Facts of the Case

The petitioner, Nektar Therapeutics (India) Pvt Ltd, a wholly owned subsidiary of Nektar Therapeutics Inc., USA, providing research and development services to its US parent, challenged before the Telangana High Court a show cause notice dated 21.07.2023 issued by the Additional Commissioner of Central Tax, proposing recovery of Rs.29,21,92,744 (IGST) claimed to be an erroneous refund, along with interest under Section 50 and penalty under Section 122(2)(b), invoking Section 74(1) of the CGST Act, 2017 read with the IGST Act, 2017. This was the second round of litigation: an earlier SCN dated 17.04.2023 issued by the Assistant Commissioner had been set aside by a Division Bench of the same High Court in W.P. No.15871 of 2023 (order dated 23.06.2023) on the ground that the Assistant Commissioner was not the "proper officer" per CBIC Circular No.31/05/2018-GST, with a direction that any fresh SCN be preceded by pre-show-cause consultation. Pursuant to that order, the Additional Commissioner (the proper officer) issued pre-SCN consultation notices dated 09.02.2023 and 12.07.2023, and thereafter the fresh SCN dated 21.07.2023 was issued, which the petitioner again challenged on jurisdiction and procedural grounds, along with a challenge to Notification No.04/2019-IGST dated 30.09.2019. The Division Bench heard the matter on 03.10.2023.

Issues Involved

  1. Whether the fresh SCN dated 21.07.2023 suffered from a jurisdictional defect similar to the earlier SCN.
  2. Whether the Department had complied with the pre-show-cause consultation requirement mandated by the Court's order dated 23.06.2023.
  3. Whether the writ petition was maintainable at the show-cause stage itself, or the petitioner ought to respond before the adjudicating authority.
  4. Whether Notification No.04/2019-IGST dated 30.09.2019 was clarificatory/retrospective, or ultra vires and violative of Article 14.

Petitioner's Arguments

  • The Additional Commissioner (5th respondent) did not have jurisdiction and wrongly assumed jurisdiction in issuing the impugned SCN.
  • The impugned notice was issued without properly considering the petitioner's reply and contrary to the Court's earlier order in W.P.No.15871 of 2023.
  • Reliance was placed on several precedents, including Raza Textiles v. ITO, Rampur, and Union of India v. Adani Exports Ltd., to argue that jurisdictional errors vitiate a notice at the threshold.
  • Notification No.04/2019-IGST dated 30.09.2019 was either clarificatory and hence retrospective, or arbitrary, contrary to the GST Council's recommendation, and violative of Article 14.

Respondent's Arguments

  • The impugned SCN was issued by the proper officer, i.e., the Additional Commissioner, consistent with the Court's earlier direction.
  • Pre-show-cause consultation notices dated 09.02.2023 and 12.07.2023 had already been issued in compliance with the Court's order dated 23.06.2023, before the fresh SCN was issued.
  • It was incumbent upon the petitioner to respond to the SCN and raise all defences before the adjudicating authority; filing a fresh writ petition instead was per se not maintainable.

Court Order/Findings

  • Since the fresh SCN was issued by the Additional Commissioner — the officer identified as the "proper officer" — the jurisdictional objection earlier available to the petitioner no longer survived.
  • Pre-show-cause consultation had in fact been undertaken by the proper officer in compliance with the earlier Division Bench order, and the writ petition, filed at the SCN stage itself, was devoid of merit.
  • The writ petition was dismissed, but the petitioner was granted liberty to appear before the adjudicating authority, file its reply, and raise all defences available in law.
  • The authority was directed to consider such reply before passing appropriate orders in accordance with law.
  • The time limit for passing the order-in-original was extended by thirty days on the Department's request, with no order as to costs.

Important Clarification

A writ petition challenging a Section 74 show cause notice on jurisdictional grounds will not survive once the notice is shown to have been issued by the "proper officer" identified in an earlier court order, and where pre-show-cause consultation has demonstrably been carried out; the taxpayer is instead relegated to responding to the SCN before the adjudicating authority rather than short-circuiting adjudication through a fresh writ petition.

Sections Involved

  • Section 74(1) of the Central Goods and Services Tax Act, 2017 — recovery of erroneous refund with intent to evade.
  • Section 50 of the CGST Act, 2017 — interest on recoverable amounts.
  • Section 122(2)(b) of the CGST Act, 2017 — penalty provisions.
  • Section 20 of the Integrated Goods and Services Tax Act, 2017 — applicability of CGST provisions to IGST.
  • Notification No.04/2019-IGST dated 30.09.2019 issued under the IGST Act, 2017.
  • Article 226 of the Constitution of India, 1950 — writ jurisdiction invoked.

Decision – In Favour of

Department, though not decisively. The writ petition challenging the SCN was dismissed as premature/without merit on the jurisdiction point, but the petitioner retained full liberty to contest the demand on merits before the adjudicating authority, so the substantive dispute over the Rs.29.21 crore IGST refund recovery remains open.

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.22584 of 2023
  • CNR: Not available
  • Coram: Hon'ble Sri Justice P. Sam Koshy and Hon'ble Sri Justice Laxmi Narayana Alishetty
  • Decision Date: 03.10.2023
  • Disposal Nature: Dismissed

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