2025 (7) TMI 205 - HC - GST

Challenge to pre-show cause notice issued in Form GST DRC-01A threatening to invoke proceedings u/s 74 of the WBGST/CGST Act 2017 in respect of the tax period 2019-21 - HELD THAT - Noting that the petitioner seeks to bring the pre-show cause notice dated 19th July 2024 to a logical conclusion and considering the fact that the consideration on the pre-show cause notice is pending for nearly a year at this stage it would be prudent to direct the proper officer to decide on the pre-show cause notice on the basis of the response filed by the petitioner and if the proper officer is of the view that the pre-show cause notice need not to be proceeded the proper officer should drop the proceedings. On the contrary if he is of the view that a notice u/s 73(1) or 74(1) of the said Act should be issued he shall forthwith issue the same. Considering the peculiar facts and noting that the matter has been pending before this Court and noting that the pre-show cause notice remains outstanding for a year in the event the proper officer is of the view that the pre-show cause notice is required to be issued u/s 73(1) of the said act the petitioner shall be entitled to benefit of the Scheme introduced under Section 128 of the said Act provided the petitioner complies with all formalities and applies before the authority within 48 hours from the date of issue of such notice. The writ petition is disposed of.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

• Whether the issuance of the pre-show cause notice dated 19th July 2024 in Form GST DRC-01A, threatening proceedings under Section 74 of the WBGST/CGST Act, 2017, is valid and can be challenged in the writ petition.
• Whether the petitioner is entitled to the benefit under Section 128A of the said Act, which requires issuance of a notice under Section 73(1) of the Act.
• The propriety and legality of the respondents' conduct in delaying or refraining from taking further steps after issuance of the pre-show cause notice, potentially frustrating the petitioner's rights.
• The appropriate course of action regarding the pending pre-show cause notice and the issuance of any subsequent notices under Sections 73(1) or 74(1) of the Act.
• The applicability and conditions for the petitioner to avail the benefit under the Scheme introduced under Section 128 of the Act in the context of the pending proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Validity and challenge to the pre-show cause notice under Section 74:

The legal framework involves the provisions of the WBGST/CGST Act, 2017, particularly Sections 73 and 74 which govern tax recovery and proceedings related to tax evasion or short payment. Section 74 deals with cases of tax evasion involving fraud or willful misstatement.

The petitioner filed a writ petition challenging the pre-show cause notice issued under Section 74, contending that no further steps have been taken by the respondents to proceed with the matter. The petitioner's counsel asserted that the absence of a notice under Section 73(1) precludes the petitioner from seeking benefits under Section 128A.

The Court noted that the pre-show cause notice had been pending for nearly a year without resolution, which raised concerns about the respondents' conduct potentially frustrating the petitioner's statutory rights. The Court emphasized the need for the matter to be brought to a logical conclusion.

The respondents did not admit the allegations made in the writ petition, as no affidavits were called for, indicating that the challenge to the pre-show cause notice was not conceded.

Entitlement to benefit under Section 128A and requirement of notice under Section 73(1):

Section 128A of the Act provides a scheme for compounding or settlement of certain tax disputes, which is contingent upon the issuance of a notice under Section 73(1) or 74(1). The petitioner's entitlement to this benefit depends on the proper issuance of such a notice.

The petitioner argued that without a Section 73(1) notice, the benefit under Section 128A cannot be availed, and the respondents' failure to issue such notice frustrates this right.

The Court acknowledged this submission and directed that if the proper officer considers that a notice under Section 73(1) or 74(1) is necessary, it should be issued forthwith. Conversely, if the proper officer finds no basis to proceed, the proceedings should be dropped.

Delay and conduct of respondents in pending pre-show cause notice:

The Court observed that the pre-show cause notice had remained outstanding for a year without resolution, which was an undue delay. Such delay was viewed as detrimental to the petitioner's ability to exercise statutory rights.

To remedy this, the Court ordered the proper officer to decide on the pre-show cause notice within two working days of receipt of the Court's order, thereby ensuring expeditious disposal.

Directions regarding issuance of notice and application of Section 128 Scheme:

The Court directed that if the proper officer decides that a notice under Section 73(1) is warranted, the petitioner would be entitled to the benefit of the Scheme under Section 128, provided the petitioner complies with all formalities and applies to the authority within 48 hours from the date of issuance of such notice.

This direction was framed considering the peculiar facts of the case and was expressly stated not to be a precedent.

Treatment of competing arguments and final disposition:

The petitioner's argument that the respondents' conduct was aimed at frustrating statutory rights was accepted to the extent that the Court found it necessary to direct immediate action by the proper officer to avoid prejudice.

The respondents' position was that no affidavits were filed, and thus allegations were not admitted, but the Court nonetheless proceeded to ensure procedural fairness and timely decision-making.

The writ petition was disposed of with these directions, emphasizing the need for prompt administrative action rather than adjudicating the substantive merits of the tax dispute at this stage.

3. SIGNIFICANT HOLDINGS

The Court held:

"Having regard to the fact that the consideration on the pre-show cause notice is pending for nearly a year, it would be prudent to direct the proper officer to decide on the pre-show cause notice on the basis of the response filed by the petitioner and if the proper officer is of the view that the pre-show cause notice need not be proceeded, the proper officer should drop the proceedings. On the contrary if he is of the view that a notice under Section 73(1) or 74(1) of the said Act should be issued, he shall forthwith issue the same."

"In the event the proper officer is of the view that the pre-show cause notice is required to be issued under Section 73(1) of the said act, the petitioner shall be entitled to benefit of the Scheme introduced under Section 128 of the said Act provided the petitioner complies with all formalities and applies before the authority within 48 hours from the date of issue of such notice."

Core principles established include the requirement of timely administrative action on pending notices to protect statutory rights, the conditional entitlement to benefit under Section 128A subject to issuance of proper notices under Sections 73(1) or 74(1), and the Court's supervisory role in ensuring procedural fairness without pre-empting substantive tax adjudication.

The final determination was that the writ petition