Kerala High Court: Writ Petition Not Maintainable Against SCN Under Section 74 of the CGST Act

Introduction

 In Deputy Commissioner (Intelligence) v. Minimol Sabu[i], the Kerala High Court, while addressing the issue of whether a writ petition can be entertained against a show cause notice (‘SCN’) issued under s. 74 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’), examined the permissibility of judicial intervention at the SCN stage, the principle of comprehensive adjudication under the GST framework, and the limits of High Court interference in tax matters.

Facts

• Minimol Sabu (‘Respondent’) was engaged in the business of selling gold, silver and diamond ornaments.

• The Deputy Commissioner (Intelligence), GST (‘Appellant’) conducted a search and seizure operation at the premises of the Respondent No.1 on 25.05.2023. During the search, the Appellant collected data from a software named “Gold Mine”, which was being used by Respondent No.1 for billing purposes.

• Subsequently, a SCN was issued to Respondent No.1 stating why an amount of approximately Rs.4.88 crores should not be assessed as short paid on detection of suppression of outward supply for the periods 2017-18 to 2023-24 and an additional amount of approximately Rs.11.85 lakhs should not be imposed as flood cess.

• Upon identifying discrepancies in the SCN, the respondent submitted a reply. She subsequently filed a writ petition under a. 226 of the Constitution of India (‘Constitution’) before the High Court, challenging the SCN and seeking its quashing on jurisdictional and procedural grounds.

Held by the Ld. Single Judge

• The Single Judge directed the authorities under the State Goods and Services Tax Act (‘SGST’) to consider the preliminary issue raised by the petitioner regarding the invocation of s.74, particularly the contention that part of the alleged suppressed turnover pertained to a distinct entity belonging to her husband, having a separate registration.

• The Appellant, aggrieved by the Single Judge’s order, filed an appeal before the Division Bench of the High Court, contending that the scheme of the CGST/SGST Acts does not envisage piecemeal adjudication, as directed by the Single Judge.

Held

• The High Court allowed the Appeal filed by the Appellant and observed that s.74 of the CGST/SGST Act authorises the proper officer to issue a SCN. Furthermore, s.74(2) provides that such notices must be issued at least six months prior to the time limit specified under s.74(10). S.74(9) further mandates that the final order be issued within five years from the due date for submission of the annual return.

• The High Court held that a combined reading of s. 74 of the CGST/SGST Acts does not support stage-wise adjudication. Moreover, no provision in the statute empowers either the assessee to demand such adjudication, nor does it confer such power on the proper officer.

• The Court further noted that allowing partial adjudication, especially where suppression is detected late, would prejudice both the assessee and the Revenue. Since the statute permits issuance of notices within six months prior to the deadline for adjudication under s. 74(9), the Single Judge’s direction was unsustainable as it contradicted the statutory scheme and could cause irreparable prejudice to the Revenue.

• Relying on D.P. Maheswari v. Delhi Administration & Ors.[ii], the High Court held that a. 226 of the Constitution cannot be invoked to challenge the issuance of a show cause notice under s. 74 of the CGST/SGST Acts.

• The High Court extended the adjudication deadline to 15.02.2025, accounting for the seven-day stay granted by an interim order. It directed the respondent to appear before the adjudicating authority on 10.02.2025 and instructed the proper officer to complete the hearing and issue a composite final order by 15.02.2025.

• The High Court accordingly allowed the appellant’s appeal and modified the Single Judge’s order.

Our Analysis

The High Court in this case clarified that partial adjudication of an SCN is impermissible and not envisaged under the CGST and SGST Acts. Such an approach could be prejudicial to both the Assessee and the Revenue. The Single Judge erred in allowing partial adjudication, as tax laws, including the CGST and SGST Acts, do not permit partial adjudication. The powers of adjudication and investigation are distinctly demarcated within the statutory framework.

The issuance of an SCN forms part of the adjudication process and represents a quasi-judicial function performed by departmental officers. The purpose of an SCN is to specify the legal provisions allegedly violated and provide the assessee with an opportunity to respond before punitive action is initiated. The issuance of an SCN implies that the investigation has reached its final stage. Permitting an assessee to challenge the SCN by seeking partial adjudication would severely prejudice the investigative process and hinder the determination of the exact quantum of revenue loss.

Furthermore, if an assessee is aggrieved by departmental actions, the appropriate remedy lies in filing an appeal before the Commissioner (Appeals) or approaching the relevant authority, rather than invoking a. 226 of the Constitution to challenge an SCN before the High Court.

Thus, the decision of the Division Bench correctly upholds the statutory scheme and ensures that the adjudication process remains consistent with the provisions of the CGST/SGST Act.

End Notes

[i] [2025] 171 taxmann.com 216 (Kerala)[06-02-2025].

[ii] [(1983) 4 SCC 293].

Authored by the Metalegal Editorial Board, the views expressed are personal and do not constitute legal advice or opinion.