Gauhati High Court Holds DRC-01 Cannot Replace Statutory Show Cause Notice Under GST Act

The Gauhati High Court on 13 May held that GST authorities under the Assam GST Act cannot initiate and conclude proceedings under Section 73 solely on the basis of a Summary Show Cause Notice in Form GST DRC-01, reiterating that issuance of a proper statutory show cause notice is a mandatory precondition for raising a tax demand.

Justice Manish Choudhury allowed the petition filed by Riyan Enterprises and set aside the adjudication order passed under Section 73 of the Assam GST Act for alleged tax liability. He held:

“Non-issuance of a proper and prior Show Cause Notice, as prescribed under sub section [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.”

The petitioner, a GST-registered government contractor, challenged the demand proceedings on the ground that no show cause notice under Section 73(1) was ever issued before the adjudication order. It contended that only a summary notice in Form GST DRC-01 had been served.

The Court held that a summary in Form GST DRC-01 is merely an electronic summary of proceedings and cannot substitute the substantive show cause notice mandated under Section 73(1). It observed that the statutory scheme requires the proper officer to clearly set out allegations and give the taxpayer an opportunity to respond before any tax, interest, or penalty is determined.

Justice Choudhury further distinguished between the electronic summary uploaded on the GST portal and the formal notice contemplated under law, holding that initiation of proceedings without issuing a proper show cause notice is contrary to the GST framework and vitiates the entire adjudication process.

Accordingly, the High Court held that the order dated 30 April 2024 was unsustainable in law for non-compliance with mandatory procedural requirements. It set aside the impugned order along with all consequential actions arising from it.

For Petitioner: N.N. Jha, Advocate

For Respndent: B. Choudhury, Standing Counsel