Facts of the Case

The petitioner, M/s. Mondelez India Foods Private Limited, challenged a show-cause notice in Form GST DRC-01 dated 30.09.2023 issued by the Deputy Commissioner (ST), Secunderabad, under Section 73 of the CGST Act, 2017, for the period July 2017 to March 2018, confirming a demand of Rs.97,27,35,401/- along with interest under Section 50. The notice alleged non-payment of tax at 28% on certain products. The petitioner contended that none of its products manufactured from November 2017 onwards attracted a tax rate above 18%, and that the notice was also barred by limitation, including the extended period otherwise available to the authorities. On 20.10.2023, the Court had passed an interim status quo order and directed the State to seek instructions on the basis for the notice and the specific products alleged to attract the higher rate.

Issues Involved

  1. Whether the show-cause notice under Section 73 of the CGST Act was sustainable despite lacking specific material, facts or identification of the transactions alleged to involve tax evasion or suppression.
  2. Whether the writ petition was maintainable at the show-cause stage, or whether the petitioner ought to have first responded to the notice before invoking Article 226.

Petitioner's Arguments

  • The show-cause notice was vague, without any substantial material, and did not identify which transactions were doubtful or under scrutiny.
  • None of the petitioner's products manufactured from November 2017 onward attracted a tax rate exceeding 18%, contrary to the notice's allegation of non-payment at 28%.
  • The notice was issued beyond the period of limitation, including the extended period otherwise available to the authorities.

Respondent's Arguments

  • Since the petition was filed at the show-cause stage itself, the petitioner should have responded with clarifications, explanations and documentary proof, allowing the authorities to scrutinise the response and drop proceedings if warranted.
  • Writ jurisdiction ought not to be exercised at this preliminary stage; the notice was self-explanatory and the petitioner only needed to respond on the applicable rate of tax and taxes already paid, so no adjudication in writ was necessary.

Court Order/Findings

  • On a plain reading, the Court found the show-cause notice lacked the necessary information, source and material on the basis of which the authority found it necessary to issue the notice, and appeared to have been issued mechanically, without application of mind or basic scrutiny.
  • The Court held that Section 73 of the CGST Act, which begins with the words "where it appears," requires the authority to possess some material, information or complaint regarding the alleged evasion or suppression before initiating proceedings; the impugned notice was bereft of such facts and materials and was accordingly unsustainable.
  • The show-cause notice dated 30.09.2023 was set aside/quashed, with the Department's right expressly reserved to initiate fresh proceedings in accordance with law, if permissible.
  • The writ petition was allowed to that extent, without costs.

Important Clarification

  • A show-cause notice under Section 73 of the CGST Act must be founded on some discernible material, information or reasonable basis for the authority to have formed the opinion ("where it appears") that tax has been evaded or suppressed; a notice issued mechanically, without identifying the specific transactions or rate discrepancy alleged, is liable to be quashed in writ jurisdiction even at the show-cause stage.
  • Quashing of a defective notice on this ground does not bar the department from reinitiating proceedings with proper material, subject to limitation and other legal requirements.

Sections Involved

  • Section 73, CGST Act 2017 — determination of tax not paid or short paid, for reasons other than fraud.
  • Section 50, CGST Act 2017 — interest on delayed payment of tax.
  • Form GST DRC-01 — prescribed format for communicating a show-cause notice/summary of demand.

Decision – In Favour of

Decided in favour of the Assessee; the writ petition was allowed and the impugned Section 73 show-cause notice demanding Rs.97.27 crore was quashed as vague and bereft of facts, though the department's right to reinitiate proceedings on proper material was expressly reserved.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court for the State of Telangana at Hyderabad
  • Case No.: Writ Petition No.29673 of 2023
  • CNR: Not available
  • Coram: Justice P. Sam Koshy and Justice N. Tukaramji
  • Decision Date: 18-11-2023
  • Disposal Nature: Allowed; impugned SCN set aside

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