Section 73 notice quashed for failure to follow mandatory Section 61 and Rule 99 scrutiny and notice procedures

HC held that the demand-cum-show cause notice under Section 73 was without jurisdiction and set aside it and all consequential actions, because the proper officer failed to follow the mandatory scrutiny and notice procedure under Section 61 read with Rule 99 before invoking recovery for alleged wrongful availment of Input Tax Credit. The court found no opportunity was given to the registered person to explain discrepancies in GSTR-9C (including Table 14, which was treated as optional for relevant years), and therefore revenue's action was unauthorized. Petition allowed; impugned order quashed.

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ISSUES PRESENTED AND CONSIDERED

1. Whether a demand-cum-show cause notice under Section 73(1) of the CGST Act can be validly issued by the proper officer solely on the basis of alleged discrepancies in returns without first complying with the scrutiny procedure mandated by Section 61 read with Rule 99 (including issuance of Form GST ASMT-10)?

2. Whether non-furnishing of information in Table 14 of Form GSTR-9C (reconciliation of ITC with expenses in audited financial statements) could constitute a "discrepancy" for invoking Section 61/Section 73 when submission of Table 14 was made optional by notifications/instructions issued by the competent authority for the relevant years?

3. Whether reliance on departmental notifications/instructions that made Table 14 optional binds the revenue authorities and renders a show cause notice issued contrary to those instructions invalid?

4. Whether availability of alternative statutory remedies precludes judicial review under Article 226 when the authority's exercise of jurisdiction is alleged to be unauthorized or in excess of statutory procedure?

ISSUE 1 - Validity of issuing Section 73 notice without compliance with Section 61/Rule 99

Legal framework: Section 61(1) empowers the proper officer to scrutinize returns and inform registered persons of discrepancies in the prescribed manner and seek explanation; Section 61(2) mandates cessation of further action where explanation is found acceptable; Section 61(3) permits initiation of further action (including under Section 73) only where explanation is not satisfactory or not furnished within the prescribed period. Rule 99(1) prescribes issuance of notice in FORM GST ASMT-10 on noticing discrepancy and seeking explanation within 30 days.

Precedent treatment: The Division Bench judgment considered (subsequently affirmed by dismissal of SLP) held that where a show cause notice is based on discrepancies noticed in returns, the mandate of Section 61 (and Rule 99) must be followed before invoking Section 73; other precedents distinguishing assessment routes (e.g., where independent material exists) were noted as distinguishable.

Interpretation and reasoning: The Court construed the statutory scheme as requiring a two-step process-scrutiny and communication of discrepancy with an opportunity to explain (Section 61/Rule 99), and only thereafter, if explanation unsatisfactory or not furnished, initiation of proceedings under Section 73. Where the show cause notice stems solely from discrepancies in returns, the authority cannot bypass the prescribed scrutiny step; issuance of ASMT-10 and consideration of the reply (including issuance of ASMT-12 where explanation acceptable) are conditions precedent to validly invoking Section 73.

Ratio vs. Obiter: Ratio - A Section 73 notice predicated solely on return discrepancies is invalid if issued without prior compliance with Section 61/Rule 99 (including ASMT-10 procedure). Obiter - Distinctions with cases where proceedings under Section 73/74 arose from independent material were discussed but not essential to decision.

Conclusion: The impugned Section 73 show cause notice is vitiated for failure to comply with the mandatory procedure under Section 61 and Rule 99; absence of issuance of FORM GST ASMT-10 and denial of the statutory opportunity to explain renders the notice without jurisdiction.

ISSUE 2 - Whether non-furnishing of Table 14 of GSTR-9C constitutes a discrepancy when submission was made optional by Notifications

Legal framework: Form GSTR-9C Table 14 required reconciliation of ITC with expenses per audited financial statements; however, executive notifications/instructions amended the instructions to render filling Table 14 optional for specified FYs and extended that optionality through later notifications up to FY 2022-23.

Precedent treatment: The Court relied on the administrative act (series of notifications) and the principle that departmental circulars/instructions, when in operation, bind the revenue; earlier Supreme Court authority (as discussed) supports binding effect of Board's instructions on departmental action.

Interpretation and reasoning: The Court found that the notifications explicitly conferred an option not to fill Table 14 for the relevant years. Since the petitioner legitimately exercised that option, non-submission could not be treated as a statutory error or discrepancy. Even assuming arguendo that Table 14 was mandatory, the Court held that the revenue still was required to follow the Section 61 scrutiny procedure before invoking Section 73.

Ratio vs. Obiter: Ratio - Where competent authority has made submission of a data field optional by notification, failure to furnish that optional data cannot legitimately constitute a discrepancy enabling revenue to proceed without following Section 61 procedure. Obiter - Detailed interaction with competing decisions on mandatory nature of Table 14 was not necessary given the procedural infirmity.

Conclusion: The non-furnishing of Table 14-given the binding notifications making it optional-did not amount to a discrepancy supporting immediate invocation of Section 73; consequently the demand based on alleged wrongful availment of ITC on that ground cannot stand.

ISSUE 3 - Binding effect of notifications/instructions and consequence of revenue acting contrary thereto

Legal framework: Executive notifications/instructions forming part of the statutory framework govern operational details; judicial authorities have held that while circulars are not binding on courts or assessees per se, the revenue cannot act contrary to instructions/circulars issued by the Board and a show cause notice contrary to an existing Board circular is bad ab initio.

Precedent treatment: The Court applied established principles that departmental instructions under the relevant statutory scheme bind revenue officials and that revenue cannot adopt a stance contrary to such instructions; reliance was placed on settled jurisprudence reiterated by higher courts.

Interpretation and reasoning: Because the notifications made Table 14 optional and these notifications were not disputed by the revenue, the revenue was bound to operate within that regime. Issuing a demand contrary to such instructions was therefore arbitrary and without authority.

Ratio vs. Obiter: Ratio - Revenue action contrary to binding notifications/instructions that were in force is legally impermissible and renders resulting show cause notices unsustainable. Obiter - Broader consequences for other fact patterns were indicated but not decided.

Conclusion: The revenue was bound by the notifications making Table 14 optional; action inconsistent with those notifications is ultra vires and invalid.

ISSUE 4 - Availability of alternative statutory remedy vs. jurisdictional challenge under Article 226

Legal framework: Article 226 judicial review may be available notwithstanding existence of alternative statutory remedies where the statutory authority's exercise of jurisdiction is unauthorized or contrary to statutory prescription.

Precedent treatment: Reliance on Supreme Court authority establishing that where a statutory authority acts without jurisdiction or in a manner contrary to statutory scheme, presence of alternate remedies does not preclude writ jurisdiction.

Interpretation and reasoning: The Court held that because the revenue's invocation of Section 73 was unauthorized (for failure to follow Section 61/Rule 99 and in view of binding notifications), the petitioner was entitled to challenge the action by way of writ despite availability of departmental remedies; the alleged alternative remedy did not bar judicial review of jurisdictional excess.

Ratio vs. Obiter: Ratio - Writ jurisdiction is available to challenge unauthorized/excessive exercise of statutory power even if alternate remedies exist. Obiter - The Court noted limited circumstances where alternative remedies should be exhausted, but these were not determinative here.

Conclusion: The petition attacking jurisdictional excess was maintainable; the objection regarding alternative remedies is rejected.

FINAL CONCLUSIONS

1. The issuance of the impugned demand-cum-show cause notice under Section 73(1) without prior compliance with Section 61 read with Rule 99 (including issuance of FORM GST ASMT-10 and consideration of explanation) is unauthorized and vitiates the notice.

2. Notifications/instructions making Table 14 of Form GSTR-9C optional for the relevant years were binding on the revenue; non-submission of optional Table 14 cannot be treated as a discrepancy to justify bypassing the Section 61 procedure.

3. In these circumstances the impugned show cause notice is set aside as being in excess of jurisdiction and contrary to the statutory scheme and binding instructions; the writ petition is allowed on these grounds.

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