Facts of the Case

Trimurti Fragrances And Flavours Pvt. Ltd. and six other petitioners approached the Allahabad High Court challenging a Demand-cum-Show Cause Notice dated 07.06.2023 issued by the Director General of Goods and Services Tax (Anti-Evasion), purportedly under the CGST Act, UPGST Act, IGST Act and GST (Compensation to States) Act, 2017. The notice alleged clandestine manufacture and removal, without payment of Central Excise duty and NCCD, of 137,75,58,363 pouches of SS-1 and HP-5 brand scented tobacco/zarda having an assessable value of Rs. 61,99,01,263/- during September 2020 to December 2021, involving duty evasion of Rs. 15,80,74,822/-. The allegations followed interception of four trucks near Bakarganj Chauraha, Kanpur on 22.12.2021. The petitioners had voluntarily deposited Rs. 50 Crores and sought quashing of the notice.

Issues Involved

  1. Whether the High Court could, in exercise of its extraordinary writ jurisdiction under Article 226 of the Constitution, interfere with and quash a Show Cause Notice issued under Section 74 of the CGST Act, 2017 on the ground that it was factually incorrect, vague or issued with an oblique/premeditated motive.
  2. Whether the Competent Authority (DGGI) lacked inherent jurisdiction to issue the impugned notice alleging clandestine manufacture and removal of scented tobacco/zarda without payment of duty.
  3. Whether disputed questions of fact regarding interception of trucks, invoicing and valuation could be adjudicated in writ proceedings or were to be relegated to the statutory adjudication mechanism.

Petitioner's Arguments

  • The Show Cause Notice was issued with an oblique motive, was based on incorrect facts and contained numerous inaccuracies.
  • The allegation that four trucks were "intercepted" outside the factory was false; the trucks were actually still being loaded at the factory gate, and invoices/E-Way Bills were under preparation when officials verified the goods.
  • Applicable GST was duly paid on the goods loaded in the trucks after verification.
  • The notice was based on presumptions and assumptions without corroborating evidence and did not satisfy the criteria for ascertainment of duty under Section 74 of the CGST Act, 2017, making it bad in law.
  • The notice was self-contradictory, alleging both fake invoices and undervaluation with intent to evade duty.
  • Rs. 50 Crores had already been voluntarily deposited; reliance was placed on Bharat Mint and Allied Chemicals vs. Commissioner Commercial Tax (2022 Law Suit (All) 228).

Respondent's Arguments

  • The notice was issued only after due investigation, scrutiny of invoices and consignment notes, and verification on the GSTN portal that the dealing firms were fake/non-existent.
  • At the Show Cause Notice stage, consideration is limited to ascertaining information that the assessee has evaded tax liability; final determination follows only after considering the assessee's reply.
  • The petitioner was at liberty to raise all factual issues/objections at the appropriate adjudicatory stage.
  • No interference was warranted under Article 226 of the Constitution.

Court Order/Findings

  • The Court perused the Show Cause Notice and found, prima facie, that the allegations levelled against the petitioners had substance.
  • It declined to examine the correctness of the allegations, holding that this involved fact-appreciation for which the petitioners had adequate statutory remedy of filing objections to the notice and leading defence evidence.
  • There was no inherent lack of jurisdiction in the Competent Authority to issue the Show Cause Notice, and once allegations of infraction of law arise, adjudication proceedings ordinarily should not be interjected through the extraordinary jurisdiction under Article 226 of the Constitution.
  • The argument that the notice was issued with a premeditated mind did not merit consideration at this stage of proceedings.
  • The case law relied upon by the petitioner was held inapplicable to the facts of the case.
  • The writ petition was dismissed, leaving it open to the petitioners to take recourse to remedies available under law; the Court clarified it had not adjudicated the facts and that no observation in the order would prejudice the defence to be set up in the pending adjudication.

Important Clarification

  • A Show Cause Notice issued under Section 74 of the CGST Act, 2017 cannot ordinarily be quashed under Article 226 merely on allegations that it is factually inaccurate or issued with a premeditated/oblique motive, so long as the issuing authority has jurisdiction.
  • Disputed questions of fact concerning interception of goods, invoicing and valuation are to be resolved through the statutory reply/objection and adjudication mechanism, not by writ courts.
  • Voluntary deposit of duty during investigation does not, by itself, entitle a petitioner to quashing of the show cause notice.
  • Observations made by the writ court while declining interference do not amount to adjudication on merits and cannot prejudice the defence available in adjudication proceedings.

Sections Involved

  • Section 74, CGST Act, 2017 – determination of tax not paid, short paid or erroneously refunded by reason of fraud, wilful misstatement or suppression of facts; cited as the basis for the impugned notice.
  • Section 11A, Central Excise Act, 1944 – recovery of duties not levied, not paid, short-levied or short-paid.
  • Section 11AA, Central Excise Act, 1944 – interest on delayed payment of duty.
  • Section 11AC, Central Excise Act, 1944 – penalty for short-levy/non-levy of duty involving fraud or suppression.
  • Sections 9 and 9AA, Central Excise Act, 1944 – offences and penalties, and presumption of culpable mental state.
  • Rule 28, Central Excise Rules, 2017 – confiscation of goods liable to duty evasion and related penalty.
  • Section 136, Finance Act, 2001 – levy and collection of National Calamity Contingent Duty (NCCD).
  • Article 226, Constitution of India – extraordinary writ jurisdiction of High Courts, invoked to challenge the Show Cause Notice.

Decision – In Favour of

The decision is in favour of the Department. The Allahabad High Court dismissed the writ petition filed by Trimurti Fragrances And Flavours Pvt. Ltd. and its co-petitioners, declining to interfere with the impugned Show Cause Notice issued by the Director General of Goods and Services Tax. The Court held that the Competent Authority was not without jurisdiction to issue the notice and left the petitioners free to avail the alternative statutory remedy of filing objections/reply before the adjudicating authority, clarifying that it had not adjudicated the facts on merits.

Related Case Laws

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

Case Details

  • Court: Allahabad High Court
  • Case No.: WRIT TAX No. 1290 of 2023
  • CNR: Not available
  • Coram: Chief Justice Pritinker Diwaker and Justice Ashutosh Srivastava
  • Decision Date: 08.11.2023
  • Disposal Nature: Writ Petition Dismissed

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