Issuance Of Show Cause Notice U/s 74 Of CGST Act Does Not Imply Violation Of Natural Justice: Himachal Pradesh High Court

Section 74: Determination of tax not paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful-misstatement or suppression of facts.

Himachal Pradesh High Court held that when a show cause notice is issued under Section 74 Of the Central Goods and Services Tax Act, the matter is still at a preliminary stage, and objections can't be raised on the ground that it was issued with a preconceived notion or that it violates the principles of natural justice.

Justice Tarlok Singh Chauhan and Justice Sushil Kukreja: “Merely because the petitioner has been served with the show cause notice would not mean that the same has been issued with the pre-conceived mind and in violation of natural justice”.

Background Facts:

The petitioner, M/s Himalaya Wellness Company, is engaged in the supply of personal care and pharmaceuticals products, such as medicaments, beauty or make-up preparations along with preparation for Oral or Dental Hygiene. To facilitate the transportation of goods into and out of Himachal Pradesh, the company had entered into agreements with various Goods Transport Agencies.

As transportation services are taxable under the Goods and Services Tax (GST) regime, the petitioner regularly filed monthly returns and discharged applicable tax liabilities in the State of Himachal Pradesh.

However, during an audit by the Central Tax Department, certain discrepancies were found in the returns filed by the petitioner. Pursuant to this, an audit enquiry notice was issued, following which the department raised a demand for ₹4,37,17,830, stating that the petitioner had falsely claimed Input Tax Credit.

Thereafter, a show cause notice under Section 74(1) of the CGST Act was issued, for demand and recovery of the alleged inadmissible input tax credit amount.

Challenging the show cause notice, the petitioner filed a writ petition under Article 226 of the Constitution, seeking its quashing.

Contentions:

The petitioner contended that the show cause notice was issued with a pre-conceived notion that the input tax credit claimed by the petitioner is false and inadmissible. He further submitted that, although there is an alternate remedy available, the writ petition is maintainable as the show cause notice violates the principle of natural justice.

In response, the respondent submitted that the writ petition was not maintainable, as mere issuance of a show cause notice does not indicate pre-conceived notion or violation of natural justice. It further stated that the matter is at a preliminary stage and even if a final decision is made, the petitioner has an alternate remedy under Section 107 of the CGST Act and can file an appeal before the Appellate Authority within 3 months of the decision.

Findings:

The Court observed that when an alternate remedy is available, it must generally be exhausted before invoking writ jurisdiction. Exceptions to this principle includes:

1. Enforcement of a fundamental right;
2. Violation of natural justice;
3. Lack of jurisdiction in the order or proceedings; or
4. A challenge to the vires of a statute.

However, in this case, the High Court found no such exceptional circumstance or violation of natural justice. It noted that the matter was still at the stage of show cause notice, and no final decision or order had been passed.

In Assistant Commissioner of State Tax v. Commercial Steel Ltd. (2021), the Supreme Court held that: “A show cause notice cannot be quashed merely on the allegation that it violates natural justice. The proper recourse is to respond to the notice and, if necessary, pursue the alternate statutory remedy”.

Therefore, the Court concluded that “Merely because the petitioner has been served with the show cause notice does not mean that the same has been issued with a pre-conceived mind or in violation of natural justice.”

Thus, the writ petition was dismissed as not maintainable, as the matter was still at an initial stage and the court cannot get into the merits of the case.

Case Name: M/s Himalaya Wellness Company v/s Union of India & Ors.

Case No.: CWP No. 9239 of 2024

Date of Decision: 08.05.2025

For the Petitioner: Mr. G. Shivadass, Sr. Advocate with Ms. Shradha Rajgiri, Mr. Vipul Sharda and Mr. Raditya Katoch, Advocates.

For the Respondents: Mr. Janak Raj Central Govt. Standing Counsel, for respondent No. 1.

Mr. Vijay Kumar Arora, Sr. Advocate with Ms. Godawari, Ms. Lalita Sharma, Ms. Aastha Kohli, Mr. Hitansh Raj and Mr. Gaurav Kumar, Advocates, for respondent No. 3.

Mr. Rajiv Kumar Assistant Commissioner, CGST, Audit committee, Chandigarh in person.

Click Here To Read/Download Order