⚖️ Procedural Due Process is Paramount: AP High Court Rules Violation of Mandatory Pre-SCN Procedure Makes GST Proceedings Void

 

In a landmark judgment that re-emphasizes the importance of procedural fairness under the Goods and Services Tax (GST) regime, the Andhra Pradesh High Court has definitively ruled that assessment and adjudication proceedings initiated without first complying with the mandatory pre-show-cause notice (pre-SCN) procedure under Rule 142(1A) of the CGST Rules, 2017, are vitiated and void ab initio.

This ruling serves as a powerful reminder to tax authorities that procedural safeguards are not mere technicalities but foundational pillars of natural justice that cannot be bypassed.

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The Mandate Under Rule 142(1A)

The core of the dispute lies in Rule 142(1A) of the CGST Rules, which prescribes a mandatory pre-SCN consultation mechanism.

1. The Procedure: Before a proper officer issues a formal Show Cause Notice (SCN) under Section 73 (for cases not involving fraud) or Section 74 (for cases involving fraud/suppression) of the CGST Act, they must communicate the details of the tax, interest, and penalty ascertained to the taxpayer in Part A of Form GST DRC-01A.
2. The Objective: This intimation is designed to grant the taxpayer a statutory opportunity to:

ü  Understand the proposed liability.

ü  Make a voluntary payment of the tax, interest, and a reduced penalty (especially under Section 74, where the penalty is significantly lower if paid before the SCN).

ü  Submit a reply to address the discrepancies, thereby promoting voluntary compliance and reducing unnecessary litigation.

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The High Court’s Decisive Stance

In cases like Baba Agriculture Export vs. Union of India and similar writ petitions, the Andhra Pradesh High Court examined assessment orders that were passed directly after issuing a formal SCN (Form GST DRC-01), entirely skipping the prerequisite intimation in Form GST DRC-01A.

The Division Bench, observing a consistent line of judicial thinking, dismissed the Revenue's arguments and held that the failure to comply with Rule 142(1A) is not a minor procedural irregularity, but a substantive illegality.

The Court held that bypassing the DRC-01A process deprives the taxpayer of a valuable and statutory right to resolve the issue at an early stage. This constitutes a direct violation of the principles of Natural Justice and the fair hearing provision enshrined in Section 75(4) of the CGST Act, which mandates an opportunity of hearing be granted where a request is made or where any adverse decision is contemplated.

Consequently, the entire adjudication process, including the final Order-in-Original, was held to be void and unsustainable in law. The court set aside the demand orders and remanded the matters back to the authorities, directing them to initiate proceedings afresh only after strictly complying with the mandatory requirement of issuing the pre-SCN intimation.

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The Crucial 'Shall' vs. 'May' Distinction

It is vital for taxpayers and professionals to understand the timeline surrounding Rule 142(1A):

Period	Wording in Rule 142(1A)	Nature of Compliance
Pre-October 15, 2020	The rule stated the proper officer “shall” communicate the details in DRC-01A.	Mandatory
Post-October 15, 2020	The word “shall” was substituted with “may” (via Notification No. 79/2020 – CT).	Discretionary

 

The Andhra Pradesh High Court's ruling primarily applies to the pre-amendment period where the issuance of DRC-01A was explicitly mandatory. For assessment periods falling under the mandatory 'shall' clause, the department's non-compliance is considered a fatal flaw, leading to the quashing of the entire demand order.

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Key Takeaways for the GST Ecosystem

This High Court judgment reinforces a critical lesson for both the administration and the trade:

ü  For Tax Authorities: The ruling serves as a strict directive to adhere to due process. Authorities must not skip the pre-SCN consultation process, particularly for the period where the rule was mandatory. Failure to issue Form GST DRC-01A risks the entire proceeding being declared invalid and necessitates a time-consuming restart.

ü  For Taxpayers: This decision provides a strong legal basis to challenge any Show Cause Notice or Assessment Order where the mandatory pre-SCN intimation (DRC-01A) was omitted, especially for demands pertaining to the initial years of GST (pre-October 2020). Taxpayers are now empowered to demand adherence to the prescribed procedure as a matter of statutory right.

The Andhra Pradesh High Court has thus ensured that the technical structure of the GST law is upheld, emphasizing that a swift assessment can never justify the compromise of fundamental legal procedure and natural justice.