2025 (5) TMI 297 - HC - GST

Maintainability of petition - availability of alternative remedy - evasion of GST - issuance of bogus invoices to various firms which were either non-existent or non-operational in respect of packaging material/laminates - Opportunity of cross-examine not provided - violation of principles of natural justice - HELD THAT - The chronology of events in this case would show that the SCN itself was issued on 30th July 2024 however the first time a request was made for the RUDs is only on 16th December 2024 i.e. five months later. The SCN itself relates to the period 2017-18 onwards and in terms of the various notifications which have been issued by the Department the last date for passing the final order was 5th February 2025 in respect of the period 2017-18 which was well within the knowledge of the Petitioners and the Department. A perusal of the reply filed by the Petitioner would show that the Petitioners all along had all the requisite information to reply to the SCN however it chose not to file the same for almost six months. It was only when the personal hearing notice was given due to the imminent expiry of the limitation period for passing the order that the Petitioners have chosen to file a reply. The Petitioner only then raised objections in respect of RUDs and non-grant of opportunity for cross-examination. The Petitioners have clearly not been diligent in this matter. Moreover Mr. Ojha ld. SCC for the Department also submits that the insolvency proceedings have also been fraudulently initiated against the companies from whom the recoveries were to be made by the Department. Thus this is not a fit case for exercising extraordinary writ jurisdiction of this Court under Article 226 of the Constitution. The Petitioners are free to avail of their appellate remedies in accordance with law. If the appeal is filed within a period of 30 days from now along with the requisite pre-deposit the same shall be entertained on merits and not be dismissed on the ground of limitation. The observations made in this order shall not affect the adjudication of the appeal before the Appellate Authority.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the impugned Order-in-Original dated 31st January, 2025, raising a demand of over Rs. 550 crores against the Petitioners and others, is legally sustainable in light of the allegations of GST evasion through issuance of bogus invoices and diversion of goods.

- Whether the Petitioners were denied a fair opportunity of hearing, particularly regarding the supply of relied upon documents (RUDs) and cross-examination of witnesses whose statements were recorded during the investigation.

- Whether the Petitioners acted with due diligence in responding to the Show Cause Notice (SCN) and in seeking relevant documents and filing replies within the prescribed time limits.

- Whether the initiation of insolvency proceedings by the Petitioners against certain companies was bona fide or fraudulent, particularly in the context of recovery of dues by the Department.

- Whether the writ jurisdiction under Article 226 of the Constitution is exercisable in the present facts, or whether the Petitioners should be relegated to statutory appellate remedies.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality and Sustainability of the Impugned Order-in-Original

The legal framework governing the case is the Central Goods and Services Tax Act, 2017 (CGST Act), which empowers the Department to investigate and adjudicate cases of tax evasion, including issuance of bogus invoices and diversion of goods. The SCN dated 30th July, 2024, alleges that the Petitioners issued fake invoices for packaging materials/laminates to non-existent or non-operational firms, while the actual goods were diverted to paan masala and tobacco manufacturing units. The Department's investigation covered 286 entities, including the Petitioners, and involved verification of GSTIN statuses, physical searches, and scrutiny of transport and invoice documents.

The Court observed that the Department had conducted a thorough investigation, recording statements and issuing the SCN with detailed findings. The impugned order was passed after personal hearings and submission of replies by the Petitioners. The Department's case was supported by documentary evidence including cancelled GSTINs of purported firms, details of bogus depots and transporters, and invoices evidencing diversion of goods.

The Petitioners did not file any reply initially and sought extensions belatedly. When the hearing was fixed in January 2025, the Petitioners submitted a voluminous reply along with electronic records. The Court found that the Petitioners had access to requisite information and documents much earlier, and the delay in filing the reply was not justified. The Department's contention that the insolvency proceedings were fraudulently initiated to frustrate recovery was also noted.

Applying the law to facts, the Court held that the impugned order was passed within the statutory limitation period and based on cogent evidence. The Petitioners' conduct did not warrant interference with the order under writ jurisdiction.

Issue 2: Denial of Opportunity to Access RUDs and Cross-Examination

The Petitioners contended that they were not supplied all relied upon documents and were denied the opportunity to cross-examine witnesses whose statements were recorded. The legal principle mandates that a party must be given a fair opportunity to defend itself, including access to evidence relied upon and an opportunity to test such evidence.

However, the Court noted that the Petitioners sought RUDs only on 16th December, 2024, nearly five months after the SCN was issued, and after a prolonged period of inaction. The Department submitted that most RUDs were already in the Petitioners' possession, being part of other proceedings such as insolvency cases. The Court observed that the Petitioners' delay in seeking documents and filing replies was not bona fide and that the opportunity for personal hearing was granted on multiple dates.

The Court held that the Petitioners had sufficient opportunity to present their case and that the delay and belated objections could not be allowed to vitiate the proceedings. The absence of cross-examination was not fatal given the documentary nature of evidence and the procedural safeguards observed.

Issue 3: Diligence of Petitioners in Responding to SCN and Filing Replies

The chronology revealed that the Petitioners first sought extension on 26th August, 2024, but then remained silent for over three months before requesting RUDs. The final reply was filed only on 28th January, 2025, close to the expiry of the limitation period for adjudication of the tax period in question (2017-18).

The Court emphasized the principle of due diligence in responding to statutory notices and the requirement of timely cooperation with tax authorities. The Petitioners' conduct was characterized as dilatory and lacking bona fides. The Court rejected the argument that the Petitioners were denied a fair chance due to procedural lapses on the Department's part.

Issue 4: Bona Fides of Insolvency Proceedings Initiated by Petitioners

The Department alleged that the Petitioners initiated insolvency proceedings against certain companies fraudulently, aiming to evade tax recovery. The Court noted this contention but did not delve deeply into the insolvency proceedings' merits, as these are subject to separate adjudication.

However, the Court observed that the insolvency proceedings had been initiated after the investigation and SCN issuance, and that the Department's concerns about fraudulent initiation were relevant to the overall assessment of the Petitioners' conduct and intent.

Issue 5: Exercise of Writ Jurisdiction under Article 226

The Court held that the present case did not warrant interference under Article 226 of the Constitution. The impugned order was passed in accordance with law, within limitation, and after affording opportunity of hearing. The Petitioners have statutory appellate remedies available under the CGST Act.

The Court directed that if the Petitioners file an appeal within 30 days with the requisite pre-deposit, the appeal shall be entertained on merits without dismissal on limitation grounds. The observations made in the writ petition would not bind the Appellate Authority, which shall decide the appeal independently.

3. SIGNIFICANT HOLDINGS

"The Petitioners all along had all the requisite information to reply to the SCN, however, it chose not to file the same for almost six months."

"The request made by the Petitioner on 16th December, 2024, for the first time, seeking documents is highly belated and, in any event, not bona fide conduct."

"This is not a fit case for exercising extraordinary writ jurisdiction of this Court under Article 226 of the Constitution."

"If the appeal is filed within a period of 30 days from now along with the requisite pre-deposit, the same shall be entertained on merits and not be dismissed on the ground of limitation."

Core principles established include the necessity of timely and diligent response to SCNs, the sufficiency of opportunity afforded by personal hearings and document supply, and the limitation on writ interference where statutory remedies are available and invoked.

Final determinations were that the impugned order was validly passed, the Petitioners were not denied fair opportunity, their conduct was dilatory and not bona fide, and the writ petition was dismissed with liberty to pursue appellate remedies.