State Taxation Authority has jurisdiction to issue show cause notice under Section 73 despite Central Authority assignment

The Rajasthan HC dismissed a writ petition challenging a show cause notice issued by State Taxation Authority. The petitioner argued that since their assessment was assigned to Central Taxation Authority, the State Authority lacked jurisdiction to initiate proceedings under Section 73 of the 2017 Act. The court held that the petitioner should pursue remedies before the issuing authority rather than challenging the notice at this preliminary stage, as only a show cause notice had been issued and the petitioner had not disputed the underlying discrepancy in Input Tax Credit details between GSTR-02A and GSTR-03B returns.

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Issues Involved:
1. Jurisdiction of State Authorities in Issuing Show Cause Notice
2. Compliance with Mandatory Provisions under Section 73 of the Act of 2017
3. Alleged Violation of Principles of Natural Justice
4. Validity of Show Cause Notice Based on Discrepancy in Input Tax Credit

Detailed Analysis:

1. Jurisdiction of State Authorities in Issuing Show Cause Notice:
The petitioner challenged the show cause notice dated 18.01.2022 on the grounds that it was issued without jurisdiction. The petitioner argued that the assessment was assigned to the Central Taxation Authority, making the State Authority's issuance of the notice impermissible under the law. The petitioner referred to Section 6 of the Rajasthan Goods and Services Tax Act, 2017, asserting that without proper notification, the State authorities could not undertake the assessment for tax imposition.

However, the court referenced a Division Bench decision in Sanganeriya Spinning Mills Ltd. vs. Union of India, which upheld the constitutional validity of Section 6(1) of the Act of 2017. The court found that the provision authorizes State officers to act as proper officers for the purposes of the Act, subject to conditions specified by the Government. The court concluded that the challenge to the jurisdiction of the State Authority lacked merit.

2. Compliance with Mandatory Provisions under Section 73 of the Act of 2017:
The petitioner argued that the issuance of the notice under Section 73 was without compliance with its mandatory provisions, particularly Section 73(3). The petitioner claimed that the initial proceedings were limited to tax liability on logistic and handling charges, and the subsequent notice introduced new discrepancies in Input Tax Credit (ITC) that were not previously included.

The respondents countered that the provisions of Section 73(3) are not mandatory and that the show cause notice was issued in compliance with the law. They argued that the petitioner had received prior intimation in DRC-01A and that the notice was issued for all four years under consideration, thus not violating Rule 142 of the Rules of 2017. The court noted that the alleged statutory violations involved disputed facts, which should be adjudicated by the authority rather than being addressed in a writ petition.

3. Alleged Violation of Principles of Natural Justice:
The petitioner contended that the proceedings violated the principles of natural justice, as the discrepancies in ITC were not notified before issuing the show cause notice. The petitioner cited the Supreme Court decision in Hukam Chand Shyam Lal vs. Union of India, arguing that proceedings drawn contrary to the law amount to a violation of natural justice.

The court, however, held that the alleged violations were based on disputed facts and that the petitioner should respond to the show cause notice and present its case before the authorities. The court emphasized that it is well-settled law that writ courts generally do not interfere at the stage of show cause notice unless there is a clear lack of jurisdiction or a violation of natural justice.

4. Validity of Show Cause Notice Based on Discrepancy in Input Tax Credit:
The petitioner argued that the show cause notice was vague and unclear, particularly regarding the discrepancies in ITC between GSTR-2A and GSTR-3B. The petitioner claimed that these discrepancies were not raised in earlier proceedings and that the authorities failed to notify the petitioner of these issues as required by Rule 71 of the Rules of 2017.

The respondents maintained that the discrepancies were identified and notified in compliance with the law. They argued that the petitioner had the opportunity to address these discrepancies in their reply to the show cause notice. The court found that the petitioner did not dispute the existence of discrepancies but rather the procedural aspects of their notification. The court concluded that the petitioner should address these issues through the appropriate administrative channels rather than seeking judicial intervention at the show cause notice stage.

Conclusion:
The court dismissed the writ petition, holding that the petitioner should respond to the show cause notice and pursue available remedies through the appropriate administrative and legal channels. The court emphasized that interference at the show cause notice stage is generally unwarranted unless there is a clear lack of jurisdiction or a violation of natural justice, neither of which was established in this case.

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