Facts of the Case

Trimurti Fragrances And Flavours Pvt. Ltd. and six others challenged a Demand-cum-Show Cause Notice dated 27.04.2023 issued by the Director General of GST Intelligence (DGGI), Ahmedabad Zonal Unit, alleging clandestine supply of scented tobacco/jarda without payment of GST during September 2020 to December 2021. The notice invoked Section 74(1) read with Section 122(2)(b) of the CGST Act, 2017 and cognate UPGST/IGST provisions, demanding CGST of Rs.30,16,473/-, UPGST of Rs.30,16,473/-, IGST of over Rs.10.36 crore, and GST Compensation Cess of over Rs.62.64 crore, besides interest, penalty and possible prosecution under Section 132. The notice followed interception of four trucks near Kanpur on 22.12.2021 and a Panchnama at the petitioner's premises; the petitioner had voluntarily deposited Rs.50 crore in response to the notice.

Issues Involved

  1. Whether the Demand-cum-Show Cause Notice, alleged to be based on incorrect facts and a premeditated conclusion, was liable to be quashed at the threshold under Article 226.
  2. Whether factual disputes raised by the petitioner — including the true sequence of loading and interception of the four trucks — could be adjudicated by a writ court instead of the authority issuing the notice.

Petitioner's Arguments

  • Argued that the notice was issued with an oblique motive, was based on incorrect facts, and contained numerous inaccuracies warranting interference.
  • Submitted that the true sequence was that the four trucks were being loaded at the factory gate, not intercepted mid-transit; only one invoice/e-way bill was complete at the time of verification because loading itself was still in progress, and applicable GST was paid after verification.
  • Contended the notice was self-contradictory, alleging both that invoices were fake and that invoice values were deliberately kept low, and did not satisfy the ascertainment standard required under Section 74.
  • Relied on Bharat Mint and Allied Chemicals v. Commissioner Commercial Tax to argue that the notice was unsustainable and liable to be quashed.

Respondent's Arguments

  • Submitted that the notice followed due investigation, scrutiny of invoices and consignment notes, and verification on the GSTN portal that firms dealing with the petitioner were fake or non-existent.
  • Argued that at the show-cause stage, the enquiry is limited to ascertaining whether tax liability has been evaded, and final determination follows only after considering the petitioner's reply.
  • Contended the petitioner remained free to raise all factual objections at the adjudication stage, and no interference under Article 226 was warranted.

Court Order/Findings

  • On a prima facie reading of the show-cause notice, the Court found that the allegations against the petitioners had substance, but declined to examine their correctness since that would require fact-appreciation properly left to the adjudicating authority.
  • The Court held there was no inherent lack of jurisdiction in issuing the notice, and that adjudication proceedings ordinarily should not be interjected under Article 226 once allegations of infraction of law arise, particularly where adequate statutory remedies exist to contest the notice on facts.
  • The case law relied upon by the petitioners was found inapplicable to the facts.
  • The writ petition was dismissed, leaving the petitioners free to pursue statutory remedies, and the Court clarified it had not adjudicated the facts, so no observation would prejudice the defence in the pending proceedings.

Important Clarification

  • Writ courts will generally not interdict a show-cause notice at the threshold merely because the noticee disputes the underlying facts or alleges a premeditated approach — such disputes are for the adjudicating authority to examine after reply and evidence.
  • The existence of an adequate statutory remedy to respond to a Section 74 show-cause notice, coupled with the absence of any jurisdictional defect, will ordinarily be sufficient for a court to decline interference under Article 226, even where large sums are demanded.
  • A voluntary deposit made in response to a notice does not, by itself, entitle the noticee to bypass adjudication.

Sections Involved

  • Section 74, CGST Act, 2017 — governs determination of tax not paid or short-paid, or input tax credit wrongly availed, by reason of fraud, wilful misstatement or suppression of facts.
  • Section 122(2)(b), CGST Act, 2017 — prescribes penalty for tax evasion involving fraud, wilful misstatement or suppression.
  • Section 132, CGST Act, 2017 — provides for prosecution for specified offences involving tax evasion above prescribed thresholds.
  • Section 20, IGST Act, 2017 and the GST (Compensation to States) Act, 2017 — extend CGST provisions to IGST and Compensation Cess demands respectively.

Decision – In Favour of

The writ petition was dismissed, in favour of the Department at this threshold stage, with the petitioners relegated to their statutory remedy of replying to the show-cause notice; the Court expressly did not adjudicate the underlying facts.

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. 1286 of 2023
  • CNR: Not available on record
  • Coram: Hon'ble Pritinker Diwaker, Chief Justice and Hon'ble Ashutosh Srivastava, J.
  • Decision Date: 07.11.2023
  • Disposal Nature: Dismissed - alternative statutory remedy of reply to SCN available

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