Writ petition dismissed as non-maintainable due to available alternate statutory remedy under CGST Act 2017

HC dismissed the writ petition challenging a show cause notice under CGST Act, 2017, ruling it non-maintainable due to availability of alternate statutory remedy. The court held that when a statute creates rights and prescribes enforcement procedures, the statutory remedy must be exhausted before invoking Article 226. The 15-page detailed show cause notice was found procedurally adequate without pre-conceived bias or natural justice violations. No exceptional circumstances existed to bypass the exhaustion of remedies rule, making the petition premature.

---

---

The core legal questions considered by the Court in this matter were:

(i) Whether the writ petition challenging the show cause notice issued under Section 74(1) of the CGST Act, 2017 is maintainable in view of the availability of an alternate statutory remedy under the CGST Act;

(ii) Whether the issuance of the show cause notice was in violation of the principles of natural justice or tainted by any pre-conceived mind;

(iii) Whether the amendment to the explanation to Section 16(2)(b) of the CGST Act should be applied retrospectively;

(iv) Whether proceedings under Section 74 of the CGST Act survive in the absence of willful suppression;

and (v) The scope and limits of the High Court's writ jurisdiction under Article 226 of the Constitution in the context of tax proceedings initiated under the CGST Act.

Issue-wise Detailed Analysis

1. Maintainability of Writ Petition Against Show Cause Notice in Presence of Alternate Remedy

The Court examined the principle that where a statute creates a right and prescribes a specific statutory remedy for enforcement or challenge, that remedy must ordinarily be exhausted before invoking the discretionary writ jurisdiction under Article 226 of the Constitution. The CGST Act provides an alternate statutory remedy under Section 107 for aggrieved parties to challenge orders passed in adjudication proceedings.

The Court relied on authoritative precedents, including a three-judge bench decision of the Supreme Court which held that the existence of an alternate remedy is not an absolute bar to writ jurisdiction but writ petitions are maintainable only in exceptional circumstances such as breach of fundamental rights, violation of natural justice, excess of jurisdiction, or challenge to the vires of legislation.

In the instant case, the petitioner had challenged a mere show cause notice issued under Section 74(1) of the CGST Act, which was yet to be adjudicated. The Court observed that the petitioner had not established any exceptional circumstance warranting bypass of the alternate remedy. The show cause notice was not shown to have been issued with pre-conceived mind or in violation of natural justice. The proceedings were at a preliminary stage and it was premature to quash the notice by writ jurisdiction.

The Court referred to a recent Supreme Court judgment wherein the High Court had prematurely entertained a writ petition against a show cause notice and granted relief which was set aside on appeal, emphasizing the need to exhaust statutory remedies.

Thus, the Court concluded that the writ petition was not maintainable on the ground of availability of efficacious alternate remedy and the petitioner must pursue the remedy under Section 107 of the CGST Act after adjudication of the show cause notice.

2. Alleged Violation of Natural Justice and Pre-conceived Mind

The petitioner contended that the show cause notice was issued with a pre-conceived mind and violated principles of natural justice. The Court examined the material on record, including the detailed show cause notice running into 15 pages and the submissions made by the petitioner before the authorities.

The Court held that mere issuance of a show cause notice does not imply violation of natural justice or bias. The petitioner had opportunity to file detailed replies and produce evidence. The proceedings were at a preliminary stage, and the adjudicating authority was yet to consider the merits. Hence, no ground existed to interfere at this stage.

The Court underscored that the principles of natural justice would be fully observed during adjudication and the petitioner's rights would be protected in that process.

3. Retrospective Application of Amendment to Explanation to Section 16(2)(b)

The petitioner sought a writ mandamus holding that the amendment to the explanation to Section 16(2)(b) of the CGST Act be applied retrospectively to validate the input tax credit claimed for the period 2017-18 to 2021-22.

The Court did not express any opinion on this issue as it was not necessary at the maintainability stage. The question of retrospective applicability and entitlement to input tax credit was to be adjudicated by the appropriate authority in the statutory proceedings.

4. Survival of Proceedings Under Section 74 Without Willful Suppression

The petitioner argued that proceedings under Section 74 of the CGST Act, which deals with determination of tax not paid or short paid due to fraud or willful misstatement or suppression of facts, do not survive in absence of willful suppression.

The Court observed that this issue was also a matter of fact and merits to be examined by the adjudicating authority. No determination could be made at the writ stage against the petitioner's claim. The petitioner was free to raise this defence during adjudication.

5. Scope of High Court's Writ Jurisdiction in Tax Matters

The Court reiterated the settled principle that writ jurisdiction under Article 226 is discretionary and not a substitute for statutory remedies. It is to be exercised sparingly in tax matters where detailed statutory procedures exist.

The Court highlighted exceptions where writ jurisdiction may be invoked, such as violation of fundamental rights, natural justice, jurisdictional errors, or constitutional validity challenges. None of these exceptions were found applicable in the present case.

Significant Holdings

"The existence of an alternate remedy is not an absolute bar to the maintainability of a writ petition under Article 226 of the Constitution. But a writ petition can be entertained in exceptional circumstances where there is: (i) a breach of fundamental rights; (ii) a violation of the principles of natural justice; (iii) an excess of jurisdiction; or (iv) a challenge to the vires of the statute or delegated legislation."

"Merely because the petitioner has been served with the show cause notice would not mean that the same has been issued with the pre-conceived mind and in violation of natural justice. The proceedings are still at the stage of show cause notice, which has been assailed in the instant case. Therefore, the petitioner cannot raise this claim, that too, at this stage."

"It is premature for the High Court to quash a show cause notice by invoking Article 226 of the Constitution of India. It is premature for the High Court to opine anything whether there was any evasion of tax or not, the same is required to be considered in an appropriate proceedings for which show cause notice has already been issued to the petitioner."

"When a right is created by a statute, which itself prescribes the remedy or procedure for enforcing the right or liability, resort must be had to that particular statutory remedy before invoking the discretionary remedy under Article 226 of the Constitution. This Rule of exhaustion of statutory remedies is a rule of policy, convenience and discretion."

"All the contentions/defences which may be available to the petitioner are kept open to be considered by the appropriate authority in accordance with law and on its own merits."

In conclusion, the Court dismissed the writ petition as not maintainable, emphasizing the primacy of statutory remedies under the CGST Act and the premature nature of challenging a show cause notice by writ petition. The petitioner was directed to pursue its grievance through the prescribed statutory channels, preserving all substantive defenses for adjudication by the competent authority.

---