2025 (5) TMI 917 - HC - GST

Tax Authority's Document Request Power Upheld: Section 73 Validates Demand Beyond Show Cause Notice Scope

The HC examined three key issues in a GST tax dispute: (1) validity of a demand exceeding the show cause notice amount, (2) authority to require document ... Challenge to SCN - SCN specified a lesser amount than the demand raised by Assistant Commissioner - time limitation - HELD THAT:- A look at the notice issued under Section 73 of the Act would reveal that on point no. 4, the indications were made that as per the balance sheet, there were sundry creditors to the tune of Rs. 4,15,36,270/-, based on which the petitioner was required to produce the ledger account else, it was indicated that action in accordance with law would be taken. As the show cause notice was specific pertaining to the discrepancies noticed and had provided opportunity to produce documents, non quantification of the demand in the show cause notice and ultimately raising the demand while passing the order, cannot be said to be in violation of provisions of Section 75(7) of the Act inasmuch as once the discrepancy pertaining to the amount was pointed out, subject to production of documents, the determination made would always be treated as forming part of the notice. The plea sought to be raised that under Section 73 of the Act, no documents can be determined, is ex-facie baseless. If the plea as sought is accepted, the indication made in point no. 4 pertaining to sundry creditors to the tune of Rs. 4,15,36,270/- without seeking further opportunities if the demand was raised, the same would have been in violation of principles of nature justice and the very fact that the petitioner choose not to supply the requisite material, essentially is an admission regarding the discrepancy as pointed out in the notice and, therefore, it cannot be said that either the documents cannot be demanded or on failure to produce documents, demand cannot be raised - both the pleas sought to be raised based on scope of Section 73 of the Act and violation of provisions of Section 75(7) of the Act, cannot be countenanced. Conclusion - i) The demand of Rs. 52,48,621/- raised under Section 73 was not in violation of Section 75(7) despite exceeding the amount in the show cause notice. ii) The Assistant Commissioner was within his authority to require documents and raise demand based on non-production. There are no reason to exercise jurisdiction under Article 226 of the Constitution of India. The petition is, therefore, dismissed leaving it open for the petitioner to agitate the issue on merits before the appellate forum. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court are:(a) Whether the demand raised by the Assistant Commissioner under Section 73 of the Uttar Pradesh Goods and Services Tax Act, 2017 (the Act) for Rs. 52,48,621/- is valid despite the show cause notice under Section 73 specifying a lesser amount of Rs. 12,10,940.82/- and whether this violates the limitation under Section 75(7) of the Act.(b) Whether the Assistant Commissioner had the authority under Section 73 of the Act to require production of documents from the petitioner on points 4 and 10, and whether the failure to produce such documents justified raising a demand.(c) Whether the petitioner's remedy lies in challenging the demand order by way of appeal under Section 107 of the Act rather than by writ petition under Article 226 of the Constitution.2. ISSUE-WISE DETAILED ANALYSISIssue (a): Validity of demand exceeding the amount specified in the show cause notice under Section 75(7) of the ActRelevant legal framework and precedents: Section 75(7) of the Act restricts the amount of tax, interest, and penalty demanded in an order to not exceed the amount specified in the show cause notice issued in Form DRC-01. This provision aims to ensure that the taxpayer is not taken by surprise by demands beyond the scope of the notice.Court's interpretation and reasoning: The Court examined the nature of the show cause notice issued under Section 73. It noted that the notice pointed out discrepancies on 13 points, with a quantified demand of Rs. 12,10,940.82, but also specifically required the petitioner to produce documents related to points 4 and 10, without quantifying the demand on these points.The Court held that the absence of quantified demand in the notice for points 4 and 10 did not violate Section 75(7). The reasoning was that once discrepancies are pointed out and an opportunity to produce documents is given, the final determination of demand based on the documents or failure to produce them is considered part of the notice itself. Thus, the demand raised in the order, although exceeding the initially specified amount, was not ex-facie contrary to Section 75(7).Key evidence and findings: The show cause notice specifically identified discrepancies and required production of ledger accounts and invoices related to points 4 and 10, warning that failure to comply would lead to action. The petitioner did not produce the required documents.Application of law to facts: The Court applied the principle that a show cause notice under Section 73 can include requests for documents to clarify discrepancies. The quantified demand may be finalized only after examining such documents or in their absence. Hence, the final demand exceeding the initially specified amount was lawful.Treatment of competing arguments: The petitioner argued that the demand raised beyond the specified amount in the notice was illegal under Section 75(7). The Court rejected this, emphasizing the procedural fairness in allowing the taxpayer an opportunity to produce documents and that the determination of demand is a continuous process.Conclusions: The Court concluded that the demand raised was not in violation of Section 75(7) of the Act.Issue (b): Authority under Section 73 of the Act to require production of documents and consequences of non-productionRelevant legal framework and precedents: Section 73 deals with determination of tax not paid or short paid due to reasons other than fraud or willful misstatement. It empowers the tax authority to issue show cause notices and determine demand after opportunity of hearing. The Act does not explicitly prohibit seeking documents during proceedings under Section 73.Court's interpretation and reasoning: The Court rejected the petitioner's contention that Section 73 does not empower the officer to require documents. It reasoned that requiring documents to clarify discrepancies is inherent to the process of determining tax liability and is necessary to uphold principles of natural justice.The Court observed that the petitioner was specifically required to produce ledger accounts and invoices related to sundry creditors and Bill to Ship to transactions. The petitioner's failure to produce these documents was treated as an admission of discrepancy.Key evidence and findings: The show cause notice detailed the requirement of documents on points 4 and 10, with clear indication that non-compliance would lead to action. The petitioner did not respond to these demands.Application of law to facts: The Court applied the principle that tax authorities can seek documents to verify discrepancies. The failure to produce such documents justifies raising a demand based on available material.Treatment of competing arguments: The petitioner argued that seeking documents was beyond the scope of Section 73 and thus demand based on non-production was invalid. The Court rejected this argument as baseless, emphasizing that without document production, the authority cannot be handicapped in making a determination.Conclusions: The Court held that the Assistant Commissioner was fully empowered under Section 73 to require documents and that non-production justified raising the demand.Issue (c): Appropriateness of remedy by writ petition versus appeal under Section 107 of the ActRelevant legal framework and precedents: Section 107 of the Act provides an appellate remedy against orders passed under Section 73. The writ jurisdiction under Article 226 is discretionary and generally not exercised where an efficacious alternative remedy exists.Court's interpretation and reasoning: The Court emphasized that the petitioner failed to demonstrate any reason why the remedy of appeal under Section 107 was not efficacious. The Court declined to entertain the writ petition on merits, leaving the petitioner free to challenge the demand order before the appellate authority.Key evidence and findings: The petition did not indicate any impediment or inadequacy in the appellate remedy under Section 107.Application of law to facts: The Court applied the principle that judicial review by writ should not substitute statutory appellate remedies unless exceptional circumstances exist.Treatment of competing arguments: The petitioner sought to challenge the demand order by writ petition. The Court held that such challenge must be pursued through the statutory appeal mechanism.Conclusions: The Court dismissed the writ petition, directing the petitioner to avail the remedy of appeal under Section 107.3. SIGNIFICANT HOLDINGS'Non quantification of the demand in the show cause notice and ultimately raising the demand while passing the order, cannot be said to be in violation of provisions of Section 75(7) of the Act inasmuch as once the discrepancy pertaining to the amount was pointed out, subject to production of documents, the determination made would always be treated as forming part of the notice.''The plea sought to be raised that under Section 73 of the Act, no documents can be determined, is ex-facie baseless... the very fact that the petitioner choose not to supply the requisite material, essentially is an admission regarding the discrepancy as pointed out in the notice.''We do not find any reason to exercise our jurisdiction under Article 226 of the Constitution of India... leaving it open for the petitioner to agitate the issue on merits before the appellate forum.'Core principles established include:The scope of Section 75(7) does not preclude raising a demand exceeding the amount initially specified in the show cause notice if discrepancies are pointed out and opportunity to produce documents is given.Section 73 empowers tax authorities to require production of documents to determine tax liability, and failure to produce such documents can justify raising demand.Availability of an effective statutory appeal under Section 107 precludes interference by writ jurisdiction under Article 226 in tax demand matters.Final determinations:The demand of Rs. 52,48,621/- raised under Section 73 was not in violation of Section 75(7) despite exceeding the amount in the show cause notice.The Assistant Commissioner was within his authority to require documents and raise demand based on non-production.The petitioner must challenge the demand through the appellate remedy under Section 107; the writ petition was dismissed.