Summary:

The Hon’ble Calcutta High Court has held that a SCN issued in Form GST DRC-01 under Section 73 of the CGST Act is unsustainable if it substantially enhances the tax demand over the pre-notice intimation in Form DRC-01A without providing reasons for such variation. The Court held that this action violates the principles of natural justice and deprives taxpayers of their statutory rights under Section 73(5) of the CGST Act.

Facts:

• The Petitioner received an intimation of tax liability in Form GST DRC-01A (‘the Pre-SCN Notice’) dated 10 January 2024 for FY 2019-20. Subsequently, a SCN in Form GST DRC-01 dated 1 March 2024 was issued, wherein the demand was forty times higher than that intimated earlier in the Pre-SCN Notice
• No explanation was provided in the SCN for the drastic escalation in the demand. The appellate authority dismissed the Petitioner’s appeal on grounds of limitation
• The Petitioner filed a writ petition challenging the SCN, the assessment order dated 13 May 2024 and the appellate order dated 12 December 2024

Issue before the High Court:

• Whether a SCN under Section 73(1) can be sustained when the demand raised is significantly higher than that in the Pre-SCN Notice without any reasoning or opportunity to respond to the enhanced amount?

Discussion and Ruling:

The Hon’ble Calcutta High Court set aside the SCN, assessment order and appellate order basis the following:
 

• While issuance of a Pre-SCN Notice under Rule 142(1A) of the CGST Rules is not mandatory, once the proper officer exercises this discretion, it creates a valuable legal right for the taxpayer under Section 73(5) to make payment of the amount ascertained and potentially avoid proceedings
• The Respondents ought not to have taken the Petitioner by surprise by enhancing the demand several-fold for the first time in the SCN without providing any explanation for the variation. This action deprived the Petitioner of a valuable legal right under Section 73(5) of the CGST Act to respond to the amount initially ascertained and potentially prevent the initiation of formal recovery proceedings
• Absence of explanation for such increase in demand amount violated principles of natural justice and rendered the SCN unsustainable
• Accordingly, the Court has set aside the SCN, the assessment order and the appellate order. The Court further held that the appellate order dated 12 December 2024 shall be treated as a fresh SCN under Section 73, subject to the Petitioner depositing an additional 10% of the disputed tax within 3 weeks. If the Petitioner fails to comply with the deposit requirement, the writ petition shall stand dismissed automatically.