TaxTMI 
TaxTMI 
TaxTMI 
I came across yet another interesting case law yesterday wherein by order dated 11/03/2026, the division bench of the High Court of Karnataka at Bengaluru had an occasion to examine the provisions contained in Section 74 in a beautiful manner. The taxpayer had his registered place of business at Bengaluru with several additional places of businesses duly registered within the State.
Background: An investigation conducted by the Mangalore Commissionerate of the appellants revealed alleged manipulation of invoices and e-way bills, as well as unauthorized transportation activities. It was further found that the goods were removed clandestinely by evading Goods and Services Tax (GST). As the taxpayer had business premises at various places within the State, the matter was referred to the jurisdictional authorities at Bengaluru Commissionerate and accordingly the show cause notice was issued by the proper officer by invoking Section 74.
Stage 1: The taxpayer approached the jurisdictional high court on issuance of show cause notice itself under the plea that the Mangalore Commissionerate is not the proper officer to conduct investigation and accordingly argued that SCN was issued on the concept of borrowed satisfaction which can not with stand. Accordingly, The learned Single Judge, upon examination of various decisions, held that the officers of the Mangalore Commissionerate, i.e., appellant No.2, were not 'proper officers' competent to undertake inspection, search and seizure, or to issue the show cause notice. The learned Single Judge further held that the issuance of a show cause notice under Section 74 of the CGST Act, founded upon search and seizure proceedings and statements recorded by an officer lacking jurisdiction, cannot be sustained in law. It was observed that such a notice cannot be issued on 'borrowed satisfaction.'
Stage 2: Aggrieved by the above order, revenue challenged the above order in the Karnataka High Court by filing intra - court appeal challenging the order dated 28.11.2024 passed in W.P. No.18305/2023 (T-RES) [M/s. Vigneshwara Transport Company Versus Additional Commissioner of Central Tax Bengaluru Commissioner Of Central Tax Mangaluru, Principal Commissioner Of Central Tax Bengaluru. - 2024 (12) TMI 1511 - KARNATAKA HIGH COURT]by the learned Single Judge.
Stage 3: The appeal filed by Revenue against the order of the single member bench was dealt in depth by the division bench which examined the case entirely based on the provisions contained in Section 74 and concluded in favour of revenue by holding that in is not necessary that investigation has to be essentially conducted only by the jurisdictional authorities. Incidentally, as there was an office of the taxpayer at Mangalore which was duly registered as additional place of business, the Mangalore GST officials had power to investigate the business premises at Mangalore and based on the input shared by Mangalore office of GST with Bangalore GST officials, the Show Cause Notice was issued by invoking Section 74. It was also argued by revenue that SCN was not issued exclusively based on inputs shared by other Commissionerate but including the recording of statements of concerned individuals. The material so collected corroborates the evidence gathered by the Mangalore Commissionerate.
Stage 4: The arguments of the revenue that the show cause notice was issued in an appropriate manner and it was pre mature stage to challenge the SCN in writ as they had the option to file reply to SCN and offer explanations during personal hearing. After careful examination of the submissions made by both the parties, the division bench concluded and passed orders by setting aside the order passed by the single member bench. The operative portions are reproduced as below:.
Operative Portion:
ORDER
(i) Writ appeal is allowed.
(ii) The impugned order dated order dated 28.11.2024 in WP No.18305/2023 (T-RES) is set aside.
(iii) The WP No.18305/2023 is dismissed.
(iv) The respondent-Assessee is granted 15 days time from today to file reply to the show cause notice.
(v) The appellants-Revenue are at liberty to proceed further with the show cause notice, in accordance with law.
vi) All contentions of both parties insofar as merits are kept open.
(vii) No orders as to costs.
Conclusion: Almost in several cases, the writs are preferred by taxpayers and mostly they are ruled in favour of taxpayer when it is established that the adjudication order was passed in an impermissible manner contrary to the provisions of law. But, this is a completely different case where revenue got the writ allowed in their favour. This happened only because the taxpayer was found involved in manipulation of invoices as well as e way bills.
Taxpayers may exercise due caution in compliance of law as when there are absolutely no intention to evade the payment of tax by the taxpayer, Section 73 is a wonderful section which saves the taxpayer on the grounds of limitation as well as lesser penalties. In the instant case Section 74 was applied properly and even the conditions for invoking Section 74 as contained in CBIC Instructions dated 13/12/2023 were satisfied. This is the main reason for revenue to win their case.