Facts of the Case

The petitioners, M/s Pochampad Construction Company Private Limited and its Managing Director, approached the Telangana High Court under Article 226 of the Constitution of India against the Union of India, CBIC and officers of the Directorate of GST Intelligence.

The writ petition arose from the petitioners’ grievance that respondent Nos. 4 and 5 had repeatedly summoned them in connection with allegations of evasion of Goods and Services Tax and that they apprehended being arrested again.

The Court recorded that petitioner No. 2 had earlier been arrested on 03 November 2020, following which the petitioners paid a sum of ₹4,51,00,000.

The petitioners’ specific grievance was that, without quantification of the demand, the respondents were compelling them to make payments on the alleged ground of GST evasion. They further apprehended that they could again be summoned and arrested on the same set of allegations.

The writ petition also challenged the proceedings arising from the letter dated 03 November 2020, through which the petitioners alleged that ₹4.51 crore had been collected illegally and contrary to the CGST Act, 2017, and sought consequential refund. The petition invoked alleged violations of Articles 14, 19 and 265 of the Constitution of India.

Issues Involved

  1. Whether the GST authorities could allegedly compel the petitioners to make payment of ₹4.51 crore without quantification of the tax demand.
  2. Whether the petitioners’ apprehension of being summoned and arrested again on the same set of GST evasion allegations was justified after completion of the investigation.
  3. Whether the petitioners were entitled to a direction for refund of ₹4.51 crore allegedly collected by the GST intelligence authorities.
  4. Whether, after completion of investigation, the respondents were legally entitled to proceed by issuing a show cause notice under the relevant provisions of the CGST Act, 2017.
  5. Whether the alleged collection of money and the apprehended coercive action violated Articles 14, 19 and 265 of the Constitution of India.
  6. Whether any finding on the substantive merits of the alleged GST liability was required at the writ stage when the proposed show cause notice was still being finalised.

Petitioners’ Arguments

The petitioners contended that they had been repeatedly summoned by the Directorate of GST Intelligence in relation to allegations of GST evasion and feared further coercive action, including re-arrest.

They submitted that petitioner No. 2 had already been arrested on 03 November 2020 and that thereafter an amount of ₹4.51 crore had been paid.

The principal grievance was that the respondents were allegedly compelling payment without first quantifying the demand under the statutory mechanism contemplated by the CGST Act, 2017.

The petitioners further argued that they apprehended being summoned again and arrested on the same set of allegations, notwithstanding the earlier arrest and payment.

Accordingly, they sought judicial protection against further coercive action and challenged the alleged collection of ₹4.51 crore as illegal, arbitrary and contrary to the CGST Act, 2017 and the constitutional protections invoked in the writ petition.

Respondents’ Arguments

Counsel appearing for the Central Board of Indirect Taxes and Customs and the Directorate of GST Intelligence submitted, on instructions, that the investigation conducted by respondent Nos. 4 and 5 had already been completed.

The respondents further informed the Court that the show cause notice proposed to be issued to the petitioners was in the process of being finalised.

Thus, the respondents’ position before the Court was that the investigative stage had concluded and the matter was moving toward formal statutory proceedings through issuance of a show cause notice under the relevant provisions of the CGST Act, 2017.

Court Order / Findings

The Telangana High Court took note of the categorical submission made on behalf of CBIC and the Directorate of GST Intelligence that the investigation had been completed and that the show cause notice was being finalised.

In view of that position, the Court held that the petitioners’ grievance or apprehension regarding being arrested again by respondent Nos. 4 and 5 appeared to be misconceived.

The Court further clarified that, once the investigation had been completed, it was open to the respondents to issue a show cause notice under the relevant provisions of the Central Goods and Services Tax Act, 2017.

If such a show cause notice were issued, the petitioners would be entitled to contest the same in accordance with law.

Significantly, the High Court expressly stated that it was not expressing any opinion on the merits of the dispute and that all contentions were kept open.

Accordingly, the writ petition was disposed of without costs, and all pending miscellaneous applications, if any, were closed.

Important Clarification

The most important clarification emerging from the order is that the High Court did not adjudicate the substantive GST liability, did not determine whether the alleged GST evasion stood established, and did not finally pronounce upon the legality of the underlying demand on merits.

The Court’s disposition was materially based on the respondents’ statement that:

  • the investigation had been completed;
  • the show cause notice was in the process of being finalised; and
  • consequently, the apprehension of re-arrest appeared misconceived.

The Court preserved the petitioners’ right to contest any show cause notice issued under the relevant provisions of the CGST Act, 2017 and expressly kept all contentions open.

Therefore, the order should not be read as a final judicial approval of the alleged collection of ₹4.51 crore, nor as a final adjudication of the refund claim, tax liability, alleged evasion, or merits of any future show cause notice. The operative finding was confined to the procedural position arising from completion of investigation and the proposed statutory proceedings.

Sections / Constitutional Provisions Involved

Article 226 of the Constitution of India — Invoked for exercise of the High Court’s writ jurisdiction and for issuance of an appropriate writ, order or direction, particularly in the nature of mandamus.

Article 14 of the Constitution of India — Invoked by the petitioners in alleging arbitrary and unlawful action.

Article 19 of the Constitution of India — Invoked in the writ petition while challenging the alleged coercive action.

Article 265 of the Constitution of India — Relevant to the petitioners’ contention that tax cannot be collected except by authority of law.

Central Goods and Services Tax Act, 2017 — The principal statutory enactment governing the GST investigation, alleged evasion and contemplated issuance of show cause notice.

Relevant provisions of the CGST Act, 2017 concerning issuance of show cause notice — The Court did not specify a particular section number in the operative order; it stated that the respondents could issue a show cause notice under the “relevant provisions” of the CGST Act, 2017. Accordingly, no specific CGST section should be attributed to the Court beyond the wording of the order.

Section 151 of the Code of Civil Procedure, 1908 — Invoked in the interlocutory applications seeking interim relief, including refund of 50% of the disputed amount pending the writ petition and stay of arrest pending disposal.

Link to Download the Order-https://mytaxexpert.co.in/uploads/1783402370_1338compressed.pdf

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