Telangana High Court on GST Show Cause Notice for Royalty: Writ Not Entertainable at DRC-01 Stage

Background and Context

In M/s. S. S. Shivraj Reddy Constructions Vs Assistant Commissioner (ST), the Telangana High Court examined whether it was appropriate to invoke writ jurisdiction to quash a Form GST DRC-01 show cause notice, particularly where one of the central issues was the levy of GST on royalty arising from quarry operations.

The ruling reinforces a consistent judicial trend: when the statutory adjudication framework under the Goods and Services Tax law is still in progress, High Courts are generally reluctant to interfere at the show cause notice stage, unless there is a clear case of lack of jurisdiction or patent illegality.

Brief Facts of the Case

Business Activity and Agreement Structure

The assessee, M/s. S. Shivraj Reddy Constructions, is a firm engaged in extraction of both minor and major minerals. To carry on quarry-related operations, the assessee entered into a Memorandum of Understanding-cum-Agreement dated 23.10.2020 with M/s. Reya Minerals.

Under this arrangement:

  • The assessee was responsible for operating the quarry.
  • Activities covered included:
    • Raising and extraction of minerals,
    • Crushing of the extracted material, and
    • Marketing and sale of such minerals.
  • All these activities were undertaken on a royalty payment basis, meaning the assessee was liable to pay royalty consideration under the contractual terms.

Initiation of GST Proceedings

Subsequently, based on information shared by the Senior Audit Officer, Office of the Accountant General, Hyderabad, the jurisdictional State Tax Officer initiated proceedings under GST.

Key details of the show cause notice:

  • Issued in Form GST DRC-01.
  • Dated 24.01.2025.
  • Relating to assessment year 2022-23.
  • Issued in ARN No. AD360125011415L.
  • It recorded that certain discrepancies had been noticed in respect of the assessee’s GST compliance.
  • The notice called upon the assessee to:
    • Pay the proposed tax along with interest on the net tax payable through Form GST DRC-03, or
    • File detailed objections to the proposals in Form GST DRC-06 within 15 days from the date of receipt of the notice.

Feeling aggrieved by the issuance of this show cause notice, the assessee approached the Telangana High Court by filing a writ petition, challenging the legality and sustainability of the notice.

Issues Raised Before the High Court

Narrowed Challenge by the Assessee

Initially, the writ petition questioned the entire show cause notice.