GST Show Cause Notice Without Fraud or Suppression Allegations Renders Section 74 Proceedings Invalid: Gauhati High Court

Case Overview

Thekrubizolie And Anr Vs Union of India And 3 Ors (Gauhati High Court)

The Gauhati High Court recently adjudicated upon two connected writ petitions arising from demand proceedings initiated by the Nagaland GST authorities. Both petitions challenged adjudication orders passed under Section 74(9) of the Nagaland Goods and Services Tax Act, 2017 (hereinafter referred to as the NGST Act). The Court's ruling carries significant implications for how GST authorities must frame show cause notices and conduct adjudication proceedings when invoking the extended limitation and penalty provisions under Section 74.

Background Facts

WP(C)/129/2024 — M/S Dimapur Diesels

The first petitioner is the proprietor of M/S Dimapur Diesels, a firm registered under the Central Goods and Services Tax Act, 2017 bearing GSTIN 13ABUPA6964C2ZO. This writ petition challenged the adjudication order dated 18.07.2023 passed by Respondent No. 3 under Section 74(9) of the NGST Act.

The sequence of events leading to the impugned order is as follows:

  1. On 14.11.2022, the petitioner was served a notice in Form DRC01-A wherein the authorities determined tax, interest, and penalty for the financial years 2019-2020, 2020-2021, and 2021-2022. The notice expressly stated that non-compliance would invite action under Section 74(1) of the NGST Act.

  2. The petitioner sought additional time for compliance, following which a revised DRC01-A notice was issued.

  3. A reply was submitted by the petitioner on 24.05.2023.

  4. The petitioner subsequently alleged that the authorities resorted to coercive measures, which compelled the petitioner to make a payment under protest, uploaded through Form DRC03 on 27.06.2023, covering only the penalty portion.

  5. On 28.06.2023, a show cause notice was issued under Section 74(1) & (7) of the NGST Act, noting that only the 15% penalty component had been paid — amounting to:

    • Rs. 12,11,020/- for 2019-2020
    • Rs. 68,95,004/- for 2020-2021
    • Rs. 4,31,406/- for 2021-2022
    • Rs. 4,37,926/- for 2022-2023

    The petitioner was directed to show cause why a payment notice in Form DRC-07 should not be issued for the remaining tax and interest.

  6. The petitioner did not file any reply to this show cause notice.

  7. Consequently, on 18.07.2023, an adjudication order was passed directing the petitioner to clear the remaining unpaid dues within 15 days, followed by DRC07 summaries for financial years 2020-2021, 2021-2022, and 2022-2023.

  8. The petitioner filed the writ petition before the High Court on 03.07.2024 — approximately one year after the adjudication order.

WP(C)/130/2024 — M/S Progressive Motors

The second writ petition was filed by the proprietor of M/S Progressive Motors, also registered under CGST with GSTIN 13ABUPA6964C1ZP. This petition challenged orders dated 17.07.2023 relating to financial years 2020-2021 and 2021-2022.

The facts unfolded as follows:

  1. On 04.11.2022, a tax determination order in Form DRC01-A was issued determining tax, interest, and penalty for financial years 2019-2020, 2020-2021, and 2021-2022.
  2. The petitioner sought an extension of time, following which a revised determination was issued on 09.03.2023 via another DRC01-A notice.
  3. The petitioner claimed that under coercion, penalty payments were made on 27.06.2023 as follows:
    • Rs. 23,15,044/- for 2019-2020
    • Rs. 79,70,949/- for 2020-2021
    • Rs. 9,91,546/- for 2021-2022
  4. On 28.06.2023, a show cause notice under Section 74(1) of the NGST Act was issued, stating that the petitioner had paid only the 15% penalty portion and directing the petitioner to show cause why DRC-07 should not be issued for the balance tax and interest.
  5. No reply was filed by the petitioner.
  6. On 17.07.2023, Respondent No. 3 passed an order holding that since the show cause notice remained unanswered, the petitioner was directed to pay the remaining dues within 15 days. Summaries in Form DRC07 were simultaneously issued for 2020-2021 and 2021-2022.
  7. The writ petition was filed on 03.07.2024.

Note: Both writ petitions raised identical legal issues and were accordingly taken up together for disposal by a common judgment and order.