2026 (3) TMI 900 - HC - GST

Independent adjudication under Section 74 may proceed on relevant material despite alleged irregular searches, subject to adjudicatory testing.

Section 74 is an independent adjudicatory provision and its initiation does not depend on prior action under Section 67; the provision may be invoked on ... Initiation of proceedings under Section 74 of the Central Goods and Services Tax Act, 2017 - independent adjudicatory power to issue a show cause notice when the contingencies - principles of natural justice - territorial jurisdiction - rule of prudence and fair play - Admissibility of evidence obtained by illegal search - Permissibility for proper officer to rely on materials gathered by another Commissionerate - Prematurity of writ interference where noticee has opportunity to reply. Independence of adjudication under Section 74 from proceedings under Section 67 - HELD THAT:- The Court held that Section 74 confers an independent substantive power on the proper officer to initiate adjudicatory proceedings and that initiation under Section 74 may follow from diverse sources (including scrutiny under Section 61) and is not conditional upon proceedings under Section 67. The plain language of Section 74 does not prescribe the legal source of foundational material; what matters is that material exists and particulars are supplied so the noticee can reply. [Paras 7] Proceedings under Section 74 may be validly initiated notwithstanding infirmities, if any, in action under Section 67, provided relevant material exists Admissibility of material obtained in alleged illegal search governed by relevancy - HELD THAT:- Relying on precedents including Pooran Mal [1973 (12) TMI 2 - SUPREME COURT] and subsequent authority, the Court reiterated that Indian evidence law admits relevant material notwithstanding irregularity in acquisition; exclusion is a matter of prudence, not an automatic rule. Neither Section 67 nor Section 74 contains an express or implied bar to use of such material, and the noticee can challenge relevance or admissibility during adjudication. [Paras 8] Material seized in the course of an alleged illegal search may be acted upon in Section 74 proceedings subject to its relevancy and admissibility Permissibility for proper officer to rely on materials gathered by another Commissionerate - HELD THAT:- The Court found no statutory impediment to a proper officer relying on materials collected by another Commissionerate, particularly in coordinated investigations into a widespread racket. Where materials gathered elsewhere are furnished to the noticee and form part of the factual foundation, reliance on them is permissible and accords with the requirement to supply all foundational particulars for an effective reply. [Paras 10] Materials collected by another Commissionerate may be utilized by the proper officer in issuing and adjudicating a show-cause notice under Section 74 Prematurity of writ interference where noticee has opportunity to reply - HELD THAT:- The Court observed that where the foundational material has been furnished and the statutory process under Section 74 affords an opportunity to submit a reply, the writ jurisdiction should not be exercised to quash the notice at the threshold. The propriety and relevance of the material are matters for factual adjudication by the proper officer, and premature judicial intervention would undercut the statutory adjudicatory process. [Paras 13] The writ petition was premature and the noticee should be afforded the statutory opportunity to file a reply and defend in the adjudicatory proceedings Final Conclusion: The intra Court appeal was allowed; the Single Judge's order was set aside and the writ petition dismissed. The respondent is directed to file a reply to the show cause notice and the Revenue is permitted to proceed with adjudication in accordance with law, with all contentions on the merits kept open. Issues: (i) Whether initiation of proceedings under Section 74 of the Central Goods and Services Tax Act, 2017 is contingent upon or dependent on actions under Section 67 of the Central Goods and Services Tax Act, 2017; (ii) Whether material gathered during inspection, search or seizure that is alleged to have been obtained in an illegal or jurisdictionally infirm action is inadmissible or incapable of forming the basis of proceedings under Section 74 of the Central Goods and Services Tax Act, 2017; (iii) Whether a proper officer may rely upon material gathered by officers of another Commissionerate for initiation of proceedings under Section 74 of the Central Goods and Services Tax Act, 2017; (iv) Whether interference by writ jurisdiction with a show cause notice at the threshold is permissible when the noticee has been furnished the material and afforded an opportunity to reply.Issue (i): Whether initiation of proceedings under Section 74 of the Central Goods and Services Tax Act, 2017 is contingent upon or dependent on actions under Section 67 of the Central Goods and Services Tax Act, 2017.Analysis: Section 74 confers an independent adjudicatory power to issue a show cause notice when the contingencies enumerated therein are satisfied; nothing in the language of Section 74 conditions its invocation upon prior or valid action under Section 67. Initiation under Section 74 may follow from various sources of material including scrutiny and other enquiries; dependence on Section 67 is not mandated by the statutory text.Conclusion: Proceedings under Section 74 of the Central Goods and Services Tax Act, 2017 are independent and not contingent upon actions under Section 67 of the Central Goods and Services Tax Act, 2017.Issue (ii): Whether material gathered during inspection, search or seizure that is alleged to have been obtained in an illegal or jurisdictionally infirm action is inadmissible or incapable of forming the basis of proceedings under Section 74 of the Central Goods and Services Tax Act, 2017.Analysis: The admissibility and use of material is governed by relevancy and the test of admissibility; Indian authorities recognise that evidence relevant to the issue is not rendered inadmissible merely because obtained irregularly, and exclusion is a discretionary rule of prudence and fair play rather than an automatic rule of law. Section 74 contains no express or implied bar to reliance upon material collected during search or seizure, even if the search is alleged to be infirm; the noticee is entitled to raise objections to relevancy and admissibility during adjudication.Conclusion: Material gathered during inspection, search or seizure is not automatically inadmissible in proceedings under Section 74 of the Central Goods and Services Tax Act, 2017 merely because the search or seizure is alleged to be illegal or jurisdictionally infirm; relevancy and admissibility are to be determined in adjudication.Issue (iii): Whether a proper officer may rely upon material gathered by officers of another Commissionerate for initiation of proceedings under Section 74 of the Central Goods and Services Tax Act, 2017.Analysis: Materials gathered in coordinated or simultaneous investigations by different Commissionerates may be forwarded to the proper officer having territorial jurisdiction over the noticee; the statutory scheme requires supply of all materials forming the basis of a show cause notice so as to enable effective reply; nothing in Section 74 prohibits reliance on such transferred materials where they disclose circumstances contemplated by the provision.Conclusion: A proper officer may rely upon material gathered by officers of another Commissionerate for initiating proceedings under Section 74 of the Central Goods and Services Tax Act, 2017, subject to furnishing the material to the noticee and adjudication of admissibility.Issue (iv): Whether interference by writ jurisdiction with a show cause notice at the threshold is permissible when the noticee has been furnished the material and afforded an opportunity to reply.Analysis: Where the foundational material has been furnished and the statutory adjudicatory process under Section 74 permits the noticee to raise objections and contest relevancy and admissibility, premature judicial intervention in writ jurisdiction is inappropriate; the proper forum to test evidentiary value and facts is the adjudicatory proceedings under the statute.Conclusion: Interference by writ jurisdiction at the threshold is premature when the noticee has been supplied the material forming the basis of the show cause notice and is afforded an opportunity to reply.Final Conclusion: The High Court allowed the writ appeal, set aside the Single Judge's order, dismissed the writ petition, and permitted the revenue to proceed with adjudication under Section 74 of the Central Goods and Services Tax Act, 2017 after the noticee files a reply; all contentions on merits remain open for adjudication.Ratio Decidendi: Section 74 of the Central Goods and Services Tax Act, 2017 is an independent adjudicatory provision; material relevant to the issues may be acted upon in proceedings under Section 74 even if obtained in searches alleged to be irregular, and a proper officer may rely on material gathered by other Commissionerates provided the material is furnished to the noticee and admissibility is determined in adjudication.