By, SHRI SHAILESH P. SHETH, ADVOCATE , M/S. SPS LEGAL
Hardly 4 (four) years have passed since the introduction of the ‘Goods and Services Tax’ (‘GST’) as an Indirect Tax Policy in the country. However, even in such a short period, a number of provisions of the GST laws have remained mired into the legal disputes. The large number of disputes arising mainly due to the complexities of the statutory provisions coupled with the vast powers vested in the revenue officers and the arbitrary use of such powers is unparalleled.
It is seen that demand notices are being rampantly issued to the taxpayers across the country. In majority of the cases, such notices are issued in total defiance of the statutory provisions and the established principles of law. Under these circumstances, the taxpayers have no option but to approach the High Courts for the redressal of their grievance. It is probably for this reason that the High Courts are flooded with the GST related legal disputes.
Amidst this dismal scenario, a recent judgement delivered by the Jharkhand High Court on the validity of the demand notice issued in an arbitrary manner by the department becomes quite relevant and important. The judgement is delivered by the High Court on October 06, 2021 in the case of NKAS Services Pvt. Ltd. Vs. State of Jharkhand & Others. The brief facts of the case are as under:
The jurisdictional GST authorities had issued a show cause notice and a summary of show cause notice in Form GST DRC-01 to the company on the same day based upon the difference between the GSTR-3B and GSTR-2A. While the show cause notice had been issued under Section 74 of the CGST Act, 2017, the DRC-01 was issued under Rule 142(1)(a) of the CGST Rules, 2017. The Company, however, challenged the validity and legality of both, the show cause notice as well as the DRC-01 by way of a Writ Petition before the High Court.
After hearing both sides at length, the High Court ruled in favour of the Petitioner and quashed the show cause notice as well as DRC-01. The High Court observed that in contradistinction to the provision under Section 73 of the Act, Section 74 of the Act requires either of the following ingredients to be satisfied for proceeding thereunder i.e. the tax in question has not been paid or short paid or erroneously refunded or the ITC has been wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts to evade tax. The allegation of evasion of tax and the necessary ingredient forming the basis thereof shall be clearly spelt out in the show cause notice. However, in the present case, as observed by the High Court, the bare perusal of the show cause notice showed that the same has been issued mechanically and the proper officer had merely reproduced the language of section 74 therein without even taking the trouble of striking out the irrelevant portion thereof. The High Court further observed that the proceedings under Section 74 have a serious connotation as the same allege punitive consequences on account of fraud or any wilful misstatement or suppression of facts employed by the person chargeable with tax and 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 himself. Making a significant observation, the High Court further ruled that the absence of clear charges in the show cause notice would entail the violation of principles of natural justice which is a well recognised exception for invocation of writ jurisdiction despite availability of alternative remedy.
On the validity and relevance of DRC-01, the High Court observed that the notice under challenge completely lacked in fulfilling the ingredients of a proper show cause notice under Section 74 of the Act. The High Court further observed that the proceedings under Section 74 of the Act have to be preceded by a proper show cause notice and a summary of show cause notice as issued in Form GST DRC-01 in terms of Rule 142(1) of the Rules could not substitute the requirement of a proper show cause notice.
However, the High Court declined to get into the issue whether the requirement of issuance of Form GST ASMT-10 was a condition precedent for invocation of Section 73 or 74 of the Act for the purposes of deciding the instant case. Lastly, the High Court observed and held that while the statutory Form GST DRC-01 issued to the Petitioner-Company showed that there was a mismatch between GSTR-3B and 2A, that was not sufficient as the foundational allegation for issuance of notice under Section 74 was totally missing and the notice continued to be vague.
With the above observations, the High Court quashed the show cause notice and DRC-01 but granted a liberty to the department to initiate fresh proceedings from the same stage in accordance with law within the stipulated period.
Here, it must be noted that while the demand against the Company was based on the difference or mismatch between the GSTR-3B and-2A, the High Court did not at all ruled that no demand towards ITC availed could be raised merely on the basis of such difference between the GSTR-3B and 2A nor the High Court made any observations to this effect in its judgement. Consequently, such inference that is being drawn from the judgement of the High Court and being circulated on the social media is absolutely improper and baseless and the taxpayers as well as the tax professionals may remain cautioned on this count.
Unquestionably, the judgement delivered by the High Court is extremely important and could not have come a day sooner. It is routinely observed that many departmental officers are oblivious of the difference between the show cause notice to be issued under Section 73 or Section 74 of the Act and DRC-01 containing the summary of the show cause notice to be issued under Rule 142 (1) of the Rules. Moreover, the officers are also largely unaware of a well settled principle of law that a show cause notice has to be clear and specific and cannot be vague. Consequently, the judgement of the High Court that raises a question mark against the very legality of such demand notices under GST being issued arbitrarily and mechanically to the taxpayers, would serve as a ‘lighthouse of hope’ for the taxpayers amidst these dark and stormy waters of GST litigation!
[Concluded]
By, SHRI SHAILESH P. SHETH, ADVOCATE
Firm’s Name: SPS LEGAL
Contact details
- Office : 022 6912 9300 Ext: 308
- Direct : 022 6912 9308
- Mobile : 98202 28799
- E.mail : shailesh.sheth@spslegal.co.in
Qualifications:
- B.Com.LLB
Background:
- Shailesh has over 30 years’ experience in Consulting, Advisory and Litigation practice in the field of Indirect Tax Laws that include Central Excise, Service Tax, Customs, State VAT Laws, CST & GST.
- Shailesh is also one of the Partners in a legal firm, namely, M/s. RVS LEGAL having its base in Chennai, Bangalore and Mumbai. Mr. V. Raghuraman, Advocate, Bangalore and Mr. K. Vaitheeswaran, Advocate, Chennai are two other Partners in the firm. This boutique firm specialises in Indirect Taxation, Direct Tax, International Taxation, Arbitration, Corporate Laws (including IBC), Drafting/Vetting of Commercial Contracts, amongst other fields.
Representative Industry Experience:
- Shailesh has dealt extensively in the areas of Central Excise, Service Tax, Customs, GST and CST/VAT across the entire trade and industry spectrum consisting of Manufacturing, Service Sector and Distributive Trade representing diverse sectors
Public Profile:
- Shailesh has been a regular faculty at various professional bodies as well as Trade and Industry Forums on his chosen field. He has already delivered more than 100 lectures since April, 2017 on various aspects of GST all over India.
- Shailesh is a regular columnist in ‘Vyapar’- a Bi-weekly Business Newspaper of Janmabhoomi Group – on Service Tax, Central Excise & GST and has also contributed number of articles to various magazines as well as Taxation Websites like TIOL, etc.
Membership/Association with professional/trade/industry bodies: Besides professional bodies like Chamber of Tax Consultants and AIFTP, Shailesh is also associated with various trade/industry bodies including Indian Merchants’ Chamber (Indirect Tax Committee), ITAMMA, IDMA, AIRIA, BSE Brokers’ Forum, Builders Association of India (BAI), NAREDCO, Brihanmumbai Developers Association (BDA) & other bodies guiding them in the field of Indirect Tax.
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