Facts of the Case

The petitioners, proprietors of M/s Dimapur Diesels (WP(C)/129/2024) and the connected M/s Progressive Motors (WP(C)/130/2024), both registered under the CGST/NGST Act, were issued Notices in DRC-01A during 2022-23 intimating determined tax, interest and penalty for FY 2019-20 to 2021-22. After certain protest payments were made covering only the 15% penalty portion, Show Cause Notices dated 28.06.2023 were issued under Section 74(1) & (7) of the NGST Act calling upon the petitioners to explain why demand notices in DRC-07 should not be issued for the balance tax and interest. The petitioners did not reply to these notices, and orders dated 18.07.2023 and 17.07.2023 respectively were passed directing payment of the unpaid dues within 15 days, followed by summary orders in DRC-07. The petitioners approached the Court after nearly a year, and interim suspension of the payment orders was granted in 2024 and extended periodically thereafter.

Issues Involved

  1. Whether the Show Cause Notices dated 28.06.2023 satisfied the jurisdictional requirement under Section 74(1) of the NGST Act of alleging fraud, wilful misstatement or suppression of facts to evade tax.
  2. Whether the impugned payment orders complied with the mandatory hearing requirement under Section 75(4) and the reasoned-order requirement under Section 75(6) of the NGST Act.

Petitioner's Arguments

  • The Show Cause Notices did not contain a single whisper alleging fraud, wilful misstatement or suppression of facts, which is the sine qua non for invoking Section 74, as distinct from Section 73 of the NGST Act.
  • No opportunity of hearing was granted before passing the adverse orders, in violation of Section 75(4) of the NGST Act.
  • The impugned orders did not set out the relevant facts and the basis of the decision, contrary to the mandate of Section 75(6) of the NGST Act.
  • The Show Cause Notices were issued by one officer (Respondent No. 2) while the impugned orders were passed by another (Respondent No. 3), without any indication of the officer before whom a reply was to be filed.

Respondent's Arguments

  • The petitioners were duly issued Notices in DRC-01A informing them of the tax, interest and penalty liability, and having made only partial payments, the Department was justified in issuing Show Cause Notices under Section 74(1).
  • The petitioners had an efficacious alternative remedy of appeal under Section 107 of the NGST Act, which was never availed.
  • The petitioners' own conduct, including replies referencing evasion allegations and an implicated individual, showed awareness that their case fell within the ambit of suppression of facts to evade tax.

Court Order / Findings

  • The Court examined the Show Cause Notices dated 28.06.2023 and found no mention that any tax had not been paid, or that input tax credit had been wrongly availed, by reason of fraud, wilful misstatement or suppression of facts to evade tax – the jurisdictional pre-condition for invoking Section 74(1) of the NGST Act.
  • Since the jurisdictional fact necessary to trigger Section 74 was absent, the notices could not be treated as valid Show Cause Notices under Section 74(1).
  • The impugned orders were passed without granting an opportunity of hearing despite adverse decisions being contemplated, in breach of Section 75(4), and without recording relevant facts and the basis of the decision, in breach of Section 75(6) of the NGST Act.
  • The Show Cause Notices dated 28.06.2023 and the impugned orders (and summary orders) dated 18.07.2023 and 17.07.2023 in both writ petitions were set aside and quashed, with liberty to the Department to initiate fresh proceedings under Section 74 if permissible in law.
  • The period during which the writ petitions remained pending (03.07.2024 to 23.03.2026) was directed to be excluded while computing the limitation period under Section 74(10) of the NGST Act.

Important Clarification

  • A Show Cause Notice invoking the extended-period machinery of Section 74 must expressly allege the existence of fraud, wilful misstatement or suppression of facts to evade tax; the mere issuance of DRC-01A intimating a tax shortfall does not, by itself, satisfy this jurisdictional requirement.
  • Failure to record reasons and grant a hearing under Section 75(4) and 75(6) independently vitiates an adjudication order even where the assessee did not respond to the show cause notice.
  • Quashing a notice/order for jurisdictional or procedural defect does not bar the Department from re-initiating proceedings de novo, and courts frequently exclude the period consumed in the writ litigation while re-computing statutory limitation.

Sections Involved

  • Section 74(1), NGST Act, 2017 – requires allegation of fraud, wilful misstatement or suppression of facts to evade tax as a jurisdictional pre-condition.
  • Section 75(4), NGST Act, 2017 – mandates an opportunity of hearing before an adverse decision.
  • Section 75(6), NGST Act, 2017 – requires the order to set out relevant facts and the basis of the decision.
  • Section 74(10), NGST Act, 2017 – prescribes the limitation period for passing the adjudication order, from which the period of litigation was excluded.

Decision – In Favour of

Both writ petitions are allowed in favour of the Assessee. The Show Cause Notices and the impugned payment orders are quashed, with liberty to the Department to proceed afresh under Section 74 of the NGST Act.

Case Details

  • Court: Gauhati High Court (Kohima Bench)
  • Case No.: WP(C)/129/2024 with connected WP(C)/130/2024
  • CNR: GAHC020003662024
  • Neutral Citation: 2026:GAU-NL:154
  • Coram: Hon'ble Mr. Justice Devashis Baruah
  • Date of Order: 23.03.2026

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