2024 (9) TMI 1644 - HC - GST

Validity of SCN - carry forward of transitional credit - It has been argued on behalf of the petitioner that for the same amount of Input Tax Credit availed by the petitioner, once the proceedings under Section 73 have been dropped in favour of the petitioner, same cannot be reopened under Section 74 of the CGST Act by simply stating that the petitioner had availed excessive Input Tax Credit - HELD THAT - The impugned Show Cause Notice does not make even a whisper of the fact that petitioner has wrongly availed or utilized Input Tax Credit due to any fraud, or wilful mis-statement or suppression of facts to evade tax therefore, the proceedings initiated against the petitioner u/s 74 of the CGST Act are without jurisdiction for the lack of basic ingredients required under the said clause. So far as the argument advanced by the learned counsel appearing for the respondents that the writ petition against the Show Cause Notice is not maintainable, is concerned, we find that it is consistent view of the Hon ble Supreme Court that if the Show Cause Notice is without jurisdiction then the same can be challenged by filing writ petition before the High Court under Artilce 226 of the Constitution of India. It is not found that the basic ingredients required for initiating proceedings under Section 74 of the CGST Act are present in the impugned Show Cause Notice dated 30.12.2023. Therefore the entire exercise including the Show Cause Notice is without jurisdiction and thus this writ petition under Article 226 of the Constitution of India is maintainable. The impugned Show Cause Notice dated 03.08.2024 in its present form lacks basic ingredients to proceed in the matter under Section 74 of the CGST Act. Therefore, the impugned Show Cause Notice dated 03.08.2024 and the entire exercise initiated pursuant thereto is absolutely without jurisdiction and is liable to be quashed. Petition allowed.

Summary

Issues Involved:
1. Validity of the Show Cause Notice issued under Section 74 of the CGST Act.
2. Jurisdiction of the adjudicating authority to reopen proceedings under Section 74 after concluding proceedings under Section 73.
3. Whether the writ petition is maintainable at the stage of Show Cause Notice.

Detailed Analysis:

1. Validity of the Show Cause Notice issued under Section 74 of the CGST Act:
The petitioner challenged the Show Cause Notice dated 03.08.2024 issued under Section 74 of the CGST Act, arguing that it lacked the essential ingredients to proceed under this section. The petitioner contended that the notice did not mention any fraud, wilful misstatement, or suppression of facts, which are prerequisites for invoking Section 74. The court agreed, emphasizing that for a Show Cause Notice under Section 74 to be valid, it must explicitly state that the excessive Input Tax Credit (ITC) was availed due to fraud, wilful misstatement, or suppression of facts to evade tax. The absence of such allegations rendered the notice without jurisdiction.

2. Jurisdiction of the adjudicating authority to reopen proceedings under Section 74 after concluding proceedings under Section 73:
The petitioner argued that the proceedings under Section 73 had already been concluded in their favor, and the same issue could not be reopened under Section 74 without new evidence of fraud or misstatement. The court noted that Section 73 deals with cases where ITC is wrongly availed for reasons other than fraud or wilful misstatement, while Section 74 addresses cases involving fraud or suppression of facts. Since the adjudicating authority had previously dropped the proceedings under Section 73, reopening the case under Section 74 required a prima facie belief of fraud or misstatement, which was not indicated in the Show Cause Notice. Therefore, the court found that the adjudicating authority lacked jurisdiction to reopen the case under Section 74 on the same facts.

3. Whether the writ petition is maintainable at the stage of Show Cause Notice:
The respondents argued that the writ petition was premature as it challenged a Show Cause Notice. However, the court held that if a Show Cause Notice is issued without jurisdiction, it can be challenged through a writ petition under Article 226 of the Constitution of India. The court cited precedents from the Supreme Court, emphasizing that natural justice requires the assessee to be made aware of the specific allegations against them. The court found that the lack of jurisdictional basis in the Show Cause Notice made the writ petition maintainable.

Conclusion:
The court concluded that the Show Cause Notice dated 03.08.2024 lacked the necessary jurisdictional basis to proceed under Section 74 of the CGST Act. The notice did not allege fraud, wilful misstatement, or suppression of facts, which are essential for invoking Section 74. Consequently, the court quashed the Show Cause Notice and allowed the writ petition, leaving it open for the respondents to issue a fresh notice if they have evidence of fraud or misstatement.