Private company fails to challenge show cause notice as CAG audit powers under Section 16 don't apply to private entities

Vertiv Energy Pvt. Ltd., Versus The Union of India, Joint Commissioner of CGST & CE Thane, Superintendent, Anti Evasion, CGST Thane, Ld. Joint Commissioner (in-situ), Circle-IV CGST & CX, Audit Thane, Superintendent of Range-VI, Thane, Director General of Audit (Central), Mumbai, The Union of India & Ors.

Vertiv Energy Pvt. Ltd., Versus The Union of India, Joint Commissioner of CGST & CE Thane, Superintendent, Anti Evasion, CGST Thane, Ld. Joint ... Issues Involved:

1. Jurisdiction of CAG/CERA to audit private companies.
2. Validity of the show cause notice based on CERA audit.
3. Allegations of issuance of the show cause notice with a "pre-determined mindset".
4. Invocation of the extended period of limitation.
5. Exhaustion of alternate remedies.

Issue-wise Detailed Analysis:

1. Jurisdiction of CAG/CERA to Audit Private Companies:

The petitioner argued that the show cause notice was invalid as it was based on a CERA audit conducted by the CAG, which allegedly lacked jurisdiction to audit private companies, as held in the case of Kiran Gems Private Limited. The court found this argument misplaced, clarifying that in the present case, the CERA/CAG did not audit the petitioner but rather the respondent's department, which is a government entity. The court emphasized that the statutory responsibility of the CAG is to audit government receipts, and the CERA audit was conducted on the department, not the petitioner. Therefore, the ratio in Kiran Gems Private Limited was not applicable here.

2. Validity of the Show Cause Notice Based on CERA Audit:

The petitioner contended that the show cause notice was entirely based on the CERA audit, making it ultra vires. However, the court found that the notice was not solely based on the CERA audit. The respondents clarified that the audit was of the department, and discrepancies found were independently examined before issuing the notice. The court concluded that the notice reflected independent application of mind by the adjudicating authority and was not without jurisdiction.

3. Allegations of Issuance of the Show Cause Notice with a "Pre-determined Mindset":

The petitioner claimed that the notice was issued with a "pre-determined mindset" as their documents and explanations were not considered. The court rejected this argument, stating that the notice only records a prima facie opinion and is not a final judgment. The court emphasized that the petitioner had the opportunity to present their case during the adjudication proceedings.

4. Invocation of the Extended Period of Limitation:

The petitioner argued that the extended limitation period was wrongly invoked, as there was no suppression. The court noted that the show cause notice contained allegations of suppression and non-declaration, which justified the invocation of the extended period. The court held that the petitioner could contest these allegations during the adjudication proceedings, but at this stage, the invocation of the extended period could not be deemed improper.

5. Exhaustion of Alternate Remedies:

The court highlighted the principle of exhaustion of alternate remedies, noting that the petitioner had not demonstrated any of the exceptions that would justify bypassing this rule. The court referred to precedents, including Whirlpool Corporation, which outline circumstances where the rule may not apply, such as violation of fundamental rights or lack of jurisdiction. However, none of these exceptions were applicable in this case, and the court found no reason to entertain the petition challenging the show cause notice.

Conclusion:

The court dismissed the petition, finding no merit in the arguments presented by the petitioner. The petitioner was directed to pay costs and was given an extension of four weeks to respond to the show cause notice, with the possibility of additional time if justified. The court reiterated the importance of following procedural rules and exhausting alternate remedies before seeking judicial intervention.