DRC-01 Summary Cannot Substitute SCN u/s 73 of GST Act, Unsigned Orders Invalid: Gauhati HC [Read Order]

In a recent ruling, the Gauhati High Court held that a summary issued in Form GST DRC-01 cannot replace the proper show cause notice required under Section 73 of the GST Act and GST demand proceedings cannot stand if no valid notice is issued and no hearing is given before passing an adverse order.

Garg Associates, the petitioner, filed a writ petition challenging the GST demand proceedings started by the tax authorities for the period July 2017 to March 2018 under the CGST Act, 2017.

The petitioner received a summary show cause notice in Form GST DRC-01 dated 29 September 2023 with an attachment mentioning the proposed tax demand. The petitioner said that no separate statutory show cause notice under Section 73 was issued apart from this summary. It was also stated that the attachment available on the GST portal did not have proper signature of the Proper Officer.

The petitioner’s counsel argued that Rule 142 of the CGST Rules requires that a summary in Form DRC-01 must be issued along with the actual show cause notice. In this case only the summary was issued. The counsel argued that the attachment on the portal cannot be treated as a valid show cause notice because it did not properly call the petitioner to show cause and it was also not authenticated.

The petitioner also argued that the proceedings violated Section 75(4) of the CGST Act which requires giving a personal hearing when an adverse decision is proposed. It was pointed out that the hearing column in the DRC-01 form mentioned “NA”, which shows that no hearing was given before passing the order.

The State’s counsel argued that the DRC-01 summary and the attachment together gave enough details about the demand and the petitioner could have filed reply. The State also said that documents uploaded on the GST portal should be treated as authenticated since the system works electronically.

The Division Bench of Justice Soumitra Saikia and Justice Kaushik Goswami examined Section 73 of the CGST Act and Rule 142 of the CGST Rules. The court observed that the law clearly separates a show cause notice and its summary. The court explained that the summary in Form DRC-01 is only supplementary and cannot replace the actual show cause notice required by law.

The court also observed that the department itself admitted that no separate show cause notice was issued. Because of this, the attachment describing the tax demand cannot be treated as a valid notice under Section 73.

On authentication, the court looked at Rule 26(3) of the CGST Rules. The court observed that notices and orders issued electronically must be verified by digital signature, e-signature or other prescribed method. The documents on record did not show proper authentication by the Proper Officer.

The court also considered the requirement of hearing under Section 75(4). The court explained that hearing is required either when the taxpayer asks for it or when an adverse decision is going to be passed. The court pointed out that the DRC-01 form mentioned reply date but showed “NA” in the hearing column. Passing an adverse order without hearing in such situation goes against the law and principles of natural justice.

Because of these reasons, the court held that the GST proceedings were not valid since there was no proper show cause notice, the documents were not properly authenticated, and no hearing was given.

The court set aside the impugned order and allowed the writ petition. The court allowed the tax authorities to start fresh proceedings under Section 73 of the CGST Act according to law. The court also said that the time between the summary notice and service of the judgment copy on the Proper Officer will be excluded while calculating the limitation period.

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