In this ruling, the Karnataka High Court quashed a show cause notice on the grounds that the investigation underlying the issue of such notice under Section 74 of the CGST Act was not conducted by the proper officer.
The investigation in the case of the petitioner was conducted by Commissioner (CGST), without being the proper officer. Once the Commissioner conducted almost all of the investigation he transferred the case to Principal Commissioner (CGST),, who was actually the proper officer to conduct such proceedings. Relying upon the records built by the Commissioner / Improper Officer the Principal Commissioner issued the impugned show cause notice without himself investigating the case.
The Court analysed the provisions of Chapter 14 (Inspection, Search, Seizure and Arrest) of the CGST Act and observed that such powers can only be exercised by the proper officer. It held hat when the investigation, inspection, search and seizure is substantially completed by an improper Officer, is the show cause notice issued by a proper Officer under Section 74 of the CGST Act and KGST Act liable to be set aside. When the investigation itself is ab initio void, then notice under Section 74 based upon such investigation has to be considered illegal as there is no satisfaction on the part of proper officer – he cannot issue SCN based on ‘borrowed satisfaction’.
W&B Comments: This judgment should make it clear that the Department has to strictly follow the letter of the law and cannot forgo the procedures and casually treat them as inconsequential formality. The Court by stressing upon the need to have ‘satisfaction’ before issuing notice under Section 74 has highlighted the central role of proper officer in GST procedures.