2023 (11) TMI 1334 - HC - GST

Legality and validity of the impugned SCN u/s 74(1) of the CGST/WBGST Act 2017 - constitutional validity of Rule 31A(3) of the CGST/WBGST Rules 2017 - HELD THAT - The issues involved in this writ petition cannot be adjudicated without exchange of affidavits by the parties. The petitioner has been able to make out a prima facie case for an interim order. Let the respondents file affidavit in opposition within six weeks; petitioner to file reply thereto if any within three weeks thereafter - List this matter for final hearing in the monthly list of March 2024.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment from the Calcutta High Court primarily addresses the following core legal questions:

• The legality and validity of the show-cause notice issued under Section 74(1) of the CGST/WBGST Act, 2017.
• The constitutional validity of Rule 31A(3) of the CGST/WBGST Rules, 2017, particularly whether it is ultra vires the Constitution of India and specific sections of the CGST/WBGST Act, 2017.
• Whether an interim order should be granted to stay further proceedings based on the impugned show-cause notice.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality and Validity of the Show-Cause Notice

• Relevant Legal Framework and Precedents: The show-cause notice was issued under Section 74(1) of the CGST/WBGST Act, 2017, which deals with tax not paid or short paid, or erroneously refunded, or input tax credit wrongly availed or utilized.
• Court's Interpretation and Reasoning: The court noted that similar writ petitions have been entertained by various High Courts, which have granted interim orders, indicating a prima facie case for the petitioner.
• Key Evidence and Findings: The petitioner cited orders from other High Courts, such as Bombay, Sikkim, Gujarat, and Rajasthan, which had entertained similar issues and granted interim relief.
• Application of Law to Facts: The court recognized the need for an exchange of affidavits to fully adjudicate the issues, suggesting the complexity and significance of the legal questions involved.
• Treatment of Competing Arguments: The respondent's counsel did not dispute the factual and legal positions presented by the petitioner, which were supported by precedents from other High Courts.
• Conclusions: The court allowed the petitioner to file a reply to the show-cause notice and granted an interim order preventing any effect from being given to the order passed on such reply without the court's leave.

Issue 2: Constitutional Validity of Rule 31A(3) of the CGST/WBGST Rules, 2017

• Relevant Legal Framework and Precedents: The petitioner challenged Rule 31A(3) as being ultra vires the Constitution of India and sections 2(31), 7, and 15(5) of the CGST/WBGST Act, 2017.
• Court's Interpretation and Reasoning: The court acknowledged the challenge to the constitutional validity and deemed it necessary to issue notices to the Attorney General of India and the Advocate General of West Bengal.
• Key Evidence and Findings: The court noted the absence of a direct denial from the respondents regarding the petitioner's claims about the rule's validity.
• Application of Law to Facts: The court's decision to issue notices to higher legal authorities indicates the seriousness of the constitutional questions raised.
• Treatment of Competing Arguments: The court did not delve deeply into competing arguments at this stage, focusing instead on procedural steps to facilitate a thorough examination of the constitutional issues.
• Conclusions: The court granted leave to amend the writ petition to include relevant provisions of the State GST Act and Rules and scheduled the matter for a final hearing in March 2024.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "Considering the facts and circumstances of the case and submission of the parties and taking into consideration the aforesaid orders relied upon by the petitioner, I am of the view that the issues involved in this writ petition cannot be adjudicated without exchange of affidavits by the parties."
• Core Principles Established: The court emphasized the importance of procedural fairness and the need for a comprehensive examination of constitutional challenges before reaching a final determination.
• Final Determinations on Each Issue: The court granted an interim order allowing the petitioner to respond to the show-cause notice while preventing any immediate enforcement of subsequent orders. It also initiated procedural steps to address the constitutional validity of Rule 31A(3).

The judgment reflects the court's cautious approach in dealing with complex legal and constitutional issues, underscoring the necessity for detailed scrutiny and adherence to procedural justice. The interim relief granted to the petitioner indicates a recognition of potential merit in the claims, pending a more thorough legal examination.