2025 (11) TMI 1015 - HC - GST

Show-cause notice under Section 130 invalid without prior tax determination under Sections 73/74; Section 35 violated

HC held that a show-cause notice issued under Section 130 of the UPGST Act, 2017 is without jurisdiction where liability to pay tax has not first been ... Jurisdiction of SCN issued u/s 130 of the UPGST Act, 2017 - liability to pay tax is not determined by the Department u/s 73 or 74 of the Act, 2017, before issuance of such SCN - violation of Section 35 of the Act, 2017 - HELD THAT:- Since the law is no longer res integra with regard to the proceedings to be initiated u/s 130 of the Act, 2017 without determination of tax under Section 73/74 of the Act, 2017, the present show cause notice issued u/s 122 read with Section 130 of the Act, 2017 is without jurisdiction. The present notice issued u/s 130 of the Act, 2017 cannot be issued in alleged violation of the Section 35 of the Act, 2017 and the proceedings initiated by the department are accordingly without any jurisdiction and law. The impugned order dated September, 17, 2025 is set aside. The department shall be at liberty to proceed in accordance with law against the petitioner by issuing show cause notices under relevant provisions of the Act, 2017. Pursuant to the order passed by this Court, the impugned seizure order dated September 6, 2025 is also quashed and set aside - petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether a notice under Section 130 of the U.P. GST Act, 2017 can be issued for an alleged violation of Section 35 of the Act prior to determination of tax liability under Section 73 or 74. 2. Whether a writ petition challenging a show cause notice issued under Section 130 (read with Section 122) is maintainable at the pre-determination stage on the ground that the notice is without jurisdiction and violates principles of natural justice. 3. Whether a seizure order made in consequence of a notice held to be without jurisdiction must be quashed, and the proper remedy for recovery of amounts already taken by the department. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of issuing a Section 130 notice prior to determination under Sections 73/74 Legal framework: Section 130 of the U.P. GST Act, 2017 deals with power to seize goods, cash and documents in certain cases of evasion or obstruction; Sections 73 and 74 deal with determination of tax liability for cases of non-payment and fraud/intentional evasion respectively. Section 122 provides for show-cause notice and initiation of proceedings under the Act. Precedent Treatment: The Court considered and applied earlier High Court decisions which held that proceedings under Section 130 cannot be initiated for alleged violations of provisions like Section 35 unless tax liability has first been determined under Section 73 or 74. Authorities relied upon by the petitioner were followed to the extent they establish this principle; no precedent was overruled. Interpretation and reasoning: The Court concluded that Section 130's coercive measures (seizure) presuppose a prior or concurrent determination of liability under the statutory mechanisms (Sections 73/74). Issuing a Section 130 notice for alleged contravention of Section 35 without such determination converts a remedial/determinative regime into a punitive/precautionary one not sanctioned by the scheme of the Act. The Court treated Section 122 read with Section 130 as not authorising pre-determinative seizure in relation to alleged tax liabilities that have not first been fixed under Sections 73 or 74. Ratio vs. Obiter: Ratio - A notice under Section 130 cannot validly be issued for alleged violation of Section 35 where tax liability has not been determined under Sections 73/74; such issuance is without jurisdiction. Obiter - None material to the core holding on this point. Conclusion: The Section 130 notice issued in the present matter for alleged contravention of Section 35 was without jurisdiction and therefore liable to be quashed. Issue 2: Maintainability of writ challenging show cause notice at pre-determination stage Legal framework: Constitutional writ jurisdiction to challenge administrative action that is ultra vires or without jurisdiction; principles of natural justice and public law remedies where statutory action exceeds powers conferred by the statute. Precedent Treatment: The Court relied on and followed authorities establishing that where a show cause notice is demonstrably without jurisdiction (not merely erroneous in fact or law), writ jurisdiction is available at the pre-adjudicatory stage. The Court applied earlier decisions cited by petitioner to support intervention at the notice stage; no contrary precedent was applied to restrict such intervention. Interpretation and reasoning: The Court observed that where the statute prescribes a sequence (determination of tax via Sections 73/74 before coercive action under Section 130), any deviation renders the notice void for want of jurisdiction. In such circumstances the issuance of a writ is maintainable because the notice is not a debatable exercise of discretion but a nullity. The Court invoked settled public law principles distinguishing between premature challenges to validly enacted procedural steps and legitimate challenge to actions that lack statutory authority. Ratio vs. Obiter: Ratio - Writ relief is maintainable against a show cause notice which is issued without jurisdiction in violation of the statutory scheme and principles of natural justice. Obiter - Reference to general principles from trade-mark and commercial tax cases (e.g., on exceptions to maintainability) to buttress the proposition. Conclusion: The writ petition challenging the impugned notice was maintainable and properly entertained because the notice was issued without jurisdiction. Issue 3: Consequence for seizure order and recovery already effected; appropriate remedy for refund Legal framework: Incidental consequences of quashing an unlawful notice include setting aside consequential orders (such as seizure) made pursuant to that notice; statutory refund and recovery mechanisms remain available where impoundment or recovery occurred. Precedent Treatment: The Court applied the corollary principle from precedents that where the foundational order is void, consequential orders must be quashed. The petitioner was not granted an immediate monetary refund by the Court but was directed to pursue statutory remedies. Interpretation and reasoning: Having held the notice void, the Court reasoned that the seizure order (Form GST INS-02 under Rule 139(7)) made on the basis of that notice lacked legal foundation and must be set aside. Regarding sums already recovered purportedly under Section 74A(9), the Court declined to order an immediate refund but preserved the petitioner's right to seek recovery through the statutory avenues available under the Act. Ratio vs. Obiter: Ratio - Consequential seizure orders based solely on a jurisdictionally void notice must be quashed. Obiter - Direction that the department may reinitiate proceedings under appropriate provisions if lawful. Conclusion: The impugned seizure order was quashed; amounts allegedly recovered may be claimed back but the petitioner must proceed in accordance with law (statutory refund/recovery procedures). The department is at liberty to proceed lawfully by issuing show cause notices under the relevant provisions of the Act. Cross-references and Practical Outcomes 1. Issues 1 and 2 are interlinked: the statutory sequencing requirement (Issue 1) is the basis for the conclusion on maintainability (Issue 2). 2. Issue 3 follows from Issues 1 and 2: quashing the foundational notice necessitates quashing consequential seizure; monetary remedies remain subject to statutory procedure. Final Disposition (legal conclusion) The Court quashed the impugned Section 130 notice and the consequential seizure order as being without jurisdiction; the department may proceed only by following the statutory scheme (including determination under Sections 73/74 where applicable), and the petitioner may seek refund/recovery by adhering to the remedies provided by law.