2025 (5) TMI 1982 - HC - GST

Wrongful availment of Input Tax Credit (ITC) - overvaluation of goods to claim export incentives - an earlier SCN concerning the same transaction between the Petitioner and another entity had already been adjudicated and set aside on appeal - HELD THAT - The Court is of the opinion that there cannot be a comparison between these two kinds of transactions. The impugned order is itself an appealable order under Section 107 of the CGST Act and therefore the Petitioner ought to avail of the appellate remedy before approaching this Court invoking its writ jurisdiction. The Petitioner at this stage submits that in the earlier round of litigation the Petitioner had deposited 10 percent of the demand as pre-deposit with the Appellate Authority. No refund has been taken of the said amount. It is prayed that the said amount be adjusted towards the pre-deposit to be made in respect of the appeal against the impugned order. Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the second show cause notice issued under Section 74 of the Central Goods and Services Tax Act, 2017 ("CGST Act") against the Petitioner in respect of alleged wrongful availment of Input Tax Credit ("ITC") based on transactions involving a network of firms is barred, given that an earlier show cause notice concerning the same transaction between the Petitioner and another entity had already been adjudicated and set aside on appeal.

- Whether the Petitioner was duly served with the second show cause notice and whether there was any procedural irregularity in the issuance and service of the notice.

- Whether the Petitioner can invoke writ jurisdiction under Articles 226 and 227 of the Constitution of India to quash the impugned order when an alternative remedy of appeal under Section 107 of the CGST Act is available.

- Whether the pre-deposit made by the Petitioner in the earlier round of litigation can be adjusted against the pre-deposit required for filing an appeal against the impugned order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the second show cause notice in light of the earlier adjudication

The legal framework relevant to this issue includes Section 74 of the CGST Act, which deals with the issuance of show cause notices for wrongful availment of ITC, and the appellate provisions under Section 107 of the Act. The Petitioner's counsel contended that since the first show cause notice and subsequent Order-in-Original pertained to the same transaction between the Petitioner's firm and M/s Radhey Enterprises, and that Order-in-Original was set aside on appeal, the second show cause notice on the same transaction is impermissible.

The Court noted that the first show cause notice was limited to specific transactions between the Petitioner and one entity, whereas the second show cause notice and impugned order concerned a much larger network of firms allegedly involved in fraudulent ITC claims aggregating over Rs. 1,000 crores. The Court emphasized that these two proceedings are distinct in scope and subject matter.

The Court reasoned that the second notice is not a mere reiteration of the first but addresses a broader and different set of transactions involving multiple entities, thereby not barred by the earlier adjudication. This interpretation aligns with the principle that separate transactions and distinct facts can give rise to independent proceedings even if some parties overlap.

Competing arguments were considered: the Petitioner's reliance on finality of the earlier adjudication versus the Department's contention of a wider fraud network justifying fresh proceedings. The Court found the Department's position persuasive given the scale and complexity of the alleged fraudulent scheme.

Conclusion: The second show cause notice is valid and not barred by the earlier adjudication, as it pertains to a different and broader set of transactions.

Issue 2: Service and receipt of the second show cause notice

The Petitioner contended non-receipt of the second show cause notice until shortly before the impugned order was passed, which could amount to denial of natural justice. The Department produced evidence that the notice was emailed on 27th July, 2024, uploaded on the GST portal, and that the Petitioner had filed a reply.

The Court observed that the Department's method of communication complied with procedural requirements and that the Petitioner had engaged with the notice by filing a response. Hence, the contention of non-service was rejected.

Conclusion: The service of the second show cause notice was proper and in accordance with law.

Issue 3: Availability of alternative remedy and appropriateness of writ jurisdiction

The Court noted that the impugned order is appealable under Section 107 of the CGST Act. The Petitioner had not yet availed the appellate remedy. The Court underscored the principle that when an efficacious alternative remedy exists, writ jurisdiction should not ordinarily be exercised to bypass it.

The Court directed the Petitioner to file an appeal by a specified date and clarified that the appeal shall be adjudicated on merits without being dismissed on limitation grounds, thereby safeguarding the Petitioner's rights.

Conclusion: The Petitioner must pursue the statutory appellate remedy before invoking writ jurisdiction.

Issue 4: Adjustment of earlier pre-deposit towards the current appeal

The Petitioner submitted that a 10% pre-deposit was made in the earlier appeal and sought its adjustment against the pre-deposit required for the current appeal. The Court accepted this submission and directed the adjustment to be made accordingly.

Conclusion: The earlier pre-deposit shall be adjusted towards the pre-deposit for the appeal against the impugned order.

3. SIGNIFICANT HOLDINGS

"The Court is of the opinion that there cannot be a comparison between these two kinds of transactions."

"The impugned order is itself an appealable order under Section 107 of the CGST Act and therefore, the Petitioner ought to avail of the appellate remedy before approaching this Court invoking its writ jurisdiction."

"Accordingly, it is directed that the earlier pre-deposit made with the Appellate Authority, be adjusted towards the pre-deposit for appeal against the impugned order."

Core principles established include:

• Distinct transactions involving different sets of entities and facts can be subject to separate proceedings even if some parties overlap.
• Proper service of show cause notices includes electronic communication and uploading on the GST portal, and filing a reply indicates acknowledgment.
• Availability of an efficacious statutory appellate remedy precludes the exercise of writ jurisdiction to quash orders.
• Pre-deposits made in earlier related proceedings can be adjusted against pre-deposits required in subsequent appeals to avoid multiplicity and hardship.

Final determinations:

• The second show cause notice and impugned order are valid and maintainable.
• The Petitioner was duly served with the notice and had opportunity to respond.
• The Petitioner must file an appeal against the impugned order, with the benefit of adjusted pre-deposit and protection against limitation objections.
• The writ petition is disposed of accordingly, leaving all substantive rights and contentions open for adjudication in the appellate forum.