2024 (12) TMI 454 - HC - GST

Jurisdiction of CAG or its officials to audit private companies like the Petitioner - Validity of the show cause notice based on CERA audit - invoocation of extended period of limitation. HELD THAT - The Court pointed out that the statutory scheme clearly states that the CAG shall, from the accounts compiled by it or by the Government or any person responsible for preparing in each year accounts showing under the respective heads, the annual receipts and disbursement for the purpose of the Union, each State or each Union Territory and shall submit the same to the President or the Governor or the Administrator, as the case may be. It is in such context that the provisions of Section 16 pertaining to audit of all receipts which are payable into the Consolidated Fund of India and each State and of each Union Territory is required to be construed with respect to the accounts maintained in the Government departments / Corporations belonging to the Government. The impugned show cause notice is not based upon any audit undertaken by CERA/CAG and the CERA/CAG has undertaken no audit of the Petitioner, there is no necessity to go into the issue of whether the impugned show cause notice could be quashed or the writ of prohibition could be issued to the Respondents from proceeding any further in this matter. The argument about the impugned show cause notice being issued with a pre-determined mindset is also entirely misconceived. By simply making an allegation of this nature without any concrete or serious material to support the same, the show cause notice cannot be questioned. A show cause notice, which only records a prima facie opinion, is not like a judgment or an order made after the completion of the adjudication proceedings. Therefore, the contention that the documents submitted by the Petitioner or the explanation offered by the Petitioner have not been considered is misconceived and based upon the same, no case is made out to quash the impugned show cause notice. There is also no infirmity in invoking the extended period of limitation. It is not as if no allegations of suppression or non-declaration were made in the show cause notice. Such allegations are contained in paragraphs 12 and 12.2 of the show cause notice. At this stage, there is no question of pronouncing whether such allegations are correct. No case has been made to entertain this Petition - Petition dismissed.

Summary

Issues Involved:

1. Jurisdiction of CAG/CERA to audit private companies.
2. Validity of the show cause notice based on CERA audit.
3. Allegations of issuance of the show cause notice with a "pre-determined mindset".
4. Invocation of the extended period of limitation.
5. Exhaustion of alternate remedies.

Issue-wise Detailed Analysis:

1. Jurisdiction of CAG/CERA to Audit Private Companies:

The petitioner argued that the show cause notice was invalid as it was based on a CERA audit conducted by the CAG, which allegedly lacked jurisdiction to audit private companies, as held in the case of Kiran Gems Private Limited. The court found this argument misplaced, clarifying that in the present case, the CERA/CAG did not audit the petitioner but rather the respondent's department, which is a government entity. The court emphasized that the statutory responsibility of the CAG is to audit government receipts, and the CERA audit was conducted on the department, not the petitioner. Therefore, the ratio in Kiran Gems Private Limited was not applicable here.

2. Validity of the Show Cause Notice Based on CERA Audit:

The petitioner contended that the show cause notice was entirely based on the CERA audit, making it ultra vires. However, the court found that the notice was not solely based on the CERA audit. The respondents clarified that the audit was of the department, and discrepancies found were independently examined before issuing the notice. The court concluded that the notice reflected independent application of mind by the adjudicating authority and was not without jurisdiction.

3. Allegations of Issuance of the Show Cause Notice with a "Pre-determined Mindset":

The petitioner claimed that the notice was issued with a "pre-determined mindset" as their documents and explanations were not considered. The court rejected this argument, stating that the notice only records a prima facie opinion and is not a final judgment. The court emphasized that the petitioner had the opportunity to present their case during the adjudication proceedings.

4. Invocation of the Extended Period of Limitation:

The petitioner argued that the extended limitation period was wrongly invoked, as there was no suppression. The court noted that the show cause notice contained allegations of suppression and non-declaration, which justified the invocation of the extended period. The court held that the petitioner could contest these allegations during the adjudication proceedings, but at this stage, the invocation of the extended period could not be deemed improper.

5. Exhaustion of Alternate Remedies:

The court highlighted the principle of exhaustion of alternate remedies, noting that the petitioner had not demonstrated any of the exceptions that would justify bypassing this rule. The court referred to precedents, including Whirlpool Corporation, which outline circumstances where the rule may not apply, such as violation of fundamental rights or lack of jurisdiction. However, none of these exceptions were applicable in this case, and the court found no reason to entertain the petition challenging the show cause notice.

Conclusion:

The court dismissed the petition, finding no merit in the arguments presented by the petitioner. The petitioner was directed to pay costs and was given an extension of four weeks to respond to the show cause notice, with the possibility of additional time if justified. The court reiterated the importance of following procedural rules and exhausting alternate remedies before seeking judicial intervention.