GST Proceedings Invalidates When A Proper Show Cause Notice Is Not Issued: High Court

The Gauhati High Court held in favour of Riyan Enterprises by setting aside a GST demand order, noting the petitioner company was not issued with a prior Show Cause Notice (SCN) by the Assam tax authorities, which is an obligatory requirement under Section 73 of the Assam Goods and Services Tax (GST) Act.

Riyan Enterprises (Petitioner) had challenged a GST order dated April 30, 2024, before the Gauhati High Court, arguing that tax authorities had not issued a proper show cause notice (SCN) to him before the issuance of the impugned order. This is not only a contravention of Section 73 of the Assam GST Act but also of the principles of natural justice. Consequently, the petitioner prayed the court to set aside the GST demand order.

The petitioner also highlighted that he only received a Summary Show Cause Notice dated December 18, 2023, in Form GST DRC-01; however, it is just a brief summary and cannot replace the mandatory Show Cause Notice.

“One of the grounds on which the Summary of Order dated 30.04.2024 has been challenged is that there is no proper and prior Show Cause Notice prescribed under subsection [1] of Section 73 of the AGST Act, 2017 and the petitioner was only served with a Summary Show-Cause Notice dated 18.12.2023 in Form GST DRC – 01, which was also not in conformity with Section 73 read with Rule 142[1][a] of the AGST Act, 2017,” the judgement reads.

In support of its case, the petitioner cited an earlier judgement dated September 26, 2024, of this court, where it was ruled that GST proceedings cannot be sustained in cases where a proper show cause notice (SCN) is not issued. Further highlighted that the Show Cause Notice, tax determination statement, and final order must all be issued by the designated proper officer and under the prescribed legal procedure.

Since in the present case the petitioner was not served with any valid Show Cause Notice (SCN) prior to the issuance of the GST demand order and all consequential actions, including subsequent proceedings based on that order, were unsustainable in law and liable to be quashed. However, the court granted liberty to the tax authorities to start fresh proceedings in accordance with the law by issuing a proper Show Cause Notice and following all statutory requirements. Accordingly, the writ petition was allowed.

The court held that, “Non-issuance of a proper and prior Show Cause Notice, as prescribed under subsection [1] of Section 73 of AGST Act, 2017 and issuance of only a Summary of Show Cause Notice cannot be said to be in compliance with sub-section [1] of Section 73 and sub-rule [1] and Rule 142 of the AGST Rules. A Summary of Show Cause Notice is held to be not a substitute of a Show Cause Notice, prescribed by the provisions of sub-section [1] of Section 73, AGST Act to set the proceeding in motion.”