Facts of the Case

The Petitioners, a Chartered Accountant and a trader, filed a writ petition under Article 226 challenging a Show Cause Notice dated 02.08.2023 and seeking a stay on adjudication proceedings.

This was the second writ petition filed by the same Petitioners. In the earlier writ, the Court had directed issuance of summary of notice in FORM GST DRC-01 and DRC-02.

The Petitioners contended that:

  • The issued DRC forms were not in accordance with law
  • The tax and penalty were not properly computed in the forms

The Show Cause Notice alleged involvement in transactions linked to fake firms created by third parties. The Petitioners had admitted business dealings with such persons in their recorded statements.

Issues Involved

  1. Whether FORM GST DRC-01 and DRC-02 were invalid due to improper computation of tax and penalty
  2. Whether the High Court should interfere under Article 226 at the Show Cause Notice stage
  3. Whether adjudication proceedings should be stayed due to alleged procedural defects

Petitioner’s Arguments

  • The DRC-01 and DRC-02 forms were not legally compliant
  • The forms failed to clearly specify tax and penalty liabilities
  • The Show Cause Notice had serious consequences, including disciplinary proceedings against the Chartered Accountant
  • The Petitioners claimed lack of involvement in alleged fake invoicing activities

Respondent’s Arguments

  • The Show Cause Notice clearly outlined allegations and referred to detailed annexures
  • The DRC-02 specifically referred to the Show Cause Notice for computation
  • The matter involved serious allegations of fake invoicing and fraudulent transactions
  • Adjudication proceedings were already underway and should not be interrupted

Court’s Findings / Order

The Delhi High Court held:

  • FORM GST DRC-02 validly referred to the Show Cause Notice for computation of tax and penalty
  • In complex transactions involving multiple parties, reference to the SCN is sufficient at the notice stage
  • The case involves serious allegations, including fake firms and fraudulent invoicing
  • The writ jurisdiction under Article 226 is limited and cannot be used to examine factual disputes or recorded statements
  • Since adjudication proceedings are ongoing, judicial interference is unwarranted

Final Order

  • The writ petition was disposed of
  • No interference granted
  • Adjudication proceedings to continue in accordance with law

Important Clarification by Court

  • At the Show Cause Notice stage, detailed computation in DRC forms is not mandatory if the SCN contains necessary details
  • Writ jurisdiction cannot be invoked to test factual correctness of statements or evidence
  • Courts generally avoid interference when adjudication is pending, especially in tax matters.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/PMS15052025CW64812025_202110.pdf 

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