2021 (11) TMI 157 - HC - GST

Validity of Show cause notice - jurisdiction - Inadmissible transitional credit - Education Cess (E Cess) - Secondary Higher Education Cess (SHE Cess) - Krishi Kalyan Cess (KK Cess) - petitioner claims that not only on the date of its issuance but even on the date this writ petition was presented, the amendment(s) referred to in the impugned notice had not come into force - HELD THAT - For sustaining the validity and/or legality of the impugned show-cause notice, the respondent no.3 could not have relied upon Explanation 3 exclusively to contend that cess is not included in eligible duties and taxes . As the law now stands, Explanation 3 does not have any application to sub-section (1) of Section 140. The respondent no.3 while issuing the impugned show cause notice perhaps overlooked this aspect and also that, parts of the amendments in Explanations 1 and 2 to Section 140 of the CGST Act sought to be introduced by sub-clauses (1) each of clauses (b) and (c) of Section 28 of the Amending Act are yet to be brought into force - A reference to Explanations 1 and 2, as it stands now, may be held to be mindless which, in law, would amount to issuance of a notice without due regard to the provisions of law as well as facts requiring existence or non-existence of a material fact for assumption of jurisdiction. We are conscious of the settled law that the High Court in exercise of its extra-ordinary jurisdiction under Article 226 of the Constitution of India ought not to interfere with a show-cause notice as a matter of routine or for the mere asking. However, it is only in a case where a show-cause notice is found to be totally non-est in the eyes of law for absolute want of jurisdiction of the authority issuing the notice to even investigate into the facts that the writ court may, instead of relegating the noticee to respond to the show-cause notice, itself examine the point of lack/want of jurisdiction. Perusal of the impugned show-cause notice would reveal assumption of jurisdiction by the respondent no.3 based on introduction of Explanation 3 to Section 140 of the CGST Act read with Explanations 1 and 2 thereof without showing application of mind as to whether the amended Explanations 1 and 2 have been made operational or not as well as whether Explanation 3 would at all apply to sub-section (1) of Section 140 of the CGST Act. There could have been little reason for us to interfere if assumption of jurisdiction by the respondent no.3 on the ground appearing from the impugned show-cause notice were shown to be defensible with reference those provisions of law, which have become operational by due exercise of power in terms of sub-section (2) of Section 1 of the Amending Act - Even otherwise, it has not been shown that upon introduction of Explanation 3 of Section 140 of the CGST Act read with partly un-amended Explanations 1 and 2 thereof, the respondent no.3 did have the jurisdiction to issue the impugned show-cause notice. The present case is one where the impugned show-cause notice suffers from an error going to the root of the jurisdiction of the respondent no.3 in assuming jurisdiction and is, accordingly, indefensible and liable to be set aside - Petition disposed off.

Summary

Issues Involved:
1. Validity of the show-cause notice dated August 27, 2019.
2. Jurisdiction of the authority to issue the show-cause notice.
3. Impact of the retrospective amendment to Section 140 of the CGST Act.
4. Application of Explanation 3 to Section 140 of the CGST Act.

Detailed Analysis:

1. Validity of the Show-Cause Notice:
The petitioner challenged the show-cause notice dated August 27, 2019, issued by the Joint Commissioner, CGST & C.Ex, Navi Mumbai. The notice alleged that the petitioner availed inadmissible transitional credit amounting to ?3,83,43,693/- in their Trans-1 filed on December 26, 2017. The petitioner argued that the notice was based on a retrospective amendment that had not come into force at the time of issuance, rendering the notice legally untenable and without jurisdiction.

2. Jurisdiction of the Authority to Issue the Show-Cause Notice:
The petitioner contended that the show-cause notice was issued on an erroneous legal premise, as the amendments to Explanations 1 and 2 of Section 140 of the CGST Act had not been brought into force. The respondent argued that the officer had the jurisdiction to issue the notice and that the petitioner should raise all defenses before the said officer. The court noted that the validity of the notice hinged on whether the amendments had been notified and brought into force.

3. Impact of the Retrospective Amendment to Section 140 of the CGST Act:
The court examined Section 28 of the Central Goods and Services (Amendment) Act, 2018, which introduced Explanation 3 to Section 140 of the CGST Act. The petitioner argued that without the amendments to Explanations 1 and 2 being operational, the notice was issued without jurisdiction. The court observed that Explanation 3, which excludes any cess not specified in Explanations 1 and 2, was introduced and made operational from February 1, 2019. However, the amendments to Explanations 1 and 2 were not brought into force, leading to a jurisdictional error in issuing the notice.

4. Application of Explanation 3 to Section 140 of the CGST Act:
The court compared the pre-amended and amended versions of Section 140 and its Explanations. It noted that Explanation 3 clarifies that "eligible duties and taxes" exclude any cess not specified in Explanations 1 and 2. The court found that the respondent no.3 could not rely solely on Explanation 3 to issue the show-cause notice, as the amendments to Explanations 1 and 2 were not operational. The court held that the notice was issued without due regard to the provisions of law and facts, amounting to a jurisdictional error.

Conclusion:
The court concluded that the show-cause notice suffered from an error going to the root of the jurisdiction of the respondent no.3 and was, therefore, indefensible and liable to be set aside. However, the court allowed the respondent no.3 the liberty to issue a fresh show-cause notice if there were valid grounds other than those assigned in the impugned notice. The writ petition was disposed of, and the interim application was also disposed of accordingly.