2025 (1) TMI 1423 - HC - GST

Tax Notice Challenged: Potential Double Taxation Blocked, Interim Relief Granted Under CGST Act Provisions

HC finds writ petition maintainable challenging tax notice under CGST Act. Court recognized potential double taxation by Maharashtra and Karnataka ... Maintainability of petition challenging the show cause notice issued under Section 74 of the Central Goods and Service Tax, 2017 - principle ground of challenge to the show cause notice is the fact that the amount that is sought to be taxed by the Respondents herein is the reward amount received by the Petitioner from its Group Company in Honkong in the year 2018-19 and 2019-20. Maintainability of petition - HELD THAT:- There are no merit. Prima facie, after going through the Petition, it is found that the Maharashtra Authorities as well as the Karnataka Authorities are seeking to tax the Petitioner on the very same transaction. The Karnataka Authorities have in fact brought the entire amount of Rs. 6092 Crores to tax. The Maharashtra Authorities are now seeking to bring a part of that consideration (i.e. part of Rs. 6092 Crores) to tax within the state. Further, the Karnataka High Court has already granted a stay on the show cause notice issued by the Karnataka Authorities bringing the entire amount of Rs. 6092 Crores to tax. There is no merit in the Preliminary Objection and the above Writ Petition is certainly entertained. The preliminary objection is therefore rejected. As far as Interim reliefs are concerned, considering that important legal issues are involved and the fact that Rs. 75 crores have already been deposited with the Maharashtra Authorities, the Respondents are restrained from taking any further steps or proceedings in pursuance and/or in furtherance of the show cause notice dated 21st July 2024 issued by Respondent No. 2. Petition disposed off. ISSUES PRESENTED and CONSIDEREDThe primary issue considered in this judgment is whether the writ petition challenging the show cause notice issued under Section 74 of the Central Goods and Service Tax, 2017 (CGST Act) is maintainable. The petitioner seeks to quash the notice on the grounds that the same transaction has already been taxed by the authorities in Karnataka, and thus, the Maharashtra authorities' attempt to tax it again constitutes double taxation.ISSUE-WISE DETAILED ANALYSIS1. Maintainability of the Writ PetitionRelevant Legal Framework and Precedents: The petitioner invoked Article 226 of the Constitution of India, which empowers the High Court to issue certain writs. The respondent's preliminary objection raised concerns about the petition's maintainability, arguing that the petitioner had not demonstrated any prejudice caused by the show cause notice to justify invoking the court's extraordinary jurisdiction.Court's Interpretation and Reasoning: The Court examined whether the petitioner had a valid ground to challenge the show cause notice. The petitioner argued that the entire sum of Rs. 6092 crores had already been taxed by the Karnataka authorities, and proceedings regarding the same were pending before the Karnataka High Court, which had issued a stay on the notice. The Court found that both the Maharashtra and Karnataka authorities were attempting to tax the same transaction, which prima facie suggested a case of double taxation.Key Evidence and Findings: The petitioner presented evidence that the Karnataka authorities had already taxed the entire amount, and the Karnataka High Court had stayed the operation of the show cause notice. The Maharashtra authorities were seeking to tax a part of the same amount, leading to the petitioner's claim of potential double taxation.Application of Law to Facts: The Court applied the principles of taxation law, emphasizing the avoidance of double taxation. It noted that the petitioner had already deposited Rs. 75 crores with the Maharashtra authorities and that the legal issues raised were significant enough to warrant judicial intervention.Treatment of Competing Arguments: The respondent's argument that the writ petition was a chance litigation was dismissed. The Court found merit in the petitioner's claim that the transaction was already under scrutiny in Karnataka and that the Maharashtra authorities' actions could result in double taxation.Conclusions: The Court concluded that the writ petition was maintainable, rejecting the preliminary objection raised by the respondents. It recognized the potential for double taxation and the need to address the legal questions involved.2. Interim ReliefRelevant Legal Framework and Precedents: The petitioner sought interim relief to stay the operation of the show cause notice, pending the resolution of the writ petition and related proceedings in Karnataka.Court's Interpretation and Reasoning: The Court considered the deposit made by the petitioner and the ongoing legal proceedings in Karnataka. It acknowledged the complexity and significance of the legal issues at hand.Key Evidence and Findings: The deposit of Rs. 75 crores with the Maharashtra authorities and the stay granted by the Karnataka High Court were pivotal in the Court's decision to grant interim relief.Application of Law to Facts: The Court applied the principle of maintaining the status quo to prevent further complications arising from potential double taxation, pending the outcome of the Karnataka proceedings.Treatment of Competing Arguments: The Court balanced the interests of both parties by restraining the respondents from taking further action while allowing them the liberty to seek vacation of the order based on the Karnataka proceedings' outcome.Conclusions: The Court granted interim relief, restraining the respondents from proceeding with the show cause notice, while allowing for the possibility of revisiting the order depending on developments in Karnataka.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: The Court noted, 'Prima facie, after going through the Petition, we find that the Maharashtra Authorities as well as the Karnataka Authorities are seeking to tax the Petitioner on the very same transaction.'Core Principles Established: The judgment underscored the principle of avoiding double taxation and the importance of maintaining the status quo when significant legal issues are pending resolution in another jurisdiction.Final Determinations on Each Issue: The Court rejected the preliminary objection regarding the writ petition's maintainability and granted interim relief to stay the operation of the show cause notice, while allowing the respondents to apply for vacating the order based on the Karnataka proceedings' outcome.