Kerala HC: Article 226 Cannot Be Invoked Against GST SCN Issued U/S 74 at Preliminary Stage

The Kerala High Court has ruled that Article 226 cannot be invoked against a show cause notice issued u/s 74 of the CGST Act at a preliminary stage.

“Article 226 of the Constitution of India is not meant to be used to break the resistance of the Revenue in this fashion. In the exercise of such jurisdiction, the High Court is required to refrain from issuing directions to the authorities under the taxation statute to decide issues in stages or on a preliminary basis,” remarked the Division Bench of Justices A.K. Jayasankaran Nambiar and Easwaran S.

In the same case, SCN was furnished mandating the taxpayers to show cause as to why an amount of Rs 4,88,56,298 will not be computed as short paid on detection of suppression of outward supply for the periods 2017-18 to 2023-24 and a further amount of Rs.11,85,843/- shall not be charged as flood cess.

The taxpayer/respondent has furnished a writ petition contesting the SCN issued u/s 74 of the CGST act.

It was ordered by a single judge that the authorities under the SGST Act, 2017 will consider the preliminary issue raised by the taxpayer against the invocation of Section 74 thereof, especially concerning the opinion of the petitioner/assessee that a part of the alleged suppressed turnover belongs to a separate entity belonging to her husband with a separate registration.

The department dissatisfied with the aforesaid order has submitted the plea arguing that the scheme of the CGST Act/SGST Act does not envisage separate orders being passed in the nature which has been directed by the Single Judge.

After encountering Section 74 of the CGST Act/SGST Act the bench noted that no provisions allow either the taxpayer to claim for the adjudication in phases nor has any authority been granted to the proper officer to adjudicate the lis in stages.

The bench said that “the power of the High Court under Article 226 of the Constitution of India cannot be invoked by the assessee, who is faced with a notice under Section 74 seeking a part adjudication of the lis, which is pending before the proper officer. Of course, in a given situation, when it is alleged that there is a total lack of jurisdiction in issuance of the show cause notice, the High Court may exercise its discretion in entertaining the writ petition. But, as a general rule, the writ petition against the issuance of a show cause notice under Section 74 of the CGST Act/SGST Act cannot be entertained.”

It was ruled by the bench that the jurisdiction of the High Court under Article 226 of the Constitution of India could not be permitted to be manipulated by those who could afford to wait to the detriment of those who cannot afford to wait by dragging the latter to the court for adjudication on peripheral issues, bypassing a decision on the problems more critical to them.

The bench in the aforesaid view has permitted the plea.