2025 (3) TMI 824 - HC - GST

Denial to entertain the writ petition only on the ground that petitioner alone cannot be singled out in the circular trading adjudication for the purpose of quashing of SCN - it is submitted that this petition may kindly be restored so that petitioner can also challenge the final order passed by adjudicating authority by way of amendment in writ petition along with other four assessee s - HELD THAT - It is correct that issue of circular trading is liable to be decided in presence of all the five assessee s hence in order to participate along with four other assessee s the petition is liable to be restored in view of change circumstance. In view of the above the order 17.12.2024 is hereby recalled and the writ petition no.8015/2024 is restored to its original number. The review petition is disposed off.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the issuance of the show cause notice under Section 74 of the CGST Act, 2017, without complying with Rule 142 of the CGST Rules, 2017, renders the notice invalid.
• Whether the show cause notice was issued without jurisdiction due to the absence of allegations of tax evasion in cases of circular trading.
• Whether the final order issued during the pendency of the writ petitions violates principles of natural justice due to the denial of the right to cross-examine witnesses.
• Whether the writ petition should be restored to allow the petitioner to challenge the final order along with other assessees.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Show Cause Notice under Section 74 of the CGST Act, 2017

Legal Framework and Precedents: The CGST Act, 2017, under Section 74, allows for the issuance of show cause notices in cases of tax evasion. Rule 142 of the CGST Rules mandates that such notices be uploaded electronically. Precedents cited include judgments from various High Courts emphasizing the necessity of compliance with Rule 142.

Court's Interpretation and Reasoning: The Court considered the petitioners' argument that non-compliance with Rule 142 invalidates the show cause notice. It referenced prior judgments supporting this view, emphasizing the importance of electronic compliance.

Key Evidence and Findings: The show cause notice was not uploaded electronically, which the petitioners argued was a mandatory requirement.

Application of Law to Facts: The Court found that the failure to comply with Rule 142 could render the notice invalid, aligning with the petitioners' argument.

Treatment of Competing Arguments: The respondents sought more time to file a reply, but the Court emphasized the urgency and prima facie case in favor of the petitioners.

Conclusion: The Court acknowledged the potential invalidity of the notice due to non-compliance with Rule 142.

2. Jurisdictional Issue Regarding Allegations of Tax Evasion

Legal Framework and Precedents: Section 74 is applicable where tax evasion is alleged. The petitioners argued that circular trading, as alleged, did not involve tax evasion since GST was paid at each step.

Court's Interpretation and Reasoning: The Court considered the argument that without allegations of tax evasion, the jurisdiction under Section 74 was improperly invoked.

Key Evidence and Findings: The show cause notice lacked specific allegations of tax evasion, focusing instead on circular trading.

Application of Law to Facts: The Court found merit in the argument that the notice was issued without proper jurisdiction.

Treatment of Competing Arguments: The Court noted the respondents' failure to address this issue adequately.

Conclusion: The Court found the jurisdictional challenge to be substantial.

3. Principles of Natural Justice and Right to Cross-Examine

Legal Framework and Precedents: The principles of natural justice require that parties be allowed to cross-examine witnesses. The petitioners cited relevant case law supporting this right.

Court's Interpretation and Reasoning: The Court recognized the denial of cross-examination as a violation of natural justice.

Key Evidence and Findings: The petitioners were not afforded the opportunity to cross-examine witnesses, despite requests.

Application of Law to Facts: The Court found the final order procedurally flawed due to this denial.

Treatment of Competing Arguments: The respondents did not adequately justify the denial of cross-examination.

Conclusion: The Court determined the final order was issued in violation of natural justice.

4. Restoration of the Writ Petition

Legal Framework and Precedents: The Court considered the necessity of joint adjudication in cases involving multiple assessees to ensure consistency and fairness.

Court's Interpretation and Reasoning: The Court acknowledged the changed circumstances and the need for the petitioner to challenge the final order alongside other assessees.

Key Evidence and Findings: The interconnected nature of the cases warranted a joint hearing.

Application of Law to Facts: The Court found that restoring the petition was justified to allow comprehensive adjudication.

Treatment of Competing Arguments: The Court considered the petitioner's request favorably in light of procedural fairness.

Conclusion: The Court restored the writ petition to its original number.

SIGNIFICANT HOLDINGS

The Court held that:

• The show cause notice's validity is questionable due to non-compliance with Rule 142 of the CGST Rules, 2017.
• The jurisdiction under Section 74 of the CGST Act, 2017, was improperly invoked due to the absence of tax evasion allegations.
• The denial of the right to cross-examine witnesses violated principles of natural justice, rendering the final order procedurally flawed.
• The writ petition was restored to allow the petitioner to challenge the final order alongside other assessees, ensuring comprehensive adjudication.

Core Principles Established:

• Compliance with procedural rules, such as Rule 142, is crucial for the validity of show cause notices.
• Jurisdictional prerequisites, such as allegations of tax evasion, must be met for invoking specific statutory provisions.
• Principles of natural justice, including the right to cross-examine, are fundamental in adjudicatory processes.
• Joint adjudication may be necessary in interconnected cases to ensure fairness and consistency.