The Jharkhand High Court has in its recent ruling in the case of M/s Nkas Services Private Limited quashed the Show Cause Notice (SCN) in respect of wrongful availment of Input Tax Credit (ITC) as it was vague and lacks in fulfilling the ingredients of a proper show-cause-notice.
Facts of the Case:
- During the period July 2020 to September 2020 the petitioner M/s Nkas Services Private Limited 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 GSTR9/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.
- Proceedings 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 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.
- Despite follow-up by the petitioner with the office of respondent no.3 through mail letter dated 29.06.2021, but no response was made.
- The petitioner, M/s Nkas Services Private Limited has challenged the show-cause notice issued under Section 74 of the JGST Act on the grounds 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.
Order of Jharkhand HC: Deliverations and Ruling
- The High Court noted that the Apex Court has held that the concept of reasonable opportunity includes various safeguards and one of them is to afford opportunity to the person to deny his guilt and establish his innocence, which he can only do if he is told what the charges leveled against him are and the allegations on which such charges are based.
- High Court adjudged that 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 cannot substitute the requirement of a proper show-cause notice.
- The Court found that upon perusal of summary SCN 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.
In view of the above deliberations the division bench of Justice Aparesh Kumar Singh and Justice Anubha Rawat Choudhary noted that the impugned show-cause notice does not fulfill the ingredients of proper show-cause notice and thus amounts to a violation of principles of natural justice, the challenge is entertainable in the exercise of writ jurisdiction of this Court.
Accordingly, the court has ruled that the impugned notice and the summary of show-cause notice in Form GST DRC-01 are quashed. However, it stated that 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.
READ / DOWNLOAD ORDER:
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
