2026-VIL-1179-PAT
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SGST High Court Cases

GST - Validity of show cause notice under Section 74(1) of the CGST Act, 2017 issued on the basis of audit findings - Petitioner was subjected to audit under Section 65 for three financial years. The audit memo pointed out non-payment and short payment of tax, non-payment of interest and late fee, and non-payment of GST under RCM - The final audit report was communicated to the Petitioner with a direction to deposit the amount within 15 days, failing which a SCN would be issued - Petitioner neither contested the final audit report nor deposited the amount, and a show cause notice under Section 74(1) was issued - Petitioner contended that the notice was issued mechanically on the audit report, without any element of fraud, wilful misstatement or suppression of facts, and that no penalty was proposed in the notice - Whether the show cause notice under Section 74(1) suffers from non-application of mind or jurisdictional error - HELD - Section 65(7) confers power on the proper officer to initiate action under Section 73 or Section 74 where the audit detects tax not paid or short paid, and it is the proper officer who has to take a view as to the provision under which action is to be initiated - After the final audit report was communicated, the Petitioner was liable to deposit the tax, interest and penalty within the given period or under Section 74(5) before service of the notice. As the Petitioner's case was not covered by Section 74(5), the notice under Section 74(1) was issued, and the reasons for its invocation were stated, namely that the non-payment and short payment would have gone unnoticed had the audit not been conducted of the records of the notice - The Supreme Court has held that the foundational facts leading to the inference of fraud, wilful misstatement or suppression should be evident from the notice itself and that the officer must record satisfaction even where audit objections exist. Those decisions turned on their own facts, where the notice contained only a bland statement and the department itself had taken up the audit objections before the Public Accounts Committee - Where the audit report finds huge non-payment, the assessee is aware of the delayed filing but does not pay the late fee, and the assessee fails to satisfy the proper officer of its bona fides, the proper officer is competent to issue notice under Section 74(1). While a simple case of non-payment for bona fide reasons cannot invoke the extended period, every case has to be looked into on its own facts. A writ court, in extraordinary jurisdiction, does not go into the sufficiency of the reasons for the opinion formed by the proper officer, and can examine only whether the belief existed, was bona fide and had a rational connection with the material - The contention that no penalty was proposed is also incorrect, as the notice contained a proposed demand for recovery of penalty - No fault is found in the issuance of the show cause notice under Section 74(1), which does not suffer from non-application of mind or any jurisdictional error – The writ application stands disposed of - Maintainability of writ petition against an appealable order-in-original when alternative remedy of appeal under Section 107 of the CGST Act, 2017 is available - HELD - The order-in-original is an appealable order under Section 107 and the appellate remedy is equally efficacious. The rule of alternative remedy is a rule of convenience, and where an equally efficacious statutory remedy exists, the High Court should not exercise writ jurisdiction to examine the original order unless the impugned order suffers from a jurisdictional error. The show cause notice was found free of jurisdictional error - The High Court declines to entertain the challenge to the order-in-original and relegates the Petitioner to the appellate remedy. If the Petitioner prefers an appeal within one month from the date of the order, the appellate authority shall consider it on its own merits.
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