2024 (3) TMI 836 - HC - GST

Petitioners must participate in adjudication after receiving relied-upon documents with protected redactions for third-party confidentiality

The Bombay HC rejected challenges to show cause notices regarding supply of relied upon documents. The court held that while petitioners requested ... Validity of show cause notice (SCN) - Supply of Relied Upon Documents (RUD) - Supply of inter-departmental communications or records/file notings or data/information - Challenge to SCN on the grounds that such notice was issued under the provisions, which were unconstitutional according to the petitioners - HELD THAT:- The petitioners did file the application before the Adjudicating Authorities for information and documents and it is not as if such information and documents were not furnished to the petitioners. All the documents or information may not have been supplied, but that was mainly because the petitioners avoided the specifics and even refused to explain the relevancy. All this has to be considered in the light of a clear and categorical submission/statement that the impugned show cause notices are to be disposed of based upon the RUDs and the non-RUDs already furnished to the petitioners. In T. Takano [2022 (2) TMI 907 - SUPREME COURT] relied upon by the petitioners, the Hon'ble Supreme Court has held that it could not be oblivious to the wide range of sensitive information that the investigation report submitted under Regulation 9 of the SEBI Regulations may cover, ranging from information on financial transactions and on other entities in the securities market, which might affect third-party rights. The Court held that the report may contain market sensitive information which may impinge upon the interest of investors and the stability of the securities marker. Therefore, the Court held that the requirement of compliance with the principles of natural justice cannot therefore be read to encompass the right to a roving disclosure on matters unconnected or regards the dealings of third parties. The investigating authority may acquire information of a sensitive nature bearing upon the orderly functioning of the securities market. The right of the noticee to disclosure must be balanced with a need to preserve any other third-party rights that may be affected. In T. Takano, the Hon'ble Supreme Court relied upon Natwar Singh [2010 (10) TMI 156 - SUPREME COURT], wherein it was observed that there are exceptions to the general rule of disclosing evidentiary material. The Court held that such exceptions can be invoked if the disclosure of material causes harm to others, is injurious to public health or breaches confidentiality. The Court held that while identifying the purpose of disclosure one of the crucial objectives of the right to disclosure is securing the transparency of instructions. The claims of third-party rights vis-a-vis the right to disclosure cannot be pitted as an issue of public interest and fair adjudication. T. Takano provides that a quasi-judicial authority has a duty to disclose the material that has been relied upon at the stage of adjudication. A mere ipse dixit of the authority that it has not relied on certain material would not exempt it from its liability to disclose such material if it is relevant to and has a nexus to the action taken by the authority. Thus, the actual test is whether the material that is required to be disclosed is relevant for the purpose of adjudication. If so, then the principles of natural justice require its due disclosure. On conclusion of investigation proceedings, the investigation team indeed prepared investigation report, and further it is on acceptance of the same by the competent authority that the show cause notices were issued, then subject to exceptions being made out by the respondents, copy of such investigation report should be furnished to the petitioners. If such an investigation report contains sensitive information regarding the identity of the sources or regarding third parties and unrelated transactions, respondents can always furnish such investigation reports to the petitioners by redacting such portions and such information. Thus, no directions are called for in the context of inter-departmental communications or records/file notings or data/information shared with ISI. Records show that respondents have furnished all the documents relied upon in the show cause notices and even allowed the petitioners' inspection based upon which they retrieved the Non-Relied Upon Documents. The show cause notice is detailed and refers to the material/documents based upon which it is issued. All this, coupled with the statement/submission that the show cause notices would be disposed of by reference to the documents furnished to the petitioners, suggests sufficient transparency and fairness. The petitioners must join the adjudication process and not delay the same. This clarification is necessary because Ms Desai, at the stage of admitting these petitions, has made a statement that final orders will not be made without the leave of this Court. All these civil applications are disposed of. Issues Involved:1. Constitutional validity of Section 15(5) of the CGST Act and Rule 31-A of the CGST Rules.2. Challenge against the show cause notice dated 27.09.2023.3. Request for inspection and furnishing of documents/materials related to the investigation.Summary of Judgment:1. Constitutional Validity:The petitioners challenged the constitutional validity of Section 15(5) of the CGST Act and Rule 31-A of the CGST Rules. The High Court issued Rule in Writ Petition No. 715/2023 and connected petitions.2. Challenge to Show Cause Notice:The petitioners challenged the show cause notice dated 27.09.2023, arguing it was issued under unconstitutional provisions. The respondents agreed not to pass any final orders on the show cause notices without the Court's leave.3. Request for Documents and Inspection:The petitioners sought comprehensive inspection of documents related to the investigation, including the investigation report, inter-departmental communications, and data shared with the Indian Statistical Institute (ISI).- Investigation Report: The Court observed that the respondents' affidavit suggested an investigation report was prepared and culminated into the show cause notice. The Court directed the respondents to furnish this report to the petitioners within two weeks, allowing redaction of sensitive information. - Inter-departmental Communications and File Notings: The Court found the petitioners' request for inter-departmental communications and file notings to be a fishing expedition aimed at delaying the adjudication. The Court denied this request.- Data Shared with ISI: The Court found no sufficient justification for the petitioners' request for data shared with ISI, noting that the reasons for engaging ISI were already disclosed in the show cause notice.The Court concluded that the respondents had already provided the petitioners with all Relied-Upon Documents (RUD) and several Non-Relied-Upon Documents (Non-RUD), ensuring sufficient transparency and fairness. The petitioners were directed to participate in the adjudication process without delay, with the liberty to raise issues of natural justice if necessary.Conclusion:The civil applications were disposed of with specific directions regarding the investigation report and a clear mandate for the petitioners to proceed with the adjudication process. No order for costs was made.