Pre-SCN consultation under Rule 142(1A) not mandatory; taxpayer directed to appeal under Section 107 CGST Act

HC held that issuance of a pre-SCN consultation notice under Rule 142(1A) is not mandatory, particularly in cases involving large-scale, complex fraudulent availment of ITC across multiple entities. The Court declined to interfere with the SCN issued after the effective date of the relevant notification and noted that the pending challenge to the notification does not vitiate the proceedings. The amount already deposited during investigation may be treated as part of the required pre-deposit. Observing that the period of limitation for appeal had not expired, HC relegated the petitioner to the statutory appellate remedy under Section 107 of the CGST Act and disposed of the writ petition.

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1. ISSUES PRESENTED AND CONSIDERED

1. Whether a writ petition challenging an Order-in-Original confirming GST demand on alleged fraudulent availment/passing on of ITC is maintainable when an efficacious alternative appellate remedy under Section 107 of the CGST Act is available.

2. Whether non-issuance of a pre-Show Cause Notice consultation in terms of Rule 142(1A) of the CGST Rules, 2017, after its amendment by Notification No. 79/2022-Central Tax, renders the Show Cause Notice dated 12 March 2025 and the consequential Order-in-Original invalid.

3. How the pending challenge to the validity of Notification No. 79/2022-Central Tax and the interpretation of amended Rule 142(1A) affect the present proceedings and the remedies available to the petitioner.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of writ petition in presence of alternative remedy and in a case of alleged fraudulent ITC

Interpretation and reasoning

The Court noted that the case concerns alleged large-scale fraudulent availment and passing on of ITC involving multiple entities and transactions worth crores of rupees. The respondent relied on prior decisions of the Court holding that in such matters of fraudulent ITC, writ petitions are generally not maintainable, and assessees must ordinarily pursue the statutory appellate remedy. The Court observed that the petitioner's limitation period for filing an appeal under Section 107 of the CGST Act had not expired. It also recorded that the petitioner had already deposited Rs. 1.66 crores during investigation, which could be adjusted towards the pre-deposit required for the appeal.

Conclusions

The Court held that, in the circumstances of alleged fraudulent ITC involving complex transactions and given the availability of an efficacious appellate remedy under Section 107 of the CGST Act within the limitation period, it was not inclined to entertain the writ petition. The petitioner was relegated to the appellate remedy, with liberty to file an appeal and to seek adjustment of the amount of Rs. 1.66 crores as pre-deposit.

Issue 2: Effect of non-issuance of pre-SCN consultation under amended Rule 142(1A)

Legal framework

The Court extracted Rule 142(1A) of the CGST Rules, 2017 as amended with effect from 15 October 2020, which provides that the proper officer "may" before service of notice under Sections 73 or 74 communicate the details of tax, interest and penalty ascertained by him in Part A of FORM GST DRC-01A. The Court noted that prior to the amendment the rule used the expression "shall". It referred to its earlier decision in Gulati Enterprises which distinguished between the pre-amendment and post-amendment positions, holding that pre-SCN consultation was mandatory only for SCNs issued prior to the amendment. It also referred to Banson Enterprises and Zeta International, where the Court had considered the post-amendment regime.

Interpretation and reasoning

The petitioner argued that absence of a pre-SCN consultative notice under Rule 142(1A) vitiated the SCN dated 12 March 2025 and the Order-in-Original, contending that this issue had not been considered in the Order-in-Original and challenging the amendment which changed "shall" to "may". The Court noted that, in Banson Enterprises, it had already been held that after the amendment brought in by Notification No. 79/2022-Central Tax, issuance of a pre-SCN consultation notice is no longer mandatory. The Court further observed that, particularly in cases of large-scale fraudulent ITC involving a complex maze of transactions and multiple entities with high-value demands, pre-SCN consultation would, in its prima facie view, be of little or no practical significance, unlike in simple or straightforward transactions. The Court indicated that even where searches are conducted, parties can tender illegally obtained amounts, but usually do not, reinforcing the limited utility of pre-consultation in such fraud cases.

Conclusions

The Court concluded that, post-amendment of Rule 142(1A) by Notification No. 79/2022-Central Tax (effective 15 October 2020), issuance of a pre-SCN consultation notice is not mandatory. Since the SCN in the present case was issued on 12 March 2025, after the amendment came into force, non-issuance of a pre-SCN consultation did not render the SCN or the Order-in-Original invalid and did not justify interference in writ jurisdiction.

Issue 3: Effect of pending challenge to Notification No. 79/2022-Central Tax and future proceedings

Legal framework

The Court recorded that Notification No. 79/2022-Central Tax, which amended Rule 142(1A) from "shall" to "may", had itself been challenged and that such challenge was already pending before the Court. It referred to the decision in Zeta International, wherein under similar circumstances and considering the same Notification, the Court had held that pre-SCN consultation is not mandatory after the amendment.

Interpretation and reasoning

While the petitioner sought to question the constitutional or legal validity of Notification No. 79/2022-Central Tax within the present writ, the Court noted that this very challenge is sub judice in other proceedings. It held that there was no occasion in this writ to reopen or independently determine that issue. Instead, it clarified how the pending adjudication would impact the petitioner's statutory appeal.

Conclusions

The Court held that the decision to be rendered in the pending matter in Zeta International regarding Notification No. 79/2022-Central Tax and amended Rule 142(1A) would bind the further proceedings in the petitioner's appeal under Section 107 of the CGST Act and thereafter. The Court disposed of the writ on this basis, expressly stating that its observations would not affect the merits of the case before the appellate authority.

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