Facts of the Case

Trimurti Fragrances Pvt Ltd and four others, engaged in manufacture of Pan Masala, challenged a Demand-cum-Show Cause Notice dated 27.04.2023 issued by the Directorate General of GST Intelligence (DGGI) under Section 74(1) read with Section 122(2)(b) of the CGST Act, 2017, the corresponding UPGST Act provisions, and Section 20 of the IGST Act, 2017. The notice alleged clandestine supply of Pan Masala without payment of tax between September 2020 and December 2021, following interception of four trucks near Bakarganj Chauraha, Kanpur, on 22.12.2021, and demanded aggregate CGST, UPGST, IGST and Compensation Cess liability running into several crores of rupees, including an IGST demand of Rs. 48,90,60,658/- and a Compensation Cess demand of Rs. 110,60,09,016/-, besides proposing prosecution under Section 132. The petitioners had already deposited over Rs. 71 crore voluntarily and sought quashing of the notice before the High Court of Judicature at Allahabad instead of replying to it.

Issues Involved

  1. Whether the Demand-cum-Show Cause Notice under Section 74(1) of the CGST Act, 2017 could be quashed at the threshold under Article 226 on the ground that it was based on incorrect facts and issued with a premeditated mind.
  2. Whether the High Court should examine disputed factual questions, such as whether the trucks were actually intercepted outside the factory premises, at the show-cause stage itself.
  3. Whether the petitioners had an adequate alternative statutory remedy that barred writ interference.

Petitioner's Arguments

  • The notice was issued with an oblique motive, was based on incorrect facts, and contained numerous factual inaccuracies regarding the place and manner of interception of the four trucks.
  • The trucks were being loaded at the factory gate, not intercepted elsewhere, and applicable GST had already been paid on the goods after physical verification.
  • The notice was self-contradictory, alleging both that invoices were fake and that invoice values were deliberately understated, and did not satisfy the ascertainment-of-duty criteria under Section 74.
  • Reliance was placed on Bharat Mint and Allied Chemicals vs. Commissioner Commercial Tax to argue that the notice was unsustainable in law.

Respondent's Arguments

  • The notice followed due investigation, scrutiny of invoices and consignment notes, and verification on the GSTN portal showing that firms dealing with the petitioners were fake or non-existent.
  • Consideration at the show-cause stage is limited to ascertaining whether tax liability has been evaded; final determination follows only after the assessee's reply is considered.
  • The petitioners remained free to raise all factual objections at the appropriate adjudicatory stage, and no case for writ interference under Article 226 was made out.

Court Order/Findings

  • The Court found, prima facie, that the allegations in the Show Cause Notice had substance, but declined to examine their correctness since that would involve disputed fact-appreciation better suited to the adjudicating authority.
  • There was no inherent lack of jurisdiction in issuing the Show Cause Notice, and once allegations of infraction of law arise, writ jurisdiction under Article 226 ought not to be used to interject adjudication proceedings where an adequate statutory remedy of filing objections/reply exists.
  • The writ petition was dismissed, leaving the petitioners free to pursue remedies under law, with an express clarification that the facts had not been adjudicated and no observation in the order would prejudice their defence in the pending proceedings.

Important Clarification

  • A Section 74 Show Cause Notice will not ordinarily be quashed at the threshold merely because the noticee disputes the facts alleged, such as the place of interception or the genuineness of invoices; such disputes must be raised in reply to the notice and tested in adjudication.
  • Allegations that a notice is self-contradictory or based on premeditated conclusions do not, by themselves, establish a jurisdictional defect warranting writ interference.

Sections Involved

  • Section 74(1), CGST Act, 2017 — determination of tax not paid or short paid by reason of fraud, wilful misstatement or suppression of facts.
  • Section 122(2)(b), CGST Act, 2017 — penalty for tax evasion involving fraud or suppression.
  • Section 132, CGST Act, 2017 — prosecution for specified GST offences.
  • Section 20, IGST Act, 2017 — application of CGST Act provisions, including Sections 74 and 122, to IGST.
  • Article 226, Constitution of India, 1950 — writ jurisdiction invoked and declined here in favour of the statutory remedy.

Decision – In Favour of

The writ petition was dismissed, and the Department's Show Cause Notice was left undisturbed for adjudication. This decision favours the Department to the extent that the notice survives and the petitioners must answer it through the statutory process, though the Court expressly declined to adjudicate the merits, leaving the petitioners' defence open before the adjudicating authority.

Related Case Laws

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

Case Details

  • Court: High Court of Judicature at Allahabad
  • Case No.: WRIT TAX No. 1280 of 2023
  • CNR: Not available
  • Coram: Chief Justice Pritinker Diwaker and Justice Ashutosh Srivastava
  • Decision Date: 7 November 2023
  • Disposal Nature: Dismissed (relegated to statutory remedy)

Link to Download the Order

Download the full judgment (PDF)

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.