2020 – September 2020 (Annexure-1) issued by the Deputy Commissioner of State Taxes (respondent no.3) has been challenged by the petitioner along with the consequential challenge to summary of show-cause notice in FORM DRC-01 dated 07th June 2021 (Annexure-2) issued in exercise of power under Rule 142(1)(a) of the Jharkhand Goods and Services Tax Rules, 2017.
3. On behalf of the petitioner the following grounds have been urged to assail the show-cause notice :-
(i) The Show Cause Notice (SCN) dated 7th June 2021 is vague;
(ii) The SCN is without jurisdiction and
(iii) Proceeding initiated without service of FORM GST-ASMT-10 is void ab-initio.
4. Learned counsel for the petitioner Mr. Kartik Kurmy has, in support of the grounds of challenge, made the following submissions.
5. That the impugned show-cause notice 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. It is thus incapable of any reply and does not fulfill the ingredients of a notice in the eyes of law. Petitioner would be denied opportunity to properly defend itself. It is, therefore, in violation of principles of natural justice. The essential requirements of proper notice is that it should specifically state charges which the noticee has to reply. In this regard reliance is placed on the decision of the Apex Court rendered in the case of Oryx Fisheries P. Ltd. Vs. Union of India reported in (2010) 13 SCC 427 (Para 24 to 27).
6. In support of the challenge to the summary to show-cause notice contained in Form DRC-01, 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. Petitioner relies upon the decision of the Apex Court rendered in the case of CCE Vs. Shital International reported in (2011) 1 SCC 109 (Para-19). 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’. Reliance is placed upon the decision of the Apex Court rendered in the case of Dilip N. Shroff Vs. CIT reported in (2007) 6 SCC 329 (Para-86). 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. He relies upon the decisions of the Apex Court rendered in the cases of Larsen & Toubro Ltd. Vs. CCE reported in (2007) 9 SCC 617 (para 14 and 18) and Y. Narayan Chetty Vs. Income Tax Officer reported in (1959) 35 ITR 388 (SC) Page 392. Lastly learned counsel for the petitioner submits 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 75(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 petitioner. Contention of the respondents made through the counter affidavit to the contrary have been denied by way of para-11(ii) and (vi) of the rejoinder affidavit. No proof of such service of GST ASMT-10 has been enclosed to the counter affidavit.
7. Learned counsel for the petitioner further submits that alternative remedy is not a bar to invoke writ jurisdiction under Article 226/227 of the Constitution of India, if the party is complaining of breach of fundamental rights or breach of mandatory provisions under the Act or violation of principles of natural justice. It is submitted that the impugned show-cause notice being vague and not disclosing the offences/contravention denies the petitioner of any opportunity to properly defend itself and is therefore clearly in violation of principles of natural justice. Reliance is placed upon the decision of Oryx Fisheries P. Ltd. (supra) and also on the decision of CIT Vs. Chhabil Dass Agarwal reported in (2014) 1 SCC 603 para 15. It is submitted that the period of dispute under the impugned show-cause notice is between July 2020 to September 2020. During the said period the petitioner regularly filed their monthly returns of outward supplies in Form GSTR-1 under Section 38 read with Rule 59, monthly return of self-assessment in form GSTR-3B under Section 39 read with Section 59 and Rule 61(5). Annual return/reconciliation statement was also filed in form GSTR-9/GSTR-9C under Section 44 read with Rule 80. Petitioner discharged payment of tax on its outward supplies in accordance with Section 49 of the Act. 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 on 07.06.2021 along with the summary of show cause notice in DRC-01 on the same date without service of Form GST ASMT-10. Despite follow up by the petitioner with the office of the respondent no.3 through mail letter dated 29.06.2021, no response was made. Based on these contentions learned counsel for the petitioner has sought quashing of the impugned show-cause notice issued under Section 74 of the Act being in violation of principles of natural justice and lacking in jurisdictional facts to initiate a proceeding under Section 74 of the Act on the allegations that the petitioner has wrongfully availed the input tax credit by reason of fraud or any willful misstatement or suppression of facts to evade tax or not paid or short paid or erroneously got refund of any tax. It is submitted that if the proceedings are allowed to continue on the basis of such an infirm show-cause notice, it would lead to an anomalous results as the adjudication order passed finally would be without any authority of law and lacking in jurisdiction. It would also be in violation of principles of natural justice. Therefore, the impugned show-cause notice and the summary to show-cause notice dated 7th June 2021 be quashed. It is submitted that the respondents may be directed to first serve the notice in GST ASMT-10 before proceeding against the petitioner in accordance with law.
8. Learned counsel for the respondents has objected to the prayer and submissions made by the petitioner. It is submitted that writ jurisdiction is not to be ordinarily invoked in matters concerning imposition of tax. He has placed reliance on the case of CIT Vs. Chhabil Dass Agarwal reported in (2014) 1 SCC 603 para 11 and 16 as also in the case of United Bank of India Vs. Satyawati Tandon reported in (2010) 8 SCC 110 para-43 to 45. It is submitted that the petitioner has an efficacious alternative remedy of appeal after the proceedings are concluded and the order in original is passed. Learned counsel for the respondents has also reiterated the well recognized exceptions to the invocation of writ jurisdiction in the presence of an alternative remedy. It is further submitted that a notice ought not to be struck down, even if strictly not in the format, but if it contains in substance of the matter which a notice must contain. He has referred to the case of Bihar Plastic Industries Ltd. Vs. State of Bihar & Ors. reported in (2000) 117 STC 346 para-17. Learned counsel for the respondents has emphatically opposed the contention of the petitioner that service of GST ASMT-10 is a precondition for issuance of notice under Section 73/74 of the Act. The word ‘may’ has been used in Section 61. The language of Section 73/74 also does not suggest that a preliminary determination is to be done prior to issuance of notice. He submitted that in case there is a genuine error in striking out a particular item, the same would not lead to a conclusion that a notice itself is to be quashed. On the question of reliance of the petitioner upon the Master Circular dated 10th March 2017 issued by the CBEC, it is submitted that it only provides a guideline and cannot be said to have a binding force in law. Lastly it has been submitted on the part of the State that in case this Court feels inclined to interfere in the impugned show-cause notice, liberty may be granted to the respondents to proceed afresh in accordance with law from the same stage of the proceedings.
9. Learned counsel for the petitioner in reply submits that the show-cause notice was issued well within the statutory period of limitation.
10. We have considered the submissions of learned counsel for the parties and taken note of the grounds urged in the factual canvass of the case pleaded.
11. The impugned notice at Annexure-1 issued under Section 74 of the JGST Act 2017 is quoted hereunder :-
“Office of : Deputy Commissioner
Jurisdiction: Godda:Dumka:Jharkhand
State/UT: Jharkhand
Reference No.ZD2006210001396
Date: 07/06/2021
To
GSTIN/ID:20AADCN0972E1ZZ
Name: NKAS SERVICES PRIVATE LIMITED
Address: GODDA, LALMATIA AREA, ECL RAJMAHAL,
Godda, Jharkhand, 814165
Tax Period : JUL 2020 – SEP 2020 F.Y. 2020-21
ARN-NA Date- NA
(Voluntary payment intimation details, if applicable)
Act/ Rules Provisions:
JGST ACT 2017
Show Cause Notice under Section 74
It has come to my notice that tax due has not been paid or short paid or refund has been released erroneously or input tax credit has been wrongly availed or utilized by you or the amount paid by you through the above referred application for intimation of voluntary payment for the reasons and other details mentioned in annexure for the aforesaid tax period.
Therefore, you are directed to furnish a reply along with supporting documents as evidence in support of your claim by the date mentioned in table below.
You may appear before the undersigned for personal hearing either in person or through authorized representative for representing your case on the date, time and venue, if mentioned in table below.
Please note that besides tax, you are also liable to pay interest and penalty in accordance with the provisions of the Act.
Please also note that if you make payment of tax stated above along with up to date interest and penalty @ 25% of tax within 30 days of the communication of this notice, then proceeding may be deemed to have been concluded.
Details of personal hearing etc.
