2025 (5) TMI 1893 - HC - GST

Violation of principles of natural justice - SCN not served upon petitioner - no hearing notices have been served upon the Petitioner - HELD THAT - The Petitioner was well-aware of the search and the investigation that was going on. The Petitioner did not choose to file any reply to the notice or give any explanation as to the manner in which the sales were made including any justification to show that the invoices were not goods-less or that there was actual supply of goods. Even the hearing notices have been issued repeatedly. This Court therefore is satisfied that the Principles of Natural Justice have been sufficiently complied with. Moreover in the cases of similarly placed Petitioners the said parties have already been relegated to the Appellate remedy. The Supreme Court in Assistant Commissioner of State Tax Ors. v. M/s Commercial Steel Limited 2021 (9) TMI 480 - SUPREME COURT has held that it is only in extra-ordinary circumstances that writ petitions are to be entertained. In the present case the second email which has been produced by the Department was not even placed on record in the writ petition. It is evident that the Petitioner must have received these emails and there prima facie appears to be no reason to disbelieve the assertion of the GST Department that the said notice was duly issued. The Petitioner having chosen not to file any reply and having not attended the hearing or taken any steps to place its stand on record after the search and investigation having been conducted has clearly not demonstrated bona fides. Conclusion - This Court is not inclined to entertain the present writ petition as both the grounds (i) lack of clean hands and (ii) the need for factual adjudication stand clearly established. However the Petitioner is free to avail of its remedies in accordance with law under Section 107 of the CGST Act. Petition disposed off.

Summary

The core legal questions considered in this judgment revolve around the following issues:

1. Whether the Principles of Natural Justice were breached due to non-service of the Show Cause Notice (SCN) and hearing notices upon the Petitioner.

2. Whether the writ petition under Article 226 of the Constitution is maintainable in the context of allegations of fraudulent availment of Input Tax Credit (ITC) and the availability of alternate statutory remedies under the Central Goods and Services Tax (CGST) Act, 2017.

3. The applicability and scope of writ jurisdiction in cases involving complex factual disputes related to tax evasion and fraudulent ITC claims.

4. The sufficiency and validity of the service of notices by the Department via email and the Petitioner's responsibility to respond or appear for hearings.

Issue-wise detailed analysis:

Issue 1: Breach of Principles of Natural Justice-Service of SCN and Hearing Notices

The legal framework governing this issue includes the fundamental tenets of natural justice, which require that a party be given notice of allegations and an opportunity to be heard. The CGST Act provides for issuance of SCNs and hearing notices, which must be duly served on the concerned parties.

The Court examined the evidence regarding service of the SCN and hearing notices. The Department produced emails sent on 26th May 2022 to two email addresses associated with the Petitioner, containing the SCN and relevant documents. Additionally, hearing notices were issued on three separate dates in January 2025, each duly generated with Document Identification Numbers (DINs).

The Petitioner contended that the SCN email was received in the junk folder from a different email address and thus was not properly served. However, the Court found this argument insufficient, noting the Department's multiple attempts to serve notices via recognized electronic modes, which is an accepted method of service under the law.

The Petitioner was aware of the search and investigation, yet failed to file any reply or attend hearings. The impugned order noted repeated opportunities for personal hearings, which the Petitioner did not avail. The Court relied on the impugned order's findings that the Petitioner's conduct was evasive and that the Principles of Natural Justice were complied with by the Department through issuance of notices and opportunities for hearing.

The Court concluded that the service of SCN and hearing notices was valid and that there was no breach of natural justice.

Issue 2: Maintainability of Writ Petition under Article 226 in Light of Alternate Remedies

The CGST Act provides a statutory appellate remedy under Section 107 for aggrieved parties to challenge orders passed by tax authorities. The Court referred to binding precedents, including a Supreme Court decision, which held that writ petitions under Article 226 are generally not maintainable where alternate statutory remedies exist, except in exceptional circumstances such as breach of fundamental rights, violation of natural justice, excess of jurisdiction, or challenge to the vires of the statute.

In the present case, none of these exceptions were established. The Court emphasized that the Petitioner had a statutory remedy available and had not demonstrated any extraordinary circumstance warranting writ jurisdiction. The Court also noted previous related writ petitions involving similar facts had been dismissed with directions to pursue appellate remedies.

The Court underscored that writ jurisdiction is an extraordinary remedy and should not be exercised to circumvent the statutory appellate mechanism, particularly in complex tax matters involving factual disputes and allegations of fraud.

Issue 3: Scope of Writ Jurisdiction in Cases Involving Fraudulent ITC Claims and Complex Factual Disputes

The Court analyzed the nature of the allegations against the Petitioner, which involved fraudulent availment of ITC by generating fake invoices without actual supply of goods, causing substantial loss to the Revenue. The Court reiterated the importance of the ITC mechanism under Section 16 of the CGST Act as a business-friendly feature designed to avoid cascading taxation but susceptible to misuse.

Drawing from precedent judgments, the Court held that writ jurisdiction is inappropriate for adjudicating complex factual disputes involving tax evasion and fraudulent transactions. Such matters require detailed factual inquiry and evidence evaluation, which are beyond the scope of writ proceedings.

The Court also noted that allowing multiple remedies before different forums could lead to multiplicity of litigation and contradictory findings, which is undesirable.

The Court found that the Petitioner's failure to respond or appear for hearings, coupled with the serious nature of allegations, demonstrated lack of bona fides and justified declining writ relief.

Issue 4: Validity of Electronic Service of Notices and Petitioner's Responsibility

The legal framework recognizes electronic communication, including email, as a valid mode of service for notices under the CGST regime. The Department's evidence of multiple emails sent to the Petitioner's known email addresses, along with generation of DINs for hearing notices, satisfied the requirement of valid service.

The Petitioner's claim that the SCN was received in the junk folder was insufficient to negate the presumption of proper service. The Court emphasized that the Petitioner was aware of the investigation and search, and had ample opportunity to respond or seek hearings but failed to do so.

The Court applied the principle that a party cannot remain passive and later claim non-service when notices have been sent through recognized channels and the party has knowledge of proceedings.

Significant holdings:

"It is evident that the Principles of Natural Justice have been legally and dutifully complied with, the Noticees have failed to avail the opportunity. I accordingly proceed further to decide the case on merits."

"The existence of an alternate remedy is not an absolute bar to the maintainability of a writ petition under Article 226 of the Constitution. But a writ petition can be entertained in exceptional circumstances where there is (i) a breach of fundamental rights; (ii) a violation of the principles of natural justice; (iii) an excess of jurisdiction; or (iv) a challenge to the vires of the statute or delegated legislation. In the present case, none of the above exceptions was established."

"The entire concept of Input Tax Credit, as recognized under Section 16 of the CGST Act, is for enabling businesses to get input tax on the goods and services which are manufactured/supplied by them in the chain of business transactions. The said facility is a major feature of the GST regime, which is business friendly and is meant to enable ease of doing business. However, this facility has been misused to avail ITC even when output tax is not deposited or when entities are non-existent."

"The Court, in exercise of its writ jurisdiction, cannot adjudicate upon or ascertain the factual aspects pertaining to what was the role played by the Petitioner... The persons involved in such transactions cannot be allowed to try different remedies before different forums, as this would result in multiplicity of litigation and contradictory findings."

"The Petitioner, having chosen not to file any reply and having not attended the hearing or taken any steps to place its stand on record after the search and investigation having been conducted, has clearly not demonstrated bona fides."

"The Petitioner is free to avail of its remedies in accordance with law under Section 107 of the CGST Act. If the appeal is filed within the stipulated time along with the pre-deposit, the same shall be adjudicated on merits and shall not be dismissed on the ground of being barred by limitation."

In conclusion, the Court upheld the validity of service of notices and hearings, rejected the writ petition on grounds of lack of clean hands and the need for factual adjudication, and relegated the Petitioner to the statutory appellate remedy under the CGST Act. The Court emphasized the importance of safeguarding the GST regime from fraudulent ITC claims and the necessity of following proper legal channels for dispute resolution.