Facts of the Case

The petitioner, M/s. Glaxosmithkline Consumer Health Care Limited (presently known as M/s. Hindustan Unilever Limited), represented by its Manager (Indirect Taxation) at Kompally, Medchal-Malkajgiri, Telangana, challenged a Show Cause Notice in FORM GST DRC-01 dated 29.09.2023 issued under Section 73 of the CGST Act, 2017 by the Deputy Commissioner (State Tax), Malkajgiri STU-2, for the period July 2017 to March 2018. The SCN confirmed a proposed demand of Rs.218,68,26,868/- along with interest and penalty, alleging non-payment of tax at the rate of 28%. The petitioner also sought an interim direction restraining the respondents from taking coercive action during the pendency of the proceedings. The matter was heard by a Division Bench comprising Hon'ble Justice P. Sam Koshy and Hon'ble Justice N. Tukaramji.

Issues Involved

  1. Whether a show-cause notice under Section 73 that lacks material particulars, source documents, and identification of the specific transactions alleged to be suspicious can be sustained.
  2. Whether the writ court should intervene at the show-cause stage instead of relegating the petitioner to reply to the notice.
  3. Whether the SCN's allegation of tax evasion at 28% was factually untenable given that none of the petitioner's products attracted a rate above 18% and whether the notice was time-barred.

Petitioner's Arguments

  • The Show Cause Notice was vague in the extreme, containing no substantial material on which the petitioner could even frame an explanation.
  • The notice failed to identify which specific transactions were doubtful or suspicious, or what scrutiny or proof was required from the petitioner.
  • Since November 2017, none of the petitioner's manufactured products carried a tax rate exceeding 18%, yet the SCN alleged non-payment of tax at 28% — a factual impossibility on the petitioner's own records.
  • The SCN was also barred by limitation, having been issued beyond the period, including any extension, permitted under the Act.

Respondent's Arguments

  • The writ petition was premature since it was filed at the mere show-cause stage; the petitioner ought to respond with clarifications, explanations and documentary proof, and the authority would examine the same.
  • If the explanation was found satisfactory, the proceedings could be dropped at that very stage, so writ jurisdiction should not be exercised.
  • The contents of the SCN were self-explanatory, and the petitioner merely needed to clarify the applicable tax rate and the tax actually paid, requiring no adjudication by the writ court.

Court Order/Findings

  • On a plain reading, the SCN lacked necessary information, source material, and any indication of the basis on which the authority found it necessary to issue the notice, appearing to have been issued mechanically and without application of mind.
  • Section 73 of the CGST Act begins with the words "where it appears," meaning the proper officer must have some material, information or complaint before initiating proceedings — a threshold this SCN failed to meet.
  • The Show Cause Notice dated 29.09.2023 was accordingly held unsustainable, being bereft of facts and materials, and was set aside/quashed.
  • The Department's right to initiate fresh proceedings in accordance with law, if permissible, was expressly reserved.
  • The writ petition was allowed to the extent of quashing the SCN, with no order as to costs.

Important Clarification

A show-cause notice under Section 73 must disclose the material, information or basis that led the proper officer to "appear" to find tax evasion or short payment; a mechanically issued notice devoid of specific transaction details, correct facts (such as applicable tax rate), and within limitation is liable to be quashed at the threshold itself, without the assessee being compelled to first respond and exhaust that stage.

Sections Involved

  • Section 73, CGST Act, 2017 — determination of tax not paid or short paid, or ITC wrongly availed, for reasons other than fraud or wilful misstatement.
  • Section 151, Code of Civil Procedure, 1908 — invoked in the connected interlocutory application seeking restraint on coercive action.
  • Article 226, Constitution of India — writ jurisdiction invoked to quash the impugned SCN.

Decision – In Favour of

The decision is clearly in favour of the Assessee. The Telangana High Court quashed the vague and mechanically issued Show Cause Notice raising a demand exceeding Rs.218 crore, though it left the Department at liberty to issue a fresh, properly particularised notice if permissible in law.

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.34139 of 2023
  • CNR: Not available
  • Coram: Hon'ble Sri Justice P. Sam Koshy and Hon'ble Sri Justice N. Tukaramji
  • Decision Date: 19-12-2023
  • Disposal Nature: Allowed; show cause notice quashed

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