2025 (2) TMI 365 - HC - GST

Challenge to SCN issued under Section 74 of the Central Goods and Services Tax Act 2017/State Goods and Services Tax Act 2017 - HELD THAT - Section 74 (1) of the CGST Act/SGST Act authorises the proper officer to issue a notice to show cause. Sub-Section (2) of Section 74 envisages that such notice shall be issued six months prior to the time limit specified under sub-Section (10) of Section 74 - It is also the mandate of the statute that the proper officer shall issue the order under sub-Section (9) of Section 74 within a period of five years from the due date of submission of the annual return. The power of the High Court under Article 226 of the Constitution of India cannot be invoked by the assessee who is faced with a notice under Section 74 seeking a part adjudication of the lis which is pending before the proper officer. Of course in a given situation when it is alleged that there is a total lack of jurisdiction in issuance of the show cause notice the High Court may exercise its discretion in entertaining the writ petition. But as a general rule the writ petition against the issuance of a show cause notice under Section 74 of the CGST Act/SGST Act cannot be entertained. In D.P. Maheswari v. Delhi Administration Ors 1983 (9) TMI 317 - SUPREME COURT the Supreme Court has clearly delineated the jurisdiction of the High Court in entertaining the writ petition against preliminary issues. Though the Supreme Court was considering the power of the labour courts and the industrial tribunals under the Industrial Disputes Act 1947 on deciding the preliminary issues raised before it we find that the principle laid down by the Supreme Court can very well be applied to taxation laws as well. We thus hold that the jurisdiction of the High Court under Article 226 of the Constitution of India cannot be allowed to be exploited by those who can afford to wait to the detriment to those who cannot afford to wait by dragging the latter to the court for adjudication on peripheral issues avoiding decision on the issues more vital to them. Conclusion - Going by the time limit prescribed under sub-Section (10) of Section 74 of the CGST Act/SGST Act the adjudication has to be completed by 8.2.2025. However in view of the interim order passed in the writ petition staying further proceedings under Section 74 which was in operation for a period of seven days the Revenue will get the benefit of the stay and the period of adjudication will expire only on 15.2.2025. Appeal allowed.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the direction of the learned Single Judge to consider preliminary issues separately under Section 74 of the CGST Act/SGST Act is sustainable under the statutory scheme.
Whether the High Court can exercise its jurisdiction under Article 226 of the Constitution of India to entertain writ petitions against show cause notices issued under Section 74 of the CGST Act/SGST Act.

ISSUE-WISE DETAILED ANALYSIS

1. Sustainability of the Single Judge's Direction under the CGST/SGST Act

Relevant Legal Framework and Precedents: Section 74 of the CGST Act/SGST Act outlines the process for determining tax not paid or short paid due to fraud or suppression of facts. Sub-Section (9) mandates that the proper officer must issue a final order after considering any representations made by the taxpayer.
Court's Interpretation and Reasoning: The Court emphasized that there is no statutory provision allowing for adjudication in stages. The proper officer is required to conduct a complete adjudication of the issue under Section 74, which is in the interest of both the assessee and the Revenue.
Key Evidence and Findings: The Court found that entertaining requests for part adjudication could lead to complications, including the inability to adhere to statutory timelines, which would be detrimental to both parties.
Application of Law to Facts: The Court applied the statutory framework of Section 74 to conclude that the Single Judge's direction for preliminary adjudication was not sustainable.
Treatment of Competing Arguments: The Court considered the assessee's argument for separate adjudication of issues related to a different entity but found that the statutory scheme does not support such an approach.
Conclusions: The Court held that the direction for preliminary adjudication was incorrect and modified the judgment to require a composite final order.

2. Jurisdiction of the High Court under Article 226

Relevant Legal Framework and Precedents: Article 226 of the Constitution of India grants the High Court the power to issue certain writs. The Court referenced the Supreme Court decision in D.P. Maheswari v. Delhi Administration, which cautions against using writ jurisdiction for peripheral issues.
Court's Interpretation and Reasoning: The Court reasoned that Article 226 should not be used to challenge show cause notices under Section 74, except in cases of total lack of jurisdiction.
Key Evidence and Findings: The Court noted that using Article 226 to delay proceedings could harm the interests of the Revenue and other stakeholders.
Application of Law to Facts: The Court applied the principles from D.P. Maheswari to conclude that the High Court should not entertain writ petitions against show cause notices unless jurisdiction is completely lacking.
Treatment of Competing Arguments: The Court acknowledged the potential for misuse of writ jurisdiction and emphasized the need for restraint in its exercise.
Conclusions: The Court concluded that the High Court's jurisdiction under Article 226 should not be invoked for preliminary issues in taxation matters.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The jurisdiction of the High Court under Article 226 of the Constitution of India cannot be allowed to be exploited by those who can afford to wait to the detriment to those who cannot afford to wait by dragging the latter to the court for adjudication on peripheral issues."
Core Principles Established: The Court established that adjudication under Section 74 of the CGST Act/SGST Act must be complete and not in stages, and that the High Court should exercise restraint in entertaining writ petitions against show cause notices.
Final Determinations on Each Issue: The Court modified the Single Judge's judgment, directing the proper officer to complete the adjudication by the statutory deadline, and emphasized that the High Court should not entertain writ petitions for preliminary issues unless there is a clear lack of jurisdiction.