Vague GST show-cause notice under s.74 faces scrutiny; issues kept open for fresh adjudication after hearing

HC considered a writ petition challenging an adjudication order and initiation of proceedings under s.74 WBGST/CGST based on a show-cause notice dated 14 June 2024. HC held that petitioners established a prima facie case, noting that the notice was vague as it alleged non-production of documents without specifying which documents were deficient. HC further observed that the jurisdiction of the GST authorities to invoke s.74 in the facts required examination. HC indicated that the impugned show-cause notice may not withstand judicial scrutiny but refrained from a final determination, disposing of the petition while keeping all issues open for adjudication after hearing the parties.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether initiation of proceedings under Section 74 of the WBGST/CGST Act, 2017, on the basis of a show-cause notice dated June 14, 2024, in respect of the period July 2017 to March 2018 and in the context of TRAN-1 scrutiny, was within the jurisdiction of the GST authorities.

1.2 Whether the show-cause notice dated June 14, 2024, founded on alleged non-furnishing of documents, was vitiated for vagueness for not specifying the particular documents allegedly not supplied.

1.3 Whether the existence of an appellate remedy under Section 107 of the WBGST/CGST Act, 2017 barred the exercise of writ jurisdiction when a jurisdictional challenge and challenge to the validity of the show-cause notice were raised.

1.4 Whether, pending final adjudication of the writ petition, interim protection against coercive action pursuant to the adjudication order dated February 5, 2025, ought to be granted.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Jurisdiction of GST authorities to invoke Section 74 in the given factual context

2.1.1 Legal framework (as noticed by the Court)

The proceedings were initiated under Section 74 of the WBGST/CGST Act, 2017, on the basis of a show-cause notice dated June 14, 2024, alleging liability for the period July 2017 to March 2018 and arising out of scrutiny of TRAN-1 returns filed on transition from the service tax regime to the GST regime.

2.1.2 Interpretation and reasoning

The petitioners contended that: (i) the extended limitation under Section 74 could not be invoked in the manner adopted by the authorities for the said tax period; and (ii) the authorities had no jurisdiction to investigate affairs pertaining to service tax for the same period in the guise of scrutinizing TRAN-1 returns under the GST regime. The State respondents maintained that jurisdiction had been properly exercised and that the matter involved factual enquiry not warranting interference in writ jurisdiction.

The Court recorded that, in the facts and circumstances disclosed, it "needs to be assessed" whether the GST authorities "had/have jurisdiction" to issue the impugned show-cause notice under Section 74. On the materials presently available, the Court formed a prima facie view in favour of the petitioners on the jurisdictional challenge, treating it as a serious and arguable issue justifying examination in writ proceedings.

2.1.3 Conclusions

The Court held that a prima facie case had been made out questioning the jurisdiction of the GST authorities to issue the show-cause notice under Section 74 in the given factual matrix. Final determination was expressly reserved for decision after full hearing.

2.2 Validity of the show-cause notice - vagueness and non-specification of documents

2.2.1 Interpretation and reasoning

The petitioners asserted that: (i) the show-cause notice was premised solely on alleged non-furnishing of documents sought by the Central GST authorities; (ii) they had responded to the requisitions; and (iii) the notice failed to specify which documents were allegedly not provided, rendering it vague and unsustainable.

The Court noted, prima facie, that the show-cause notice was "vague" inasmuch as it was issued on the footing that "certain documents, which ought to have been provided...have not been provided", yet "the notice does not indicate or specify which document according to the respondent authorities was lacking". The Court observed that, on this ground alone, the show-cause notice "may not withstand scrutiny of Court", subject to a final decision after hearing all parties.

2.2.2 Conclusions

The Court concluded, at the prima facie stage, that the impugned show-cause notice suffered from vagueness due to non-specification of the missing documents and therefore may not withstand judicial scrutiny. The ultimate validity of the notice was kept open for final adjudication.

2.3 Maintainability of writ petition despite availability of alternative remedy under Section 107

2.3.1 Legal framework (as noticed by the Court)

The State respondents relied on the appellate remedy under Section 107 of the WBGST/CGST Act, 2017 as an "equally efficacious alternative remedy". The petitioners contended that the writ was maintainable as a jurisdictional issue had been raised and because the very foundation of the proceedings-the show-cause notice-was under challenge.

2.3.2 Interpretation and reasoning

The Court accepted that the matter involved a jurisdictional challenge as well as a challenge to the validity of the show-cause notice for vagueness. It took note of authorities cited by the petitioners where courts had intervened even at the show-cause stage on similar jurisdictional or foundational infirmities, and of a Co-ordinate Bench order granting protection in an "identical fact situation".

On consideration of submissions and material, the Court held that the petitioners had made out a prima facie case warranting interference notwithstanding the existence of a statutory appellate remedy, particularly because the jurisdiction of the authority and the legality of the show-cause notice itself were in question.

2.3.3 Conclusions

The Court implicitly held the writ petition to be maintainable at this stage despite the remedy under Section 107, since jurisdictional issues and foundational defects in the show-cause notice were involved. The matter was directed to be listed for further consideration on a subsequent date.

2.4 Grant of interim protection against coercive action on the basis of the adjudication order

2.4.1 Interpretation and reasoning

Noting that: (i) there was a pending jurisdictional challenge; (ii) the show-cause notice was, prima facie, vague and possibly unsustainable; and (iii) a "prima facie case" had been made out by the petitioners, the Court considered that allowing coercive steps to continue on the strength of the adjudication order dated February 5, 2025 would prejudice the petitioners before final adjudication of their challenge.

2.4.2 Conclusions

The Court restrained the GST authorities from taking any coercive action on the basis of the impugned adjudication order dated February 5, 2025 until further orders, and directed that the matter be listed for further consideration on a specified future date.

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