Facts of the Case

The petitioner, M/s Jorabat Shillong Expressway Limited, a road concessionaire receiving annuity payments from the National Highways Authority of India (NHAI) for construction of a road project, approached the High Court of Meghalaya at Shillong challenging a Demand-cum-Show Cause Notice bearing reference No. DGGI/INV/91/2021-O/o DD-DGGI-RU-Shillong/941 dated 30.09.2023, issued under Section 74 of the CGST Act, 2017 and the corresponding Section 74 of the Meghalaya GST Act, 2017. The notice demanded GST allegedly short-paid on annuity received from NHAI, along with interest and penalty, requiring a reply within 30 days. The petitioner also challenged a circular dated 17.06.2021 issued by the Board and the recommendation made in the 43rd GST Council Meeting held on 28.05.2021, which had clarified that Entry 23A of the relevant exemption notification does not exempt GST on annuity paid for road construction — the very basis on which the notice was issued.

Issues Involved

  1. Whether the Demand-cum-Show Cause Notice issued under Section 74 of the CGST/MGST Act, demanding GST on NHAI road-construction annuity, was without jurisdiction in view of the annuity exemption notifications.
  2. Whether the circular dated 17.06.2021 and the 43rd GST Council Meeting recommendation clarifying Entry 23A of the exemption notification were legally sustainable.
  3. Whether a writ petition against the show cause notice was maintainable at that stage, before any final order was passed by the adjudicating authority.

Petitioner's Arguments

  • The demand for GST on annuity received from NHAI directly contradicts the exemption granted to such annuity under notifications dated 28.06.2017, 13.10.2017, 29.06.2017 and 09.11.2017.
  • The impugned circular dated 17.06.2021, founded on the 43rd GST Council Meeting recommendation of 28.05.2021, wrongly restricted the scope of Entry 23A and formed the sole basis for the show cause notice.
  • A communication dated 19.01.2021 sent in response to a Section 70 summons already set out the Council's decision to exempt annuity from tax, showing the department's stand was already fixed against the petitioner.
  • Filing a reply to the show cause notice would be a futile exercise given the department's predetermined position.
  • The Karnataka High Court in DPJ Bidar-Chincholi (Annuity) Road Project Pvt. Ltd. vs. Union of India (11.07.2022) had already held the very same circular dated 17.06.2021 to be bad in law and set it aside, so relegating the petitioner to adjudication would serve no purpose.

Respondent's Arguments

  • The learned DSG accepted that the Karnataka High Court had set aside the impugned circular and that the respondents were bound to take that ruling into consideration.
  • Notwithstanding that ruling, the department had not taken a predetermined or inflexible stand on the circular that would render a reply to the show cause notice a foregone conclusion.
  • Since the issue was yet to be finally decided by the adjudicating authority, the writ petition was premature and not liable to be entertained at this stage.

Court Order/Findings

  • The Court found the writ petition was not devoid of merit, but noted that final orders were yet to be passed by the respondents on the show cause notice.
  • Without going into the merits of the challenge, the Court held that a writ against a Section 74 show cause notice is premature where adjudication is still pending, and disposed of the petition with a direction that the petitioner first participate in the proceedings by responding to the notice and placing before the authority the facts and materials relied upon in the writ petition.
  • Since the original 30-day period for replying to the show cause notice had already elapsed during the pendency of the writ petition, the respondents were directed to accept the petitioner's response if filed within 30 days from the date of the order and consider it in accordance with law.
  • The matter was accordingly closed and disposed of, with no order as to costs.

Important Clarification

  • A pending challenge to the underlying circular before a sister High Court — even a ruling quashing it — does not by itself make a writ against a Section 74 show cause notice founded on that circular maintainable; the assessee is still expected to respond to the notice in the first instance.
  • The favourable ruling from another High Court (here, the Karnataka High Court's decision on the same circular) can and should be placed before the adjudicating authority as part of the reply, which the authority is bound to consider.
  • Where the reply period lapses because of the pendency of writ proceedings, courts will typically grant a fresh window (calculated from the date of disposal) to file the reply rather than leave the assessee without a remedy.
  • The GST treatment of annuity payments received by concessionaires for road construction remains a live and disputed issue across High Courts, with rulings differing on the validity of the 17.06.2021 circular.

Sections Involved

  • Section 74, CGST Act, 2017 — determination of tax not paid or short paid by reason of fraud, wilful misstatement or suppression of facts.
  • Section 74, Meghalaya GST Act, 2017 — the corresponding State provision under which the parallel notice was issued.
  • Section 70, CGST Act, 2017 — power to summon persons to give evidence and produce documents, invoked earlier in the investigation.
  • Entry 23A of the relevant exemption notification — the provision said to exempt annuity payments for road construction from GST, at the centre of the dispute.

Decision – In Favour of

The decision does not hand a clean win to either side. The writ petition was disposed of with directions — procedurally in favour of the Department to the extent that adjudication under the show cause notice was permitted to proceed, but with the Petitioner given liberty to place its case, including the Karnataka High Court's ruling on the very same circular, before the adjudicating authority within a fresh 30-day window.

Related Case Laws

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

Case Details

  • Court: High Court of Meghalaya at Shillong
  • Case No.: WP(C) No. 391 of 2023
  • CNR: Not available on record
  • Coram: Chief Justice (Acting) H. S. Thangkhiew and Justice B. Bhattacharjee
  • Decision Date: 11 December 2023
  • Disposal Nature: Disposed of as premature — petitioner directed to respond to the Section 74 show cause notice

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