M/S. Mondelez INDIA Foods Private Limited vs. The Deputy Commissioner (St)

Held

The Court held that the Show Cause Notice (SCN) dated September 30, 2023, was unsustainable and deserved to be set aside/quashed. The Court found significant force in the Petitioner's submissions that the SCN lacked necessary information, source, and material. A plain reading of the SCN indicated it was issued mechanically, without application of mind or cogent supporting materials, and without basic scrutiny or investigation to conclude that transactions involved tax evasion, suppression of material facts, or reasonable suspicion. The Court also agreed with the Petitioner that proceedings initiated under Section 73 of the CGST Act require the authority to have some material information or complaint regarding suspicious transactions or alleged evasion at the time of initiating proceedings. Therefore, the SCN, being bereft of facts and materials, was quashed. However, the Court reserved the right of the Department to initiate proceedings in accordance with law if permitted by statute. The writ petition was allowed to the extent of setting aside the SCN.

Facts

M/s. Mondelez India Foods Private Limited (Petitioner) filed a writ petition challenging a Show Cause Notice (SCN) in Form GST DRC-01 dated September 30, 2023, issued by the Deputy Commissioner (ST), Secunderabad STU-II Circle (Respondent No. 1). The SCN, issued under Section 73 of the CGST Act, pertains to the period July 2017 to March 2018 and proposes a demand of Rs. 97,27,35,401 along with interest. 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 had a maximum tax rate of 18% from November 2017 onwards. They also argued the SCN was beyond the limitation period. The Respondent argued that the Petitioner should respond to the SCN, and the writ petition was not maintainable at this stage.

Key Issues

1. Whether the Show Cause Notice (SCN) in Form GST DRC-01 dated September 30, 2023, issued under Section 73 of the CGST Act, is legally sustainable given its alleged vagueness and lack of supporting material? (Question of law) 2. Whether the SCN, which proposes a demand for non-payment of tax at 28% for the period July 2017 to March 2018, is factually incorrect and beyond the period of limitation prescribed under Section 73 of the CGST Act? (Question of mixed law and fact) Petitioner's Arguments: - The SCN is excessively vague and lacks any substantial material or hint as to which transactions are doubtful, requiring scrutiny. - The allegation of non-payment of tax at 28% is incorrect, as the Petitioner's products have a maximum tax rate of 18% from November 2017 onwards. - The SCN is beyond the period of limitation prescribed under Section 73 of the CGST Act, including any granted extensions. Respondents' Arguments: - The writ petition is not maintainable at the show cause stage, as the Petitioner can respond to the SCN with clarifications and documentary proofs. - The contents of the SCN are self-explanatory, and the Petitioner only needs to respond to it, including details about tax rates on their products and payments made. - There is no need for adjudication in the present writ petition.