M/S. Glaxosmithkline Consumer Health Care Limited vs. The Deputy Commissioner (State Tax)

Held

The High Court held that the Show Cause Notice dated September 29, 2023, issued under Section 73 of the CGST Act, was unsustainable and deserved to be set aside. The Court found that a plain reading of the SCN indicated a lack of necessary information, source, and material upon which the authority based its decision to issue the notice. The Court observed that the SCN appeared to have been issued mechanically, without proper application of mind or sufficient cogent material, and without the basic scrutiny or investigation required to conclude that there was tax evasion or suppression of facts. The Court also found force in the petitioner's submission that Section 73 of the Act requires the authority to have a 'reason to believe' or an 'appearance' of non-payment or short payment of tax, which necessitates some material at the initiation stage. Therefore, the Court quashed the SCN, while reserving the right of the Department to initiate proceedings in accordance with law if permitted by statute.

Facts

M/s. Glaxosmithkline Consumer Health care Limited (now Hindustan Unilever Limited) filed a writ petition challenging a Show Cause Notice (SCN) in Form GST DRC-01 dated September 29, 2023, issued under Section 73 of the CGST Act. The SCN pertains to the period July 2017 to March 2018 and proposes a demand of Rs. 218,69,26,869/- along with interest and penalty. The petitioner contended that the SCN was vague, lacked substantial material, did not specify doubtful transactions, and incorrectly alleged non-payment of tax at 28% when their products were taxed at 18% or less from November 2017 onwards. They also argued the SCN was beyond the prescribed limitation period.

Key Issues

1. Whether the Show Cause Notice dated September 29, 2023, issued under Section 73 of the CGST Act, is sustainable in law, considering allegations of vagueness and lack of material supporting the proposed demand of Rs. 218,69,26,869/- for the period July 2017 to March 2018? 2. Whether the Show Cause Notice is barred by limitation? Petitioner's Arguments: The petitioner argued that the SCN was excessively vague, failing to provide any substantial material or identify specific transactions requiring scrutiny. They asserted that their products were taxed at a maximum of 18% from November 2017 onwards, contradicting the SCN's allegation of non-payment at 28%. Furthermore, the petitioner contended that the SCN was issued beyond the period of limitation prescribed under the Act. Respondents' Arguments: The respondents argued that the writ petition was premature as it was filed at the show cause stage. They contended that the petitioner should have responded to the SCN with all necessary clarifications and documentary proofs, which would then be scrutinized by the authorities. They also submitted that the SCN was self-explanatory and did not necessitate adjudication at this stage.