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2025 (4) TMI 1005 - HC - GSTChallenge to SCN issued u/s 74 of CGST Act 2017 - compliance with mandatory provisions of Rule 142 of the CGST Rules 2017 - HELD THAT - From the record it is reflected that the petitioners had initially filed the present petitions challenging common Show Cause Notice dated 29.09.2023 issued under Section 74 of CGST Act 2017 mainly on the ground that the said show cause notice has been issued without complying with mandatory provisions of Rule 142 of CGST Rules 2017 as the impugned show cause notice alongwith its summary thereof were not uploaded on the portal in electronic form and the impugned show cause notice and subsequent proceedings are liable to be quashed on this ground itself. Another ground of challenge of common show cause notice dated 29.09.2023 is that the impugned show cause which has been issued under Section 74 of CGST Act 2017 is without jurisdiction on account of the fact that a show cause notice under Section 74 can only be issued when evasion of tax is alleged whereas in the case at hand there is no allegation in the entire show cause notice regarding evasion of tax but the allegation pertain to circular trading wherein admittedly at each step of such trading the petitioners have paid GST - It is reflected from record that before this court could hear the case on the question of admission and interim relief Respondent No. 2 has passed common final order dated 21.01.2025 during the pendency of these petitions to which challenge has been made by the petitioners in their respective petitions by carrying out amendment in pursuance of order dated 23.01.2025 of this court mainly on the ground that since the show cause notice was itself without jurisdiction and was issued without complying with mandatory provision of Rule 142 of CGST Rules the subsequent order is non est in light of the principle that if initial action is not in consonance with law all subsequent and consequential proceedings would fall through for the reason that illegality strikes at the root of the order. In such a fact-situation the legal maxim sublato fundamento cadit opus meaning thereby that foundation being removed structure/work falls comes into play and applies on all scores in the present case. Conclusion - This court is of the considered opinion that prima facie case exists in favour of the petitioners and if the common impugned final order dated 21.01.2025 is not stayed during the pendency of the present petitions then the petitioners would suffer irreparably. These petitions are admitted for final hearing and it is directed that effect and operation of common impugned final order dated 21.01.2025 shall remain stayed pending adjudication of these petitions.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in the judgment are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of the Show Cause Notice under Section 74 of CGST Act vis-`a-vis compliance with Rule 142 of CGST Rules Relevant legal framework and precedents: Section 74 of the CGST Act, 2017 authorizes issuance of show cause notices in cases of tax evasion. Rule 142 of the CGST Rules mandates that show cause notices and their summaries must be uploaded electronically on the portal. The petitioners relied on judgments including New Hanumat Marbles Vs. State of Punjab, Akash Garg Vs. State of M.P, Shri Shyam Baba Edible Oils Vs. Chief Commissioner, and Siddhi Vinayak Enterprises Vs. State of Jharkhand, which consistently held that non-compliance with Rule 142 renders the show cause notice invalid and liable to be quashed. Court's interpretation and reasoning: The Court noted that the impugned show cause notice along with its summary was not uploaded on the electronic portal, violating Rule 142. This procedural lapse was deemed fundamental, as compliance with Rule 142 is mandatory. The Court recognized the binding precedents emphasizing that such non-compliance vitiates the notice. Key evidence and findings: The record reflected absence of electronic uploading of the show cause notice and its summary. The petitioners substantiated this with annexures and relied on judicial precedents. Application of law to facts: The Court applied the principle that mandatory procedural requirements must be adhered to, and failure to do so renders the notice invalid. The show cause notice was therefore liable to be quashed on this ground alone. Treatment of competing arguments: While the Respondents sought time to file reply and oppose admission, no substantive rebuttal to this procedural non-compliance was recorded at the interim stage. Conclusions: The Court found a prima facie case that the show cause notice was invalid for non-compliance with Rule 142. Issue 2: Jurisdictional Validity of the Show Cause Notice under Section 74 in the Absence of Alleged Tax Evasion Relevant legal framework and precedents: Section 74 is triggered only when evasion of tax is alleged. The judgment in CC, CE & ST Bangalore (Adj.) Vs. Northern Operating Systems Private Limited clarified that invocation of Section 74 requires material evidence of fraud, wilful misstatement, or suppression of facts to evade tax. CBIC Instruction No. 05/2023-GST dated 13.12.2023 reinforced this by mandating that such evidence be part of the show cause notice. Court's interpretation and reasoning: The Court observed that the impugned show cause notice did not allege tax evasion but rather alleged circular trading, with GST paid at every stage. Thus, the issuance of a notice under Section 74 was without jurisdiction. Key evidence and findings: The show cause notice itself was examined and found lacking any allegation of tax evasion. The petitioners' submissions and reliance on authoritative instructions supported this finding. Application of law to facts: The Court applied the principle that jurisdiction must be exercised strictly as per statutory provisions and that absence of tax evasion allegations precludes use of Section 74. Treatment of competing arguments: Respondents did not substantively contest this point at the interim stage. Conclusions: The Court held that the show cause notice under Section 74 was issued without jurisdiction. Issue 3: Validity of the Common Final Order dated 21.01.2025 passed during Pendency of Petitions Relevant legal framework and precedents: The principle "sublato fundamento cadit opus" (foundation being removed, structure falls) was invoked. Judicial precedents including State of Punjab Vs. Debender Pal Singh, Badrinath v. State of Tamil Nadu, State of Kerala v. Puthenkavu N.S.S. Karayogam, and State of Orissa & Others Vs. Mamata Mohanty establish that if the initial order is illegal, all subsequent orders based thereon are void. Court's interpretation and reasoning: Since the show cause notice was without jurisdiction and violated mandatory procedural requirements, the subsequent common final order passed on 21.01.2025 is non est (void). The Court emphasized that illegality at inception cannot be validated by subsequent actions. Key evidence and findings: The final order was passed without affording the petitioners opportunity to file reply post amendment and during the pendency of the petitions challenging the notice itself. Application of law to facts: The Court applied the principle that all consequential proceedings flowing from an invalid foundational order must also fall. Treatment of competing arguments: Respondents did not file reply or substantively oppose the amendment or challenge to the final order at the interim stage. Conclusions: The Court found a prima facie case that the common final order was invalid and liable to be stayed. Issue 4: Violation of Principles of Natural Justice Due to Denial of Cross-Examination Relevant legal framework and precedents: The right to cross-examine witnesses is a fundamental aspect of natural justice. Reliance was placed on Andaman Timber Industries Vs Commissioner of Central Excise and Nishad K.U Vs. Joint Commissioner, Central Tax and Central Excise, which held that denial of such an opportunity vitiates the order. Court's interpretation and reasoning: The petitioners' repeated requests to cross-examine witnesses were denied, violating the audi alteram partem principle. This procedural infirmity rendered the common final order bad in law. Key evidence and findings: Record showed multiple requests for cross-examination by petitioners which were not granted. Application of law to facts: The Court applied settled principles that denial of opportunity to cross-examine is a breach of natural justice and affects the validity of the order. Treatment of competing arguments: No counter-arguments were recorded from the Respondents at the interim stage. Conclusions: The Court found this ground further strengthened the case for interim relief and ultimate quashing of the final order. Issue 5: Grant of Interim Relief in the Form of Stay of the Common Final Order Court's reasoning: Considering the prima facie invalidity of the show cause notice and the final order, coupled with violation of natural justice and the likelihood of irreparable harm to petitioners if the order is not stayed, the Court found it just and proper to grant interim relief. Application of law to facts: The Court balanced the interests and held that the petitioners would suffer irreparable injury without a stay, and the balance of convenience favored the petitioners. Conclusions: The Court admitted the petitions for final hearing and stayed the effect and operation of the common impugned final order dated 21.01.2025 pending adjudication. 3. SIGNIFICANT HOLDINGS "If initial action is not in consonance with law, all subsequent and consequential proceedings would fall through for the reason that illegality strikes at the root of the order." "The legal maxim 'sublato fundamento cadit opus' meaning thereby that foundation being removed, structure/work falls, comes into play and applies on all scores in the present case." "Only in the cases where the investigation indicates that there is material evidence of fraud or wilful misstatement or suppression of fact to evade tax on the part of the taxpayer, provisions of section 74(1) of CGST Act may be invoked for issuance of show cause notice, and such evidence should also be made a part of the show cause notice." "Failure to comply with mandatory provisions of Rule 142 of CGST Rules, 2017 renders the show cause notice invalid and liable to be quashed." "Denial of opportunity to cross-examine witnesses relied upon by the authorities is violative of principles of natural justice and renders the order bad in law." Final determinations included admission of the petitions for final hearing, stay of the common final order dated 21.01.2025, and directions for the Respondents to file reply with rejoinder by the petitioners thereafter.
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