2026 (3) TMI 1509 - HC - GST

GST notice validity turns on fraud allegations and reasoned hearing-compliant adjudication under the Act.

Section 74 of the Nagaland GST Act can be invoked only where the notice expressly alleges fraud, wilful misstatement, or suppression of facts to evade ... Validity of show cause notice under Section 74 - fraud, wilful misstatement and suppression of facts to evade tax - Opportunity of hearing in tax adjudication -Seeking extension of time for the purpose of complying with the said Notice. Validity of show cause notice under Section 74 - The show cause notices issued under Section 74(1) of the NGST Act were invalid for not disclosing the jurisdictional ingredients required for invoking that provision. - HELD THAT: - The Court held that jurisdiction under Section 74(1) can be exercised only where the proper officer forms the opinion that tax was not paid, short paid, erroneously refunded, or input tax credit was wrongly availed or utilized by reason of fraud, wilful misstatement, or suppression of facts to evade tax. The notices reproduced in the judgment merely referred to the ascertained liability and proposed issuance of DRC-07 for the remaining tax and interest, but did not state that the case involved fraud, wilful misstatement, or suppression of facts, nor otherwise disclose the basis for invoking Section 74. Since the statutory conditions for assumption of jurisdiction were not reflected in the notices, the notices were held to be fatally defective and not sustainable as notices under Section 74(1). [Paras 30, 31] The show cause notices were quashed, with liberty to the authorities to initiate fresh proceedings under Section 74, if otherwise permissible in law. Opportunity of hearing in tax adjudication - Reasoned adjudication order - HELD THAT:- The Court found that adverse orders had been passed against the petitioners without granting them an opportunity of hearing, although Section 75(4) requires such hearing where an adverse decision is contemplated. It further held that Section 75(6) mandates that the proper officer must set out the relevant facts and the basis of decision in the order. The impugned orders, on their face, did not record the relevant facts or the reasoning forming the basis of adjudication. On these defects, the Court held that the adjudication orders were not in consonance with Section 75, and that the case warranted interference in writ jurisdiction notwithstanding the availability of appellate remedy. [Paras 32, 33, 34] The adjudication orders and consequential summaries in DRC-07 were quashed. Final Conclusion: The Court allowed both writ petitions and set aside the impugned show cause notices, adjudication orders, and consequential DRC-07 summaries. It reserved liberty to the authorities to commence fresh proceedings under Section 74, if legally permissible, and directed exclusion of the pendency period of the writ petitions for limitation purposes. Issues: (i) whether a show cause notice under Section 74 of the Nagaland Goods and Services Tax Act, 2017 was valid without allegations of fraud, wilful misstatement, or suppression of facts to evade tax; (ii) whether the impugned adjudication orders were sustainable when no opportunity of hearing was granted and the orders did not set out the relevant facts and basis of decision.Issue (i): whether a show cause notice under Section 74 of the Nagaland Goods and Services Tax Act, 2017 was valid without allegations of fraud, wilful misstatement, or suppression of facts to evade tax.Analysis: Section 74 can be invoked only where non-payment, short payment, erroneous refund, or wrongful availment or utilisation of input tax credit is attributable to fraud, wilful misstatement, or suppression of facts to evade tax. The notices issued to the petitioners merely referred to the remaining tax and interest liability and did not disclose the foundational ingredients required for invoking Section 74. In the absence of those jurisdictional assertions, the notices failed to satisfy the statutory threshold.Conclusion: The show cause notices under Section 74 were invalid and could not be sustained.Issue (ii): whether the impugned adjudication orders were sustainable when no opportunity of hearing was granted and the orders did not set out the relevant facts and basis of decision.Analysis: Section 75 requires observance of the right of hearing when an adverse decision is contemplated and further mandates that the proper officer state the relevant facts and the basis of the decision in the order. The impugned orders were passed without affording a hearing and without recording the facts and reasons supporting the demand. The procedural safeguards under Section 75 were therefore not complied with.Conclusion: The impugned adjudication orders were unsustainable and liable to be quashed.Final Conclusion: The writ petitions succeeded, the notices and consequential orders were set aside, and the respondents were left at liberty to initiate fresh proceedings in accordance with law.Ratio Decidendi: Proceedings under Section 74 of the Nagaland Goods and Services Tax Act, 2017 are jurisdictionally valid only when the notice expressly discloses fraud, wilful misstatement, or suppression of facts to evade tax, and any adverse tax order must comply with the hearing requirement and reasoned-order mandate under Section 75.