2025 (11) TMI 1421 - HC - GST

Show cause notices after search upheld; procedural seizure defects to be raised before adjudicating authority, writ petitions dismissed

MR Steels Versus Deputy Commissioner of State Tax VI

HC upheld the validity of the impugned show cause notices issued pursuant to search and seizure operations conducted at the petitioner's premises. It held ... Validity of SCN which was preceded by a search on the premises of the petitioner during which certain documents/data were seized - seizure was without any panchanama, except loosely recording the documents in a piece of paper which were not even signed - HELD THAT:- The impugned show cause notices have been issued by the proper officer pursuant to the search and seizure proceedings carried out during investigation. The grounds of non-compliance of Section 61 of the Act or lack of enough opportunity to submit the documents upon search and seizure can all be taken before the adjudicating officer by the petitioner. Therefore, on the previous occasion, this Court had permitted the petitioner to withdraw the writ petition and to pursue the assessment proceedings by taking all grounds of facts and law as are available to it. In the circumstances, no different view should be taken. The writ petitions are dismissed. The petitioner is at liberty to take all such available grounds of law and facts before the adjudicating officer in reply to the impugned show cause notices. ISSUES PRESENTED AND CONSIDERED 1. Whether show cause notices issued under the relevant provisions of the Telangana Goods and Services Tax Act, 2017 (the Act) following search and seizure operations were invalid for non-compliance with procedural requirements (absence of proper panchanama/formal record and lack of signed inventory) and for denial of opportunity to be heard. 2. Whether issuance of show cause notices without prior full scrutiny of returns under Section 61 of the Act (and the analogous central rules) renders the notices legally unsustainable and violative of Articles 14 and 265 of the Constitution. 3. Whether the High Court should exercise writ jurisdiction to quash show cause notices that are the product of search and seizure, or require the recipient to first engage with adjudicating authority, in light of settled precedent concerning challenge to notices. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Validity of show cause notices issued after search and seizure where panchanama/formal record is alleged to be deficient and opportunity to submit documents was limited Legal framework: Rule 139 of the Telangana GST Rules prescribes procedure for search and seizure in Form GST INS-02; the Act contemplates issuance of show cause notices by proper officers after investigation and seizure; principles of natural justice (opportunity to be heard) apply in adjudication under the Act. Precedent Treatment: The Court considered but did not overrule precedents that allow challenge to notices in exceptional cases where the notice is wholly non est or there is absolute want of jurisdiction. Reference was made to authority holding that ordinarily the recipient should respond to the show cause notice and raise contentions before the adjudicating authority. Interpretation and reasoning: The Court examined the factual contention of defective seizure record and limited opportunity, but held that these are matters that can be raised and adjudicated during the assessment proceedings before the adjudicating officer. The impugned notices were found to be issued by the proper officer pursuant to search and seizure; procedural non-compliance alleged does not render the notice void ab initio where jurisdiction to issue exists. Ratio vs. Obiter: Ratio - Where a show cause notice is issued by a competent officer pursuant to search and seizure, alleged defects in the panchanama or initial opportunity to submit documents are generally matters for adjudication in the assessment process rather than grounds for immediate writ relief, absent total want of jurisdiction. Obiter - Observations on the sufficiency of the particular loose paper inventory and signature issues are treated as factual matters to be examined by the adjudicating authority. Conclusions: The petitioner's challenge based on alleged absence of proper panchanama/formal signatures and limited opportunity to submit documents is not a ground to quash the show cause notices at the writ stage; the petitioner is permitted to raise these grounds before the adjudicating officer in reply to the notices. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Legality of issuing show cause notices without prior exhaustive scrutiny of returns under Section 61 (and analogous rules) and alleged violation of Articles 14 and 265 Legal framework: Section 61 of the Act concerns assessment procedures and scrutiny of returns; the Constitution's Article 265 requires tax levy and collection to be by authority of law; Article 14 requires equality and non-arbitrariness in exercise of power. Precedent Treatment: The Court considered a recent High Court decision relied on by the petitioner that emphasised prior scrutiny under the Central Act and Rules; however, the Court treated such reliance as insufficient to prevent issuance of notices where investigation and seizure had given rise to material warranting notice. The Court also relied on Supreme Court authority that cautions against routine quashing of show cause notices unless jurisdiction is totally lacking. Interpretation and reasoning: The Court held that issuance of show cause notices premised on discrepancies discovered during search and seizure is within the authority of the proper officer, and that the existence of statutory procedures for return scrutiny does not preclude initiation of proceedings where investigative material indicates tax liability. Allegations that the demand is contrary to Sections 7 and 16 or to constitutional provisions are matters for adjudication by the assessing authority and not for pre-emptive writ relief absent a finding of no jurisdiction. Ratio vs. Obiter: Ratio - The mere absence of prior exhaustive scrutiny of returns under Section 61 (or analogous rules) does not automatically invalidate a show cause notice based on material from search and seizure; such contentions are adjudicatory defenses to be addressed during assessment. Obiter - Comparative weight given to the cited contrary High Court decision was limited to factual distinction and did not create a categorical rule preventing issuance of notices post-search. Conclusions: Constitutional and statutory objections to the show cause notices premised on lack of return scrutiny or alleged conflict with Sections 7 and 16 must be ventilated before the adjudicating authority; they do not, by themselves, justify quashing notices issued after search and seizure. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Appropriateness of writ interference with show cause notices and direction to pursue adjudicatory remedies Legal framework: Principles limiting writ interference with administrative notices include preservation of inquiry and adjudicatory mechanisms, and the requirement of clear absence of jurisdiction before courts quash investigatory notices. Binding and persuasive precedents instruct courts to refrain from entertaining challenges to show cause notices except in exceptional circumstances. Precedent Treatment: The Court applied the principle from higher authority that writ relief should not be routinely granted to quash show cause notices unless the notice is totally non est for want of jurisdiction; the Court also noted coordinate-bench practice of refusing relief and allowing parties to contest notices during assessment. Interpretation and reasoning: Given prior opportunity afforded to the petitioner to withdraw an earlier writ with liberty to pursue assessment, and the limited factual matrix showing issuance of notices by competent officers post-search, the Court concluded that the appropriate course is to dismiss the writ petitions and permit the petitioner to raise all grounds before the adjudicating officer. The Court emphasized that jurisdictional issues can and should be addressed by the authority issuing the notice in the first instance, with judicial intervention reserved for clear jurisdictional defects. Ratio vs. Obiter: Ratio - Where a show cause notice is not shown to be wholly without jurisdiction, writ relief is inappropriate; the recipient must ordinarily be directed to answer the notice and pursue statutory remedies, with the courts intervening only on exceptional grounds. Obiter - Remarks regarding the earlier withdrawal with liberty to pursue assessment inform discretionary exercise but do not create a general bar to writ jurisdiction in all similar cases. Conclusions: The High Court will dismiss writ petitions challenging show cause notices issued after search and seizure where jurisdiction to issue is not demonstrably absent, and will leave the petitioner free to present all factual and legal defenses before the adjudicating authority; no order as to costs was directed.