2025 (6) TMI 1420 - HC - GST

Valid issuance of SCN or not - right to cross-examine - violation of principles of natural justice - HELD THAT - This Court is of the view that under the CGST Act a show cause notice has been issued by the competent authorities and the petitioner would always be at liberty to raise the ground as to whether the provision under Section 122(1A) of the CGST Act is attracted or not or in any manner has no foundation before the adjudicating authority. In this regard the Hon ble Supreme Court from time to time reiterated the aforesaid principle(s) that the High Court should be reluctant to interfere against mere issuance of show cause notice. In the matter of Kunisetty Satyanarayana 2006 (11) TMI 543 - SUPREME COURT it was materially observed that It is well settled that a writ petition lies when some right of any party is infringed. A mere showcause notice or charge-sheet does not infringe the right of any one. It is only when a final order imposing some punishment or otherwise adversely affecting a party is passed that the said party can be said to have any grievance. Conclusion - On perusal of the show cause notice and the relevant provisions of the CGST Act and taking into consideration all the aspects of the matter this Court is reluctant to interfere in the matter at this juncture as no case is made out in favour of the petitioners. However the petitioners are at liberty to raise all such grounds before the competent adjudicating authority. If the petitioners wish to cross-examine any of the witnesses he may file an appropriate application in accordance with law before the competent authority. Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

- Whether the show cause notice dated 28.03.2024 issued under Sections 74 and 122(1A) of the Central Goods and Services Tax Act, 2017 (CGST Act) is valid and within jurisdiction, given that Section 122(1A) was inserted with effect from 01.01.2021, and the alleged tax liability pertains to an earlier period.

- Whether the petitioners are entitled to quash or set aside the show cause notice on grounds of vagueness and non-application of the relevant penal provisions.

- Whether the petitioners have the right to cross-examine the witnesses whose statements were relied upon in the show cause notice.

- Whether the writ petition under Article 226 of the Constitution of India is maintainable at this stage against the issuance of a mere show cause notice or whether the petition is premature and the petitioners should raise their objections before the adjudicating authority.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity and Jurisdiction of the Show Cause Notice under Section 122(1A) CGST Act

Relevant legal framework and precedents: Section 122(1A) of the CGST Act was introduced by the Finance Act, 2020, effective from 01.01.2021. It prescribes a penalty equivalent to the tax evaded or input tax credit availed or passed on, for persons retaining the benefit of certain transactions. The petitioners contend that since the alleged tax liability relates to a period prior to the effective date of Section 122(1A), the show cause notice issued invoking this provision is without jurisdiction.

Court's interpretation and reasoning: The Court recognized the petitioners' submission regarding the temporal applicability of Section 122(1A). However, it observed that the petitioners are free to raise this ground before the adjudicating authority. The Court emphasized that the issuance of a show cause notice itself does not amount to an adverse order and does not infringe any right unless passed by an authority lacking jurisdiction. The Court relied on the principle that writ jurisdiction should be exercised sparingly at the stage of a mere show cause notice.

Key evidence and findings: The show cause notice was issued under Sections 74 and 122(1A) of the CGST Act for the period April 2018 to March 2021. The petitioners had earlier paid a substantial taxable liability under duress during search proceedings. The Court noted that the petitioners have not yet exhausted the statutory adjudicatory process.

Application of law to facts: The Court held that the question of applicability of Section 122(1A) to the relevant period is a matter for the adjudicating authority to decide after considering the petitioners' reply and evidence. The Court declined to interfere at the show cause notice stage.

Treatment of competing arguments: While the petitioners argued lack of jurisdiction and vagueness, the respondents contended that the petitioners have not exhausted alternate remedies and that the adjudicating authority is competent to decide these issues. The Court sided with the respondents on the principle of non-interference at the notice stage.

Conclusion: The Court declined to quash the show cause notice on jurisdictional grounds, leaving the petitioners free to raise the issue before the adjudicating authority.

Issue 2: Right to Cross-examination of Witnesses Whose Statements Were Relied Upon

Relevant legal framework and precedents: The CGST Act provides for recording statements under Section 70 and the right to cross-examine witnesses during adjudication proceedings. The petitioners sought an opportunity to cross-examine three witnesses whose statements formed the basis of the show cause notice.

Court's interpretation and reasoning: The Court acknowledged the petitioners' entitlement to cross-examination as part of the principles of natural justice. It noted that the respondents did not object to providing such an opportunity if the petitioners filed an appropriate application before the adjudicating authority.

Key evidence and findings: The petitioners had requested cross-examination on 23.08.2024, but no opportunity was granted. The Court observed that the petitioners should first file their reply within 15 days of the order and then seek cross-examination within 7 days thereafter.

Application of law to facts: The Court directed the petitioners to comply with the procedural requirements and file an application for cross-examination before the competent authority, which shall decide the application in accordance with law.

Treatment of competing arguments: The respondents did not oppose cross-examination as per law, and the Court emphasized adherence to due process rather than preemptive judicial intervention.

Conclusion: The Court granted liberty to the petitioners to seek cross-examination through proper application before the adjudicating authority.

Issue 3: Maintainability of Writ Petition Against a Mere Show Cause Notice

Relevant legal framework and precedents: The Supreme Court has consistently held that writ petitions under Article 226 challenging a mere show cause notice or charge-sheet are generally premature and not maintainable, unless the issuing authority lacks jurisdiction. The Court cited authoritative precedents emphasizing that a show cause notice does not affect any right or cause of action until a final adverse order is passed.

Court's interpretation and reasoning: The Court reiterated that the issuance of a show cause notice is an initial step in the adjudicatory process and does not warrant judicial interference. It referred to the principle that the petitioners have an efficacious alternative remedy of raising all grounds before the adjudicating authority and, if aggrieved, by filing an appeal.

Key evidence and findings: The petitioners had participated in proceedings and had not demonstrated that the issuing authority lacked jurisdiction. The Court found no exceptional circumstances warranting interference at this stage.

Application of law to facts: The Court declined to entertain the writ petition challenging the show cause notice, holding it to be premature and emphasizing the need for the petitioners to pursue statutory remedies.

Treatment of competing arguments: The petitioners sought early judicial intervention citing vagueness and illegality, whereas the respondents urged adherence to procedural hierarchy and exhaustion of remedies. The Court upheld the latter approach.

Conclusion: The writ petition was held to be premature and not maintainable against the mere issuance of the show cause notice.

3. SIGNIFICANT HOLDINGS

- "The reason why ordinarily a writ petition should not be entertained against a mere show-cause notice or charge-sheet is that at that stage the writ petition may be held to be premature. A mere charge-sheet or show-cause notice does not give rise to any cause of action, because it does not amount to an adverse order which affects the rights of any party unless the same has been issued by a person having no jurisdiction to do so."

- "Writ jurisdiction is discretionary jurisdiction and hence such discretion under Article 226 should not ordinarily be exercised by quashing a show-cause notice or charge sheet."

- The Court established the principle that challenges to the jurisdiction or applicability of penal provisions invoked in a show cause notice are to be raised before the adjudicating authority and not at the notice stage.

- The petitioners have the right to cross-examine witnesses whose statements are relied upon, but must follow the prescribed procedure by filing an application before the competent authority.

- The Court emphasized that the High Court's jurisdiction is not ousted by the issuance of a vague show cause notice, but interference is not warranted unless jurisdictional defects exist or final adverse orders are passed.

- Final determination on each issue was that the writ petition was premature and not maintainable against the show cause notice; the petitioners are entitled to raise all grounds and seek cross-examination before the adjudicating authority; and the Court declined to quash the show cause notice on jurisdictional or vagueness grounds at this stage.