Facts of the Case: The petitioner, M/s Bla Projects Pvt. Ltd., a registered dealer under the Jharkhand Goods and Services Tax Act, 2017 engaged in works contracts and mining-related activities, had its GSTR-3B returns for FY 2018-19 scrutinised, revealing a claimed mismatch of Rs. 6.17 lakh between GSTR-2A and GSTR-3B. The petitioner replied disputing the figure and quantifying the actual difference at Rs. 44,303, but no response came from the department for over a year. Subsequently, a Summary of Show Cause Notice in Form GST DRC-01 and a show cause notice under Section 73 of the JGST Act, 2017 were issued on 20.10.2020, alleging excess Input Tax Credit availed and proposing tax, interest and penalty of Rs. 14,36,896. Without considering the petitioner's reply, a summary order in Form GST DRC-07 was issued on 14.12.2020 confirming the demand. The petitioner also averred that its Electronic Credit Ledger had been blocked to the extent of over Rs. 16.5 lakh since March 2020, remaining blocked for more than a year, in alleged breach of Rule 86A(3) of the JGST Rules.

Issues Involved

  1. Whether the show cause notice under Section 73 of the JGST Act, issued without specifying the contravention alleged, satisfied the statutory requirements of a proper SCN.
  2. Whether a Summary of Show Cause Notice issued in Form GST DRC-01 can substitute the statutorily mandated show cause notice under Section 73(1).
  3. Whether continued blocking of the Electronic Credit Ledger beyond one year violated Rule 86A(3) of the JGST Rules, 2017.
  4. Whether the writ petition was maintainable despite the availability of the statutory appellate remedy under Section 107.

Petitioner's Arguments

  • The show cause notice under Section 73 did not indicate any contravention committed by the petitioner and was issued in a generic proforma without striking off irrelevant grounds, relying on the Jharkhand High Court's own rulings in M/s NKAS Services Private Limited (W.P(T) Nos. 2444/2021 and 2659/2021).
  • The Summary of Show Cause Notice in Form GST DRC-01 could not substitute the statutorily required show cause notice under Section 73(1).
  • The writ was maintainable despite the alternate remedy, since the challenge was to violation of principles of natural justice, relying on Assistant Commissioner of State Tax v. Commercial Steel Ltd. (2021 SCC OnLine SC 884).
  • ITC could not remain blocked beyond the one-year restriction under Rule 86A(3), relying on Gujarat and Uttarakhand High Court precedent.

Respondent's Arguments

  • The department relied on the notification bringing Rule 86A into force, empowering blocking of the Electronic Credit Ledger on specified conditions, but did not dispute that the ledger had remained blocked for over a year.
  • The department's counsel did not dispute that the case was covered by the Court's earlier decisions in the NKAS Services matters and conceded that the matter could be remanded for fresh proceedings on proper notice.

Court Order / Findings

  • The Court found the impugned show cause notice completely lacking in the ingredients of a proper SCN under Section 73, as it did not indicate the contravention committed and was issued in an unedited proforma format.
  • Following its earlier rulings in the NKAS Services cases, the Court held that a Summary of Show Cause Notice in Form GST DRC-01 cannot substitute the mandatory show cause notice under Section 73(1).
  • Since the breach involved violation of natural justice, the writ was held maintainable notwithstanding the alternate remedy, relying on Commercial Steel Ltd. and Magadh Sugar & Energy Ltd.
  • The show cause notice, its DRC-01 summary, and the consequent DRC-07 summary order were quashed, with liberty to the department to initiate fresh proceedings within four weeks, without expressing any opinion on merits.

Important Clarification

  • A Summary of Show Cause Notice issued in Form GST DRC-01 under Rule 142(1)(a) is not a substitute for the substantive show cause notice mandated under Section 73(1); an SCN that fails to specify the contravention alleged is legally infirm.
  • Violation of principles of natural justice and mandatory statutory procedure in raising a demand renders a writ petition maintainable notwithstanding an available statutory appeal.

Sections Involved

  • Section 73, JGST/CGST Act, 2017 — determination of tax not paid/short paid or ITC wrongly availed, in cases not involving fraud.
  • Rule 142(1)(a) & 142(1)(a), CGST/JGST Rules, 2017 — Summary of Show Cause Notice (Form GST DRC-01) and Summary of Order (Form GST DRC-07).
  • Rule 86A, CGST/JGST Rules, 2017 — conditions and time-limit for blocking of Input Tax Credit in the Electronic Credit Ledger.

Decision – In Favour of

Disposed of with directions, in favour of the Assessee. The impugned show cause notice, its summary and the summary demand order were quashed on procedural grounds, with liberty to the department to initiate fresh proceedings; the Court did not go into the merits of the underlying tax demand.

Related Case Laws

Case Details

  • Court: High Court of Jharkhand at Ranchi
  • Case No.: W.P (T) No. 396 of 2021
  • CNR: Not indicated on the order
  • Coram: Hon'ble Mr. Justice Aparesh Kumar Singh and Hon'ble Mr. Justice Deepak Roshan
  • Date of Order: 02.03.2022

Link to Download the Order

https://mytaxexpert.co.in/uploads/1787076921_4635compressed.pdf

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