Sanctity of Statutory Forms under GST – challenge before High Courts
This Outlook intends to apprise you on recent judgments of various High Courts where the bone of contention is sanctity of format of statutory forms prescribed for conducting proceedings under GST regime. These judgments have re-instated observance of principles of natural justice in conducting proceeding by a quasi-judicial authority whose absence vitiate the proceedings. An analysis of the judgments, settled legal principles on the subject matter and our comments are outlined in the subsequent paragraphs:
- GST Law is a technology-based law and unlike the erstwhile laws, each proceeding is conducted in a specified manner and through specific form prescribed under the Central Goods and Services Tax Rules, 2017 (‘CGST Rules’). Examples of proceedings being regularly conducted are cancellation of registration under Section 29 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’), recovery of Input Tax Credit or Taxes under Section 73 and 74 of the CGST Act etc. Taxpayers are inter-alia receiving notices for cancellation of registration in Form REG-17, orders for cancellation of registration in Form REG-20, Summary Show Cause Notice (‘SCN’) under Section 73 and 74 read with Rule 142 of the CGST Rules in Form GST DRC-01 and Summary Order in Form DRC-07.
- These proceedings are carried online on GST Common Portal. Further, Notices and Orders are system generated leaving no space for assigning detailed reasons / allegations in Notices / Orders. The officer simply raises request for issuing such Notices and Orders and an automated email or auto-population in GST Common Portal takes place.
- While these electronic and automated processes have certainly saved time and efforts of revenue, there are multiple drawbacks and shortcomings of the same.
- As a process, taxpayers receive Notices and Orders issued in a cyclostyle manner without any reflection of application of mind in such Notices and Orders. Such Notices / Orders do not contain specific allegations and cogent reasoning detailing grounds for raising thereof contrary to established principles of law and in violation of principles of natural justice.
- In a recent judgement in the case of Turret Industrial Security Private Limited v. Commissioner GST, 2021 (2) TMI 432-Jharkhand High Court, the Jharkhand High Court examined SCNs issued for cancellation of registration. It held that SCNs issued in this case did not meet ingredients of a valid SCN. Therefore, the Court quashed impugned order passed basis such incomplete SCNs. Similar view was taken in the case of Teneron Limited v. Commissioner GST, 2020 (1) TMI 1165-Delhi High Court where the Delhi High Court directed the revenue to withdraw SCN because it did not clearly state whether the same was issued on account of non-payment / short-payment of tax or for other reasons.
- It is a settled principle of law that SCN is starting step of any proceeding. It needs to be precise and unambiguous. It should apprise party determinatively of case it has to meet. Time given in notice should be adequate to enable it to represent. In the absence of a proper notice and grant of such reasonable opportunity, order passed becomes invalid.
Taxpayers should carefully examine Notices and Orders issued to them under GST Law. They shall evaluate whether SCN contains necessary ingredients, allegations are cogent, clear and sufficient for them to contest proposed demand / allegations. They must also ensure that Orders are reasoned and being passed after taking reply to SCN into consideration. Absence of any of the above is a strong ground for challenge of SCN or Order before the Constitutional Courts.
Hope you find this useful. Please feel free to share your comments / feedback on the same.
For instant updates, visit our Twitter handle at https://twitter.com/tax_nitya