The Gauhati High Court has once again emphasized the importance of adhering to due process under GST law, ruling that a summary of a show cause notice (SCN) cannot replace the requirement of a proper, detailed SCN under Section 74(1) of the CGST Act, 2017.

In this landmark judgment, the court quashed both the summary of the SCN dated 28th September 2023 and the summary of the order dated 29th December 2023 issued against Air Transport Corporation Assam Private Limited.

Background of the Case

The tax department issued a summary notice in GST DRC-01 format against the petitioner but failed to serve a detailed SCN outlining the grounds, allegations, and reasons for the demand. The petitioner challenged this action, arguing that:

  • No proper SCN was issued as required under Section 74(1) of the CGST Act.

  • The proceedings violated principles of natural justice, particularly Section 75(4), which mandates a fair hearing before passing any order.

  • Despite repeated requests, no proper hearing was provided before finalizing the demand order.

The State tax department admitted that no separate detailed SCN had been issued and that they relied only on the summary in GST DRC-01 along with a statement of tax determination under Section 74(3).

Key Observations by the Court

  1. Summary vs. Detailed SCN:
    Justice Arun Dev Choudhury held that a summary is merely an intimation to the taxpayer and cannot substitute a detailed show cause notice required by law.

  2. Mandatory Requirement of SCN:
    The court reiterated that proceedings under Section 73 or Section 74 must be preceded by:

    • A valid and properly served SCN,

    • A comprehensive statement of tax determination, and

    • An order issued by a Proper Officer, as per the CGST Act.

  3. Reference to Precedent:
    The court referred to the Construction Catalysers judgment (Paragraph 29), which clearly distinguishes between a summary notice and a full-fledged SCN.

  4. Violation of Natural Justice:
    Since no proper hearing was granted, the court held that the order violated Section 75(4) of the Act.

  5. Fresh Proceedings Allowed:
    While quashing the impugned summary and orders, the court granted the department liberty to initiate fresh proceedings strictly as per law. It also directed that the time period during which the defective notices were pending shall be excluded while computing limitation under Section 74(10).

Impact of the Judgment

This ruling sets a strong precedent for taxpayers facing arbitrary GST proceedings based on incomplete or defective notices. It clarifies that:

  • GST DRC-01 summary cannot replace a detailed SCN.

  • Tax authorities must clearly outline allegations, evidence, and grounds in the SCN.

  • Failure to follow due process makes the proceedings unsustainable in law.

FAQs

1. What is the difference between an SCN and GST DRC-01?
An SCN (Show Cause Notice) provides detailed reasons, grounds, and allegations for tax demands. GST DRC-01 is merely a summary/intimation of the SCN and cannot replace it.

2. Why did the Gauhati HC quash the summary and order?
Because no detailed SCN was served, and the taxpayer was denied a fair hearing, violating Sections 74(1) and 75(4).

3. Can the tax department issue a fresh SCN in this case?
Yes, the court allowed the department to initiate fresh proceedings as per law, with the limitation period adjusted under Section 74(10).

4. What does Section 75(4) of the CGST Act state?
It mandates that a taxpayer must be given an opportunity of being heard before a final order is passed.

5. What is the key takeaway for businesses?
Always verify if a proper detailed SCN is issued before responding to any GST demand. A summary alone is insufficient.

Conclusion

The Gauhati High Court’s ruling reaffirms that due process is the cornerstone of GST proceedings. Tax demands based solely on summary notices (DRC-01), without issuing a proper SCN, are invalid. This judgment will help taxpayers ensure their rights to fair hearing and transparency are upheld.