C/SCA/7613/2020 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 7613 of 2020 M/S MAHAVIR ENTERPRISE Versus ASSISTANT COMMISSIONER OF STATE TAX Appearance: MR.AVINASH PODDAR(9761) for Petitioner(s) No. 1 MS MANISHA LAVKUMAR SHAH, GOVERNMENT PLEADER WITH MR DHARMESH DEVNANI, AGP for Respondent(s) No. 1,2,3,4 CORAM: HONOURABLE CHIEF JUSTICE MR. VIKRAM NATH and HONOURABLE MR. JUSTICE J.B.PARDIWALA Date : 22/06/2020 ORAL ORDER (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1 By this writ application under Article 226 of Constitution of India, writ applicant, proprietary concern through its proprietor, has prayed for following reliefs: (a) Quash and set aside show cause notice in Form GST DRC 01 dated 30.11.2019 at Annexure to this petition. (b) declare Rule 142(1)(a) of CGST/GGST Rules, being ultra vires and dehors Act and violative of Articles 14 and 19 (1) (g) of Constitution of India, to extent it says notice issued under section 122. (c) Pending admission, hearing and final disposal of this petition, (i) Proceeding and Adjudication of impugned show cause notice at Annexure to this petition to be stayed; and (ii) No coercive action to be taken against petitioners; Page 1 of 16 Downloaded on : Fri Apr 30 09:58:53 IST 2021 C/SCA/7613/2020 ORDER (d) Grant ad interim reliefs in terms of prayers above; (e) Any other and further relief deemed just and proper be granted in interest of justice; (f) To award Costs of and incidental to this application be paid by Respondents; 2 facts giving rise to this writ application may be summarised as under: 2.1 writ applicant seeks to challenge legality and validity of show cause notice dated 30th November 2019 issued by respondent No.1 under Section 122(1) of Central Goods and Services Tax Act, 2017 (for short, 'the CGST Act') calling upon writ applicant to show cause why amount of Rs.6,87,68,821/ (Rupees Six Crore Eighty Seven Lac Sixty Eight Thousand Eight Hundred Twenty One only) should not be recovered for alleged contravention of provisions of Act and Rules. 3 Prima facie, it appears on plain reading of impugned show cause notice that it is case of department that writ applicant is involved in bogus billing transactions without any physical movement of goods. 4 show cause notice is yet to be adjudicated. 5 In such circumstances referred to above, writ applicant has come up before this Court seeking to get impugned show cause notice quashed and set aside. 6 It also needs to be stated at this stage that there is also challenge Page 2 of 16 Downloaded on : Fri Apr 30 09:58:53 IST 2021 C/SCA/7613/2020 ORDER to constitutional validity of Rule 142(1)(a) of CGST Rules on ground that same travels beyond provisions of Act and is result of excessive delegation of powers. SUBMISSIONS ON BEHALF OF WRIT APPLICANT: 7 Mr. Avinash Poddar, learned counsel appearing for writ applicant vehemently submitted that impugned show cause is invalid as Section 122 of Act, 2017 does not contemplate issue of any show cause notice. According to learned counsel, if it is case of department that writ applicant is guilty of fraud or suppression, then show cause notice under Section 74 of Act, 2017 is contemplated for purpose of determination of tax liability. 8 Mr. Poddar would submit that respondent No.1 has committed serious error in adding both outward supply and input tax credit for purpose of imposition of amount of penalty. According to him, it is contrary to scheme of CGST Act, more particularly, Section 74 of Act, 2017. 9 Mr. Poddar would submit that Rule 142(1)(a) of CGST Rules contemplates for issuance of summary notice electronically along with notice issued under Section 52 or Section 73 or Section 74 or Section 76 or Section 122 or Section 123 or Section 124 or Section 125 or Section 127 or Section 129 or Section 130 of GST Act, 2017. According to learned counsel, as Section 122 of Act, 2017 does not contemplate issue of any show cause notice, Rule 142(1)(a) travels beyond provisions of Act. In such circumstances, according to learned counsel, Rule 142(1)(a) deserves to be declared as ultra vires being in excessive delegation of powers. 10 In such circumstances referred to above, Mr. Poddar, learned Page 3 of 16 Downloaded on : Fri Apr 30 09:58:53 IST 2021 C/SCA/7613/2020 ORDER counsel prays that there being merit in his writ application, same may be allowed and reliefs prayed for in writ application may be granted. SUBMISSIONS ON BEHALF OF STATE: 11 Ms. Manisha Lavkumar Shah, learned Government Pleader assisted by Mr. Dharmesh Devnani, learned A.G.P. appearing for State has vehemently opposed this writ application. According to Ms. Shah, writ application seeking to question legality and validity of show cause notice is not maintainable because it cannot be said in present case that show cause notice issued by respondent No.1 is without jurisdiction or nullity. According to Ms. Shah, show cause notice is yet to be adjudicated. It is submitted that writ applicant must file his reply and make good his case for getting impugned show cause notice discharged. 12 Ms. Shah further contended that challenge to constitutional validity of Rule 142(1)(a) of Rules is without any foundation. In this connection, Ms. Shah invited attention of this Court to Section 164 of Act, which confers powers upon Government to make rules. Ms. Shah pointed out that Section 164 confers powers upon Government on recommendations of counsel by notification to make rules for carrying out provisions of Act, 2017. Ms. Shah would submit that Rule 142(1)(a) of Rules is valid and does not travel beyond provisions of Act, 2017. In short, submission of Ms. Shah is that Rule 142(1)(a) is not invalid on account of excessive delegation. 13 In such circumstances referred to above, Ms. Shah prays that there being no merit in this writ application, same deserves to be rejected summarily. Page 4 of 16 Downloaded on : Fri Apr 30 09:58:53 IST 2021 C/SCA/7613/2020 ORDER 14 Having heard learned counsel appearing for parties and having gone through materials on record, two questions fall for our consideration: [1] Whether impugned show cause notice deserves to be quashed and set aside as prayed for by writ applicant? [2] Whether Rule 142(1)(a) of Rules 2017 is in any manner ultra vires provisions of parent Act i.e. GST Act, 2017? 15 Before adverting to rival submissions canvassed on either side, we deem it appropriate to look into few provisions of Act and Rules. Section 122(1) of Act, 2017 reads thus: Penalty for certain Offences (1) Where Taxable Person who (i) Supply without invoice or supply with incorrect or false invoice; (ii) Issuing invoice without making supply of goods/ services under this act or rules made there under; (iii) Collects any amount as tax but fails to pay same to Government beyond period of three months from date on which such payment becomes due; (iv) Collects any tax in contravention of provisions of this act but fails to pay same to Government beyond period of three months from date on which such payment becomes due; (v) fails to deduct tax in accordance with provisions of sub section (1) of section 51 or deducts amount which is actually less than amount required to be deducted under said sub section, or where he fails to pay to Government under sub section (2) there of, amount deducted as tax; Page 5 of 16 Downloaded on : Fri Apr 30 09:58:53 IST 2021 C/SCA/7613/2020 ORDER (vi) fails to collect tax in accordance with provisions of sub section (1) of Section 52, or collects amount which is less than amount required to be collected under said sub section or where he fails to pay to Government amount collected as tax under sub section (3) of section 52 (vii) take or utilizes of input tax credit without actual receipt of goods or services or both either fully or partially, in contravention of provisions of this Act or rules made thereunder; (viii) Fraudulently obtains refund of tax under this act; (ix) take or distribute input tax credit in contravention of section 20, or rules made there under (x) falsifies or substitute financial records or produce fake accounts or documents or furnishes any false information or return with intention to evade payment of tax under this Act; (xi) is liable to be registered under this act but fails to obtains registration; (xii) furnishes false or incorrect information either at time of applying for registration of subsequently; (xiii) Obstruct or prevent any officer in discharge of his duties under this act; (xiv) transport any taxable goods without cover of documents as may be specified in this behalf; (xv) Suppress his turnover leading to evasion of tax under this act; (xvi) Fails to keep, maintain or retain books of account and other documents in accordance with provision of this act or rules made thereunder; (xvii) fails to furnish information or documents called by officer in accordance with provisions of this Act or rules made there under or furnishes false information or documents during proceedings under this act; Page 6 of 16 Downloaded on : Fri Apr 30 09:58:53 IST 2021 C/SCA/7613/2020 ORDER (xviii) Supplies, transport or stores any goods which he has reason to believe are liable to confiscation under this act; (xix) issue any invoice or document by using registration number of another registered person; (xx) tampers with, or destroys any material evidence or document; (xxi) Disposes off or tampers with any goods that have been detained, seized, or attached under this act, He shall be liable to pay penalty of TEN THOUSANDS RUPEES or amount equivalent tax evaded or tax not deducted/ collected under section 51 or short deducted or deducted but not paid to government or tax not collected under section 52 or short collected or collected but not paid to Government or input tax credit availed of or passed on or distributed irregularly, or refund claimed fraudulently, whichever is higher. 16 Section 74 of Act, 2017 reads thus: 74 Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts. 74. (1) Where it appears to proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful misstatement or suppression of facts to evade tax, he shall serve notice on person chargeable with tax which has not been so paid or which has been so short paid or to whom refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay amount specified in notice along with interest payable thereon under section 50 and penalty equivalent to tax specified in notice. (2) proper officer shall issue notice under sub section (1) at least six months prior to time limit specified in sub section (10) for issuance of order. Page 7 of 16 Downloaded on : Fri Apr 30 09:58:53 IST 2021 C/SCA/7613/2020 ORDER (3) Where notice has been issued for any period under sub section (1), proper officer may serve statement, containing details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for such periods other than those covered under sub section (1), on person chargeable with tax. (4) service of statement under sub section (3) shall be deemed to be service of notice under sub section (1) of section 73, subject to condition that grounds relied upon in said statement, except ground of fraud, or any wilful misstatement or suppression of facts to evade tax, for periods other than those covered under sub section (1) are same as are mentioned in earlier notice. (5) person chargeable with tax may, before service of notice under sub section (1), pay amount of tax along with interest payable under section 50 and penalty equivalent to fifteen per cent. Of such tax on basis of his own ascertainment of such tax or tax as ascertained by proper officer and inform proper officer in writing of such payment. (6) proper officer, on receipt of such information, shall not serve any notice under sub section (1), in respect of tax so paid or any penalty payable under provisions of this Act or rules made thereunder. (7) Where proper officer is of opinion that amount paid under sub section (5) falls short of amount actually payable, he shall proceed to issue notice as provided for in sub section (1) in respect of such amount which falls short of amount actually payable. (8) Where any person chargeable with tax under sub section (1) pays said tax along with interest payable under section 50 and penalty equivalent to twenty five per cent. Of such tax within thirty days of issue of notice, all proceedings in respect of said notice shall be deemed to be concluded. (9) proper officer shall, after considering representation, if any, made by person chargeable with tax, determine amount of tax, interest and penalty due from such person and issue order. (10) proper officer shall issue order under sub section (9) within period of five years from due date for furnishing of annual return for financial year to which tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within five years from Page 8 of 16 Downloaded on : Fri Apr 30 09:58:53 IST 2021 C/SCA/7613/2020 ORDER date of erroneous refund. (11) Where any person served with order issued under sub section (9) pays tax along with interest payable thereon under section 50 and penalty equivalent to fifty per cent. Of such tax within thirty days of communication of order, all proceedings in respect of said notice shall be deemed to be concluded. Explanation 1. For purposes of section 73 and this section, (i) expression all proceedings in respect of said notice shall not include proceedings under section 132; (ii) where notice under same proceedings is issued to main person liable to pay tax and some other persons, and such proceedings against main person have been concluded under section 73 or section 74, proceedings against all persons liable to pay penalty under sections 122, 125, 129 and 130 are deemed to be concluded. Explanation 2. For purposes of this Act, expression suppression shall mean non declaration of facts or information which taxable person is required to declare in return, statement, report or any other document furnished under this Act or rules made thereunder, or failure to furnish any information on being asked for, in writing, by proper officer. 17 Section 164 of Act, 2017 reads thus; Power of Government to make Rules 164. (1) Government may, on recommendations of Council, by notification, make rules for carrying out provisions of this Act. (2) Without prejudice to generality of provisions of sub section (1), Government may make rules for all or any of matters which by this Act are required to be, or may be, prescribed or in respect of which provisions are to be or may be made by rules. (3) power to make rules conferred by this section shall include power to give retrospective effect to rules or any of them from date not earlier than date on which provisions of this Act come into force. Page 9 of 16 Downloaded on : Fri Apr 30 09:58:53 IST 2021 C/SCA/7613/2020 ORDER (4) Any rules made under sub section (1) or sub section (2) may provide that contravention thereof shall be liable to penalty not exceeding ten thousand rupees. 18 Rule 142 of CGST Rules, 2017 reads thus: Notice and order for demand of amounts payable under Act. Rule 142: (1) (a) proper officer shall serve, along with (a) notice issued under section 52 or section 73 or section 74 or section 76 or section 122 or section 123 or section 124 or section 125 or section 127 or section 129 or section 130, summary thereof electronically in FORM GST DRC 01, (b) statement under sub section (3) of section 73 or sub section (3) of section 74, summary thereof electronically in FORM GST DRC 02, specifying therein details of amount payable. (1A) proper officer shall, before service of notice to person chargeable with tax, interest and penalty, under sub section (1) of Section 73 or sub section (1) of Section 74, as case may be, shall communicate details of any tax, interest and penalty as ascertained by said officer, in Part of FORM GST DRC 01A. (2) Where, before service of notice or statement, person chargeable with tax makes payment of tax and interest in accordance with provisions of sub section (5) of section 73 or, as case may be, tax, interest and penalty in accordance with provisions of sub section (5) of section 74, or where any person makes payment of tax, interest, penalty or any other amount due in accordance with provisions of Act, whether on his own ascertainment or, as communicated by proper officer under sub rule (1A), he shall inform proper officer of such payment in FORM GST DRC 03 and proper officer shall issue acknowledgement, accepting payment made by said person in FORM GST DRC 04. (2A)..... 19 We do not propose to enter into merits of allegations levelled against writ applicant as regards bogus billing transactions Page 10 of 16 Downloaded on : Fri Apr 30 09:58:53 IST 2021 C/SCA/7613/2020 ORDER without there being any physical movement of goods as matter is at stage of show cause notice, we only propose to consider whether impugned show cause could be termed as per se without jurisdiction and nullity and validity of Rule 142(1)(a) of Rules. 20 scope of judicial review, against show cause notice, is required to be dealt with first. In case of Standard Chartered Bank and others vs. Directorate of Enforcement and others reported in AIR 2006 SC 1301, it is held that ordinarily Court should be reluctant to interfere with show cause notice unless notice is shown to have been issued apparently without any authority of law. relevant observations are thus: "23. prayer for issue of writ of prohibition restraining authorities under Act from proceeding with adjudication and prosecution is essentially based on constitutional challenge to relevant provisions of Act on ground that they violate Articles 14 and 21 of Constitution of India. Once we have held, as High Court did, that provisions are constitutional, basis on which writ of prohibition is sought for by appellants disappears. It is settled by decisions of this Court that writ of prohibition will issue to prevent Tribunal or Authority from proceeding further when Authority proceeds to act without or in excess of jurisdiction; proceeds to act in violation of rules of natural justice; or proceeds to act under law which is itself ultra vires or unconstitutional. Since basis of claim for relief is found not to exist, High Court rightly refused prayer for issue of writ of prohibition restraining Authorities from continuing proceedings pursuant to notices issued. As indicated by this Court in State of Uttar Pradesh v. Brahm Datt Sharma [(1987) 2 SCC 179] when show cause notice is issued under statutory provision calling upon person concerned to show cause, ordinarily that person must place his case before Authority concerned by showing cause and courts should be reluctant to interfere with notice at that stage unless notice is shown to have been issued palpably without any authority of law. On facts of this case, it cannot be said that these notices are palpably without authority of law. In that situation, appellants cannot successfully challenge refusal by High Court of writs of prohibition prayed for by them." 21 In case of Commissioner of Customs And Central Excise, Page 11 of 16 Downloaded on : Fri Apr 30 09:58:53 IST 2021 C/SCA/7613/2020 ORDER Madurai vs Charminar Nonwovens Limited reported in 2004(167) E.L.T. 372 dispute involved therein was classification dispute and challenge was made to show cause notice wherein it is held that High Court should remit matter to concerned authority for adjudication. However, in case of State of Uttar Pradesh and another vs. Anil Kumar Ramesh Kumar Chandra Glass Works and another reported in (2005) SCC 451, Apex Court carved out exception that if facts, narrated in show cause notice, are not accepted to be correct; if it can be demonstrated that offence is not disclosed; or show cause notice is without jurisdiction, Court should not entertain writ petition under Article 226 of Constitution of India in following words : "6. In our view, High Court proceeded on incorrect basis. Hence, decision cannot stand. In any event, this Court had repeatedly held that Article 226 should not be permitted to be invoked in order to challenge show cause notices unless accepting fact in show cause notices to be correct, either no offence is disclosed or show cause notices are ex facie without jurisdiction. That could not be said as far as eight show cause notices in question are concerned. High court, therefore, should not have interfered and should have left respondents to pursue their remedy by way of appeal under Section 9 of Act from order of assessment which, according to High Court, had admittedly been passed before writ petition had been filed by respondent." 22 ratio which could be culled out from aforesaid judgment is that power of judicial review, under Article 226 of Constitution of India, can be exercised where challenge to show cause notice is made provided it is patently demonstrated that same is issued without jurisdiction or it does not disclose any offence to have been committed. Ordinarily High Court should not embark to decide factual disputes but relegate party to submit reply before authority concerned who is obliged to decide same. aforesaid Page 12 of 16 Downloaded on : Fri Apr 30 09:58:53 IST 2021 C/SCA/7613/2020 ORDER rule is, however, not free from exception. exception, carved out in case of Indian Cardboard Industries Limited vs. Collector of Central Excise reported in 1992 (58) E.L.T. 508(Cal.), in our opinion, still holds field. aforesaid exception can be aptly quoted hereunder : "15. On basis of decisions cited it appears that court in exercise of its jurisdiction under Art. 226 of Constitution will interfere with show cause notice in following circumstances : (1) When show cause notice ex facie or on basis of admitted facts does not disclose offence alleged to be to be committed; (2) When show cause notice is otherwise without jurisdiction; (3) When show cause notice suffers from incurable infirmity; (4) When show cause notice is contrary to judicial decisions or decisions of Tribunal; (5) When there is no material justifying issuance of show cause notice." Therefore, to sum up, High Court can interfere under Article 226 of Constitution of India against show cause notice where same is issued by authority in exercise of power which is absent; facts does not lead to commission of any offence; show cause notice is otherwise without jurisdiction; it suffers from incurable infirmity; against settled judicial decisions or decisions of Tribunal and bereft of material particulars justifying commission of offence. 23 Supreme Court, in case of Union of India vs Vicco Laboratories, reported in 2007 (13) S.C.C. 270, also deprecates interference at stage of issuance of show cause notice by Page 13 of 16 Downloaded on : Fri Apr 30 09:58:53 IST 2021 C/SCA/7613/2020 ORDER authorities unless it is without jurisdiction or in abuse of process of law in these words : "31. Normally, writ court should not interfere at stage of issuance of show cause notice by authorities. In such case, parties get ample opportunity to put forth their contentions before authorities concerned and to satisfy authorities concerned about absence of case for proceeding against person against whom show cause notices have been issued. Abstinence from interference at stage of issuance of show cause notice in order to relegate parties to proceedings before authorities concerned is normal rule. However, said rule is not without exceptions. Where show cause notice is issued either without jurisdiction or in abuse of process of law, certainly in that case, writ court would not hesitate to interfere even at stage of issuance of show cause notice. interference at show cause notice stage should be rare and not in routine manner. Mere assertion by writ petitioner that notice was without jurisdiction and/or abuse of process of law would not suffice. It should be prima facie established to be so. Where factual adjudication would be necessary, interference is ruled out." 24 When we invited attention of Mr. Poddar to Rule 142 of Rules, which provides that proper officer shall serve, along with notice under Section of Act, summary thereof electronically in form GST DRC 01, quick reply was that Rule 142(1)(a) is ultra vires as result of excessive delegation. Rule 142 is specifically with respect to notice and order for demand of amounts payable under Act . We find no merit in contention of Mr. Poddar that Rule 142(1)(a) is invalid in any manner. 25 rule under delegated legislation can be held to be ultra vires statutory provisions of Act if it is shown : (i) that it is beyond scope of or in excess of rule making power of delegate conferred under Act, or (ii) that it is in conflict with or repugnant to any enactment in Act. Page 14 of 16 Downloaded on : Fri Apr 30 09:58:53 IST 2021 C/SCA/7613/2020 ORDER 26 question whether any particular legislation suffers from excessive delegation has to be decided having regard to subject matter, scheme, provisions of Statutes including its preamble and facts and circumstances in background of which Statute is enacted. (See Registrar, Co operative Societies vs. K. Kunjabmu, AIR 1980 SC 350 and State of Nagaland v. Ratan Singh, AIR 1967 SC 212). It is also well settled that in considering vires of subordinate legislation one should start with presumption that it is intra vires and if it is open to two constructions, one of which would make it valid and other invalid, Courts must adopt that construction which makes it valid and legislation can also be read down to avoid its being declared ultra vires [See St. Johns Teachers Training Institute vs. Regional Director, National Council for Teacher Education reported in AIR 2003 SC 1522]. 27 In case of Ajay Canu vs. Union of India, AIR 1988 SC 2027, Supreme Court held that it was well established proposition of law that where specific power is conferred without prejudice to generality of power already specified, particular power is only illustrative and it did not in any way restrict general power. 28 We have already quoted Section 164 of Act which provides for power to make rules. It may be noted that Section 164 of Act confers power on Central Government to frame rules. Under Section 164 of Act, Central Government has power to make rules generally to carry out all or any of purposes of Act. 29 In our opinion, Rule 142(1)(a) of Rules, 2017 is valid and is no manner conflict with any of provisions of Act. 30 challenge to legality and validity of show cause should Page 15 of 16 Downloaded on : Fri Apr 30 09:58:53 IST 2021 C/SCA/7613/2020 ORDER fail having regard to scope of judicial review and challenge to validity of Rule 142(1)(a) of Rules should also fail. 31 In result, this writ application fails and is hereby rejected. 32 We clarify that we have otherwise not gone into merits of matter. show cause notice shall be adjudicated on its own merits and it shall be open for writ applicant to raise all legal contentions available to him. (VIKRAM NATH, CJ) (J. B. PARDIWALA, J) CHANDRESH Page 16 of 16 Downloaded on : Fri Apr 30 09:58:53 IST 2021 Mahavir Enterprise v. Assistant Commissioner of State Tax