2021 (11) TMI 646 - HC - GST

High Court declines interference with show cause notice, questions CGST Act provision legality

The High Court of Bombay declined to interfere with a show cause-cum-demand notice challenged in a writ petition but issued notice to respondents ... Show cause-cum-demand notice - Interim relief against statutory show cause notice - Vires of section 16(2)(c) of the Central Goods and Services Tax Act, 2017 - Proceedings subject to outcome of writ petitionShow cause-cum-demand notice - Interim relief against statutory show cause notice - Special Director and anr. Vs. Mohd. Ghulam Ghouse and anr. - Whether interim relief should be granted to stay the show cause-cum-demand notice dated July 29, 2021. - HELD THAT: - The Court, having considered the petition and the authorities relied upon by the petitioners, declined to grant interim relief staying the impugned show cause-cum-demand notice. The Court recorded that prima facie there was no reason to interfere with the notice in view of the decision referenced in the judgment, and therefore did not exercise its discretionary power to restrain respondent no.1 from proceeding with the proceedings initiated by that notice. The petitioners were not summarily shut out, but were relegated to contest the notice before the assessing authority subject to the continued jurisdiction of the writ proceedings. [Paras 2]Interim relief refused; no stay of the show cause-cum-demand notice.Vires of section 16(2)(c) of the Central Goods and Services Tax Act, 2017 - Notice to Attorney General for the Union of India - Proceedings subject to outcome of writ petition - Adjudication of the constitutional challenge to the vires of section 16(2)(c) of the CGST Act and directions for further conduct of the writ petition. - HELD THAT: - The Court entertained the petitioners' challenge to the constitutional validity of section 16(2)(c) of the CGST Act and issued notice to the respondents to enable adjudication on the merits. Because the vires of the provision was specifically contended, the Court directed that the Attorney General for the Union of India be put on notice. The Court concurrently permitted respondent no.1 to continue the departmental proceedings arising from the impugned notice to their logical conclusion, subject to any final order in the writ petition, and allowed the petitioners to participate in those proceedings without prejudice to their rights under the writ petition. Thus the constitutional challenge was not finally decided but reserved for determination after notice and adjudication. [Paras 3]Challenge to vires of section 16(2)(c) admitted for adjudication on notice; Attorney General to be noticed; departmental proceedings may continue but any orders shall be subject to the result of the writ petition.Final Conclusion: Interim relief against the show cause-cum-demand notice dated July 29, 2021 was refused; the constitutional challenge to section 16(2)(c) of the CGST Act is directed to be heard on notice (with the Attorney General put on notice), while departmental proceedings may continue subject to the outcome of the writ petition. Issues:Challenge to show cause-cum-demand notice dated July 29, 2021; Challenge to the vires of section 16(2)(c) of the Central Goods and Services Tax Act, 2017.Analysis:The High Court of Bombay, comprising Chief Justice Dipankar Datta and Justice M. S. Karnik, heard a writ petition challenging a show cause-cum-demand notice issued by the Deputy Commissioner CGST & CEX. The notice sought an explanation from the petitioners regarding proposed actions. The petitioners also contested the validity of section 16(2)(c) of the CGST Act. The court, after hearing the petitioners' advocate, found no immediate reason to interfere with the show cause notice, citing a Supreme Court decision. However, due to the challenge against the vires of section 16(2)(c), the court decided to issue notice to the respondents, returnable on January 11, 2022. The petitioners were directed to notify the Attorney General for the Union of India due to the challenge to the specific section of the CGST Act.The court clarified that the pendency of the writ petition would not prevent the respondent from continuing the proceedings related to the impugned show cause notice. Any orders resulting from such proceedings would be subject to the outcome of the writ petition. The petitioners were advised that they could participate in the proceedings without compromising their rights and contentions in the ongoing writ petition. The court's decision to issue notice to the respondents and involve the Attorney General indicated a significant step towards addressing the challenge to the vires of the specific section of the CGST Act. The court's approach of allowing parallel proceedings while ensuring that the outcome of the writ petition would impact any orders passed demonstrated a balanced consideration of the legal issues involved in the case.