Gauhati High Court Holds Summary in GST DRC-01 Cannot Substitute Proper Show Cause Notice Under Section 73; Emphasizes Mandatory Opportunity of Hearing

Background and Context
The petitioner challenged the validity of proceedings initiated under Section 73 of the Central and State GST Acts, contending that no proper Show Cause Notice (SCN) was issued prior to the passing of the impugned order. Instead, only a summary in Form GST DRC-01, accompanied by a tax determination statement, was uploaded on the portal. The petitioner argued that this did not meet the statutory requirements, as the attachment lacked both a clear direction to show cause and proper authentication by the Proper Officer, as mandated by Rule 26 of the CGST Rules, 2017.

Legal Issues Considered
The Court identified three principal issues: (i) whether a valid SCN was issued prior to the impugned order; (ii) whether the determination of tax and order attached to the summary in GST DRC-01 and DRC-07 could be considered as the SCN and order respectively; and (iii) whether the impugned orders conformed to Section 75(4) and the principles of natural justice.

Court’s Analysis and Reasoning
The Court examined the statutory framework, noting that Section 73 of the GST Acts requires a proper SCN to be issued by the Proper Officer, clearly stating the reasons and circumstances for its issuance. Rule 142 of the CGST Rules mandates that a summary of the SCN be issued electronically in Form GST DRC-01, but this is supplementary to, and not a substitute for, the primary SCN.

The Court relied on precedents from various High Courts, including the Jharkhand, Karnataka, Telangana, and Andhra Pradesh High Courts, which consistently held that a summary in GST DRC-01 cannot replace a proper SCN. The Court emphasized that the statutory scheme requires both the issuance of a formal SCN and its summary, and that the absence of a duly authenticated SCN renders the proceedings invalid.

On the issue of authentication, the Court discussed Rule 26(3) of the CGST Rules, which requires that all notices and orders be issued electronically with a digital or e-signature by the Proper Officer. Although Rule 26 is located in the chapter on Registration, the Court, following judicial precedent, held that its requirements apply to notices and orders under the Demand and Recovery chapter as well, in the absence of a specific rule to the contrary.

Opportunity of Hearing and Natural Justice
The Court further held that Section 75(4) of the GST Acts mandates an opportunity of hearing whenever an adverse decision is contemplated, regardless of whether the assessee specifically requests it. In the present case, the summary in DRC-01 left the date and time of personal hearing blank, and the petitioner was not afforded a hearing before the adverse order was passed. The Court found this to be a violation of both the statutory mandate and the principles of natural justice.

Conclusion and Relief
The Gauhati High Court concluded that the summary in GST DRC-01, even if accompanied by a tax determination statement, does not fulfill the requirement of a proper, duly authenticated SCN under Section 73. The impugned order was also found to be vitiated by the failure to provide an opportunity of hearing as required by Section 75(4). Accordingly, the Court set aside the impugned order, granting liberty to the authorities to initiate fresh proceedings in accordance with law, and directed that the period between the issuance of the summary and the service of the judgment be excluded from the limitation period.

The writ petition was allowed, reinforcing the necessity of strict compliance with statutory requirements for issuance and authentication of SCNs and the provision of a fair hearing before adverse orders are passed under the GST regime.