M/S Mahavir Enterprise vs. Assistant Commissioner Of State Tax

Held

The Court held that the challenge to the show cause notice was not maintainable at the stage of issuance, as per established judicial precedent, unless it was demonstrably without jurisdiction or an abuse of process. The Court found no merit in the petitioner's contention that Section 122 of the Act does not contemplate a show cause notice, noting that Rule 142(1)(a) specifically provides for the issuance of a summary notice in Form GST DRC-01 along with notices under various sections, including Section 122. Regarding the challenge to Rule 142(1)(a), the Court held that it is valid and does not conflict with any provisions of the Act. The Court reasoned that rules under delegated legislation can only be held ultra vires if they exceed the rule-making power or conflict with the Act, and Rule 142(1)(a) does not suffer from such infirmities. The Court clarified that it had not gone into the merits of the case, and the show cause notice would be adjudicated on its own merits, with the petitioner free to raise all available legal contentions.

Facts

The petitioner, M/s Mahavir Enterprise, challenged a show cause notice dated November 30, 2019, issued by the Assistant Commissioner of State Tax under Section 122(1) of the CGST Act, 2017. The notice alleged bogus billing transactions without physical movement of goods and proposed recovery of Rs. 6,87,68,821. The petitioner also challenged the constitutional validity of Rule 142(1)(a) of the CGST Rules, 2017, arguing it was ultra vires the Act and violative of Articles 14 and 19(1)(g) of the Constitution due to excessive delegation. The show cause notice had not yet been adjudicated at the time of the writ petition.

Key Issues

1. Whether the impugned show cause notice dated November 30, 2019, issued under Section 122(1) of the CGST Act, 2017, deserves to be quashed and set aside? The petitioner argued that Section 122 does not contemplate the issuance of a show cause notice, and if fraud or suppression is alleged, a notice under Section 74 is required. The petitioner also contended that the notice erroneously included both outward supply and input tax credit for penalty calculation, contrary to Section 74. The revenue argued that a writ petition challenging a show cause notice is not maintainable unless it is without jurisdiction or a nullity, and the petitioner should respond to the notice and present their case before the adjudicating authority. 2. Whether Rule 142(1)(a) of the CGST Rules, 2017, is ultra vires the parent Act, the CGST Act, 2017? The petitioner argued that Rule 142(1)(a) travels beyond the provisions of the Act and is a result of excessive delegation of powers, as Section 122 does not mandate a show cause notice. The revenue contended that Rule 142(1)(a) is valid and does not travel beyond the Act, citing Section 164 of the Act which confers rule-making powers on the government.