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Tag: gst adjudication

  • Gauhati High Court Upholds Consolidated Show Cause Notices Under Sections 73 and 74 of the CGST Act: Tata Projects Limited v. Union of India

    Gauhati High Court Upholds Consolidated Show Cause Notices Under Sections 73 and 74 of the CGST Act: Tata Projects Limited v. Union of India

    Gauhati High Court Upholds Consolidated Show Cause Notices Under Sections 73 and 74 of the CGST Act: Tata Projects Limited v. Union of India

    Court: Gauhati High Court | Bench: Justice Devashis Baruah | Case No.: WP(C)/2922/2025 (with WP(C)/20/2026 and WP(C)/1113/2026) | Date: June 8, 2026 | Citation: 2026:GAU-AS:8028

    Key Takeaways

    • There is no statutory bar under the CGST Act, 2017 against issuing a consolidated show cause notice under Section 73(1) or Section 74(1) covering multiple financial years, provided limitation under Sections 73(2)/74(2) is independently satisfied for each year.
    • Proceedings under Sections 73 and 74 are adversarial and adjudicatory in character, falling under Chapter XV (“Demand and Recovery”) — they are structurally distinct from “Assessment” under Chapter XII, and the financial-year-specific architecture of Chapter XII does not control or restrict the demand machinery.
    • Where a consolidated notice covers some financial years that are within limitation and others that are time-barred, the doctrine of severability applies: the notice survives for the years within time and fails only for those that are not.
    • The Court expressly disagreed with the Kerala High Court (Tharayil Medicals, Dhanlaxmi Bank) and the Madras High Court (Oriental Lotus, Titan Company), and aligned with the Delhi High Court (Ambika Traders, Mathur Polymers), the Allahabad High Court (S.A. Aromatics), and the Karnataka High Court Division Bench (Chimney Hills Education Society).

    What the Case Was About

    Three unrelated writ petitions — filed by Tata Projects Limited (a works contract services provider), Quantum Infratech (a residential construction firm), and Bitchem Asphalt Technologies Limited (a road-building materials supplier) — were heard together because they raised a single, common jurisdictional challenge. Each petitioner had been served a show cause notice under Section 74 (or Section 73, in Tata Projects’ case for one year) of the CGST Act that clubbed together demands pertaining to multiple financial years — ranging from 2017-18 through 2022-23 in the most expansive case. Each petitioner contended that the entire proceeding was without jurisdiction because the CGST Act requires year-specific show cause notices and does not permit consolidation.

    The stakes were significant. Tata Projects had already exhausted its first appeal, with the Commissioner (Appeals) confirming the demand. Quantum Infratech’s case originated in DGGI search operations, involved allegations of fraud under Section 74 read with Section 122(1A), and had penalties imposed on individual partners. Bitchem faced a demand of over ₹12.34 crore. In each case, if the jurisdictional challenge succeeded, the entire demand edifice would collapse without any adjudication on merits.

    What the Court Decided — and Why

    Justice Devashis Baruah, in a reserved judgment, ruled squarely against the petitioners on the jurisdictional question: there is no bar, explicit or implicit, in the CGST Act against issuance of a consolidated show cause notice or a consolidated adjudication order covering multiple financial years (para 70).

    The reasoning proceeds through several distinct analytical steps.

    The text of Sections 73(1) and 74(1) imposes no financial-year restriction. The Court observed that Sub-Section (1) of both provisions confers jurisdiction on the Proper Officer upon satisfaction of certain material facts — tax not paid, short paid, erroneously refunded, or ITC wrongly availed. Nothing in the language limits the notice to a single financial year. The only temporal constraint appears in Sub-Section (2), which requires the notice to be issued a specified period before the limitation deadline — but that constraint is about timing, not about the scope of years that can be covered (paras 48–49).

    Limitation runs independently per financial year, but that does not mandate separate notices. This is the heart of the judgment. The Court acknowledged that Sections 73(10) and 74(10) compute limitation by reference to the due date for filing annual returns “for the financial year to which” the default relates. But the Court drew a critical distinction: limitation governs whether a particular year’s demand can validly be raised at all, not whether it must be raised in a standalone proceeding. If a consolidated notice is issued on a date when limitation is still open for all the covered years, there is no infirmity (paras 53–55). The Court illustrated this with detailed worked examples and tabular computations for both three-year (Section 73) and five-year (Section 74) timelines.

    The doctrine of severability rescues partially time-barred consolidated notices. In an important practical holding, the Court addressed the scenario where a consolidated notice covers some years within limitation and some that are time-barred. Drawing an analogy to civil suits involving recurring causes of action (such as arrears of rent, where each rental period generates an independent cause of action), the Court held that the time-barred years can simply be severed — the notice and order survive for the years that are within time (para 59).

    Sections 73 and 74 are not “assessment” provisions — they are demand and adjudication provisions. The petitioners had argued that since the entire GST architecture (returns, annual returns, self-assessment) is financial-year-specific, Sections 73 and 74, being part of the “assessment” mechanism under Section 2(11), must also be year-specific. The Court rejected this by drawing a sharp structural distinction between Chapter XII (Assessment) and Chapter XV (Demand and Recovery). Assessment provisions — self-assessment under Section 59, scrutiny under Section 61, best judgment under Section 62 — are largely non-adversarial. Sections 73 and 74, by contrast, are adversarial and adjudicatory, requiring notice, reply, hearing, and a reasoned order. They also uniquely involve penalty and, in Section 74’s case, findings on fraud — matters that do not arise in assessment proceedings proper (paras 60–61).

    Sub-Sections (3) and (4) of both Sections 73 and 74 confirm the legislative design. The Court noted that these provisions allow the Proper Officer, after issuing a notice under Sub-Section (1) for “any period,” to serve a supplementary statement (Form DRC-02) covering “such periods other than those covered under Sub-Section (1).” The phrase “those covered under Sub-Section (1)” is deliberately pluralistic — it contemplates that the original notice itself may have covered multiple periods (paras 62–64).

    The insertion of Section 74A and Sub-Section (12) in Sections 73 and 74 does not help the petitioners. The petitioners pointed to the Finance Act, 2024 amendments (effective November 1, 2024) introducing Section 74A — which applies from FY 2024-25 onward and is expressly year-specific — as proof that the pre-amendment regime was also intended to be year-specific. The Court implicitly rejected this by treating the amendment as a prospective structural change, not a clarification of pre-existing law.

    How This Changes Practice

    This judgment is the most analytically detailed single-judge pronouncement on the consolidated-SCN question to date, and it lands on the side of a growing judicial consensus. With Delhi, Allahabad, Karnataka (Division Bench), and now Gauhati aligned on permissibility, and with the Bombay High Court’s contrary line (Milroc, Marfani Steel, Aasawa Brother) already referred to a larger bench in Rollmet LLP (2026 SCC OnLine Bom 2613), the practical balance has shifted decisively in the department’s favour.

    For practitioners, several operational implications follow. First, jurisdictional challenges to consolidated notices are now a diminishing-returns strategy in most High Courts. Counsel should assess whether the stronger defence lies on merits — limitation for specific years, factual defences on fraud or suppression, computation disputes — rather than on the consolidation point. Second, the severability holding at para 59 is a double-edged sword: it means that even if some years in a consolidated notice are demonstrably time-barred, the notice will not be quashed in its entirety. Counsel must raise limitation year-by-year during adjudication and cannot rely on a wholesale jurisdictional knock-out. Third, for assessees who have already received consolidated notices, the Court’s direction granting 30 days to file statutory appeals (with limitation condoned) provides a narrow but real window to get before the Tribunal or the Appellate Authority on merits.

    Relevant Provisions

    • Sections 73 and 74, CGST Act, 2017 — Determination of tax not paid or short paid (non-fraud and fraud cases respectively); Sub-Sections (1), (2), (3), (4), (9), (10) extensively analyzed
    • Section 74A, CGST Act — Determination of tax for FY 2024-25 onward (inserted by Finance Act, 2024 w.e.f. 01.11.2024)
    • Section 2(11), CGST Act — Definition of “assessment”
    • Sections 59–64, CGST Act — Chapter XII assessment provisions (self-assessment, provisional, scrutiny, best judgment, summary)
    • Section 75, CGST Act — General provisions relating to determination of tax
    • Rule 142(1)(a) and (b), CGST Rules, 2017 — Issuance of notice (DRC-01) and statement (DRC-02)
    • Sections 107, 108, 112, CGST Act — Appellate remedies
    • Article 14 and Article 141, Constitution of India

    What to Watch

    The consolidated-SCN question is now squarely headed for definitive resolution at two levels. The Bombay High Court’s larger bench reference in Rollmet LLP will be the most closely watched proceeding — if the larger bench disagrees with Delhi, Allahabad, Karnataka, and Gauhati, a genuine inter-High Court conflict crystallizes and a Supreme Court reference becomes almost inevitable. The SLP against Mathur Polymers was dismissed with the observation that the Supreme Court found “no good ground” to interfere, which the department treats as tantamount to approval under Kunhayammed principles — but whether that truly constitutes a declaration of law under Article 141, as the respondents argued here (para 31), remains contestable and will likely be tested. Practitioners should also monitor whether CBIC issues any clarificatory circular endorsing consolidated proceedings, which would give field formations explicit administrative cover. Finally, the interaction between this line of authority and the new Section 74A regime (which is expressly year-specific for FY 2024-25 onward) may itself generate fresh litigation on transitional cases straddling the old and new frameworks.

  • Gauhati High Court Quashes ₹69.57 Lakh GST Demand Against Silchar Scrap Dealer; Rules Buyer Cannot Be Penalised for Supplier’s Tax Default

    Gauhati High Court Quashes ₹69.57 Lakh GST Demand Against Silchar Scrap Dealer; Rules Buyer Cannot Be Penalised for Supplier’s Tax Default

    Court reaffirms that a bona fide purchasing dealer who has duly paid GST to a registered seller cannot be denied input tax credit merely because the seller failed to remit the tax to the government.

    Gauhati High Court | GUWAHATI

    In a significant ruling for trading and manufacturing businesses, the Gauhati High Court has set aside a demand order of ₹69,56,794 raised against Sri Gurucharan Kangsa Banik, proprietor of M/s Sree Guru Metals, Silchar. The demand comprised IGST of ₹50.19 lakh, CGST of ₹9.69 lakh, and SGST of ₹9.69 lakh, along with an equivalent penalty.

    Hon’ble Mr. Justice Kardak Ete held that a purchasing dealer who acts in good faith and pays GST to a registered supplier cannot be penalised if the supplier subsequently fails to deposit the tax with the government.

    The Court followed the Division Bench judgment in National Plasto Moulding v. State of Assam & Ors. [2024] 129 GSTR 544 (Gauhati), which in turn relied upon the Delhi High Court’s decision in On Quest Merchandising India Pvt. Ltd. v. Government of NCT of Delhi [2018] 56 GSTR 177 (Delhi). Counsel appearing for both the petitioner and the Revenue accepted that the issue was covered by these decisions.

    Facts of the Case

    M/s Sree Guru Metals is engaged in the business of procurement and sale of scrap and waste batteries.

    During the financial years 2017-18 and 2018-19, the proprietorship purchased goods from suppliers located in Kolkata and paid the applicable GST along with the purchase consideration through banking channels. The transactions were supported by valid tax invoices.

    Following the introduction of the GST regime in July 2017, the business encountered certain compliance-related issues, including discrepancies between GSTR-1 and GSTR-3B arising from data-entry errors relating to reporting of output tax liability and input tax credit.

    Pursuant to a summons issued by the Directorate General of GST Intelligence (DGGI), Guwahati Zonal Unit, the petitioner appeared before the authorities on 5 April 2019 and furnished all relevant records, including GST returns and purchase invoices.

    A search conducted at the business premises on 9 July 2019 did not result in recovery of any incriminating material.

    The Demand and the Challenge

    Despite the petitioner’s cooperation, a Show Cause Notice dated 26 August 2022 was issued alleging wrongful availment of ITC amounting to ₹69.56 lakh under Section 16(2)(a) and Section 16(2)(b) of the CGST Act on the ground that the underlying goods had not actually been received.

    Thereafter, an Order-in-Original dated 28 March 2024 was passed confirming the demand together with interest under Section 50 and an equivalent penalty under Section 74(1) read with Section 122 of the CGST Act.

    The petitioner challenged the order on several grounds.

    It was contended that no effective opportunity of hearing had been granted, as notices were manually served after the dates fixed for hearing and were not uploaded on the GST portal. It was also argued that Form GST DRC-07 had not been issued prior to passing the order.

    On merits, the petitioner submitted that all statutory conditions prescribed under Section 16(2) had been fulfilled. The goods had been received, genuine tax invoices had been issued, and payment including GST had been made through banking channels.

    According to the petitioner, the sole basis for denial of ITC was the alleged failure of the suppliers to deposit the tax collected from the petitioner, a circumstance entirely beyond the purchaser’s control.

    The petitioner further raised a limitation challenge, contending that a part of the disputed period was governed by Section 73 of the CGST Act and that the statutory limitation for proceedings under that provision had already expired. Consequently, invocation of Section 74 was stated to be impermissible.

    An additional objection was raised against the clubbing of multiple assessment years into a single adjudication order.

    Court’s Reasoning

    The Court held that the controversy stood squarely covered by the Division Bench judgment in National Plasto Moulding, which had adopted the reasoning of the Delhi High Court in On Quest Merchandising.

    The Division Bench had held that where a purchasing dealer bona fide enters into transactions with a validly registered supplier, pays the tax component, and otherwise complies with the statutory requirements, denial of ITC merely because the selling dealer fails to deposit the tax with the government is impermissible.

    The Court referred to the following observation in National Plasto Moulding:

    “A purchasing dealer cannot be punished for the act of a selling dealer who has failed to deposit the tax collected by it.”

    The Court also noted that the Delhi High Court in On Quest Merchandising had read down Section 9(2)(g) of the Delhi VAT Act—the provision analogous to Sections 16(2)(c) and 16(2)(d) of the CGST Act—to exclude bona fide purchasing dealers from its scope.

    The Delhi High Court had reasoned that a literal interpretation would impose an impossible burden on a purchaser and could render the provision vulnerable to challenge under Article 14 of the Constitution.

    The Court further noted that the Special Leave Petition filed against the Delhi High Court’s judgment had been dismissed by the Supreme Court, while preserving liberty for the authorities to proceed in cases where the transactions were not bona fide.

    Accepting that the legal position stood settled, the Gauhati High Court set aside the impugned Order-in-Original.

    At the same time, the Court preserved the department’s right to proceed against the petitioner if material subsequently emerges showing that the transactions were not genuine or were entered into in collusion with the suppliers.

    Significance

    The decision adds to the growing body of judicial authority protecting bona fide purchasers from adverse consequences arising solely from a supplier’s failure to discharge tax liability.

    The ruling reiterates that where a purchaser has acted in good faith, obtained valid tax invoices, received the goods, and paid the consideration including GST, denial of ITC cannot be justified merely because the supplier defaults in remitting tax to the government.

    The Court, however, recognised the distinction between genuine transactions and collusive arrangements. Where the department is able to establish that transactions were not bona fide or lacked commercial substance, it remains open to the authorities to invoke the statutory provisions and deny the benefit of ITC.

    Citation: Sri Gurucharan Kangsa Banik v. Union of India & Ors. — Gauhati High Court, Writ Petition (arising from Order-in-Original No. 37/GST/AC/SIL/2023-24 dated 28.03.2024).