GST UPDATE

Question before Hon’ble Court:

Whether a writ petition challenging a show cause notice is maintainable when the statutory mechanism of adjudication and appeal is available under the GST law?
Whether the impugned show cause notice is vitiated merely because it alleges both wilful misstatement and suppression of facts?
Whether the show cause notice discloses the essential jurisdictional fact of intent to evade tax, which is a necessary prerequisite for invoking Section 74 of the CGST Act, 2017?

Hon’ble Court:	RAJASTHAN HIGH COURT
Case Title	M/s Jaipur Development Authority VS The Additional Commissioner, Cgst Audit, Jaipur, Rajasthan and ors
Appeal No. & Citation	D.B. Civil Writ Petition No. 18970/2025
Date of Order	04/ 11/2026
Outcome	Appeal Allowed

Brief Facts of the Case

The petitioner, Jaipur Development Authority (JDA) underwent through an enquiry by the Directorate General of GST Intelligence (DGGI), Jaipur Zonal Unit. Subsequently, a show cause notice was issued covering an earlier period, which culminated in an Order-in-Original. The petitioner preferred an appeal against the said order, which was stated to be pending. Separately, the petitioner was selected for an audit under Section 65 of the CGST Act, 2017. The audit covered the financial years from 2019-20 to 2023-24. On the basis of the aforesaid Final Audit Report, several show cause notices were issued by the Superintendent. Subsequently, the Additional Commissioner, CGST Audit, Jaipur, issued the impugned show cause notice under Section 74 of the CGST Act, 2017, alleging short payment of GST in respect of road cutting charges, additional FAR charges and betterment levy, and sale of Master Plan booklets and application forms. The notice proposed recovery of tax along with applicable interest and penalty. Aggrieved by the invocation of the extended period and the provisions of Section 74 of the CGST Act, the petitioner approached the Rajasthan High Court by way of a writ petition, contending that the impugned notice was without jurisdiction, suffered from non-application of mind and violated the statutory scheme and principles of natural justice.

Brief Arguments by Petitioner

Invocation of Section 74 without satisfying its statutory conditions

Section 74 of the CGST Act is applicable only where the non-payment or short payment of tax is attributable to fraud, wilful misstatement or suppression of facts with an intent to evade tax which is not identified in the instant notice.

Simultaneous allegations of misstatement and suppression

The petitioner contended that misstatement and suppression are conceptually distinct expressions and cannot be mechanically invoked together without identifying the specific conduct attributable to the taxpayer. Misstatement involves a positive act of furnishing incorrect information, whereas suppression involves withholding or concealing information. Therefore, the notice ought to have specified the precise nature of the alleged conduct. The simultaneous invocation of both expressions demonstrated non-application of mind on the part of the issuing authority.

Complete disclosure of transactions and absence of suppression

It was submitted that all receipts and transactions were duly disclosed in the statutory returns and were within the knowledge of the Department. A mere omission or a bona fide dispute regarding the interpretation and applicability of the GST provisions cannot, by itself, constitute suppression with an intent to evade tax. Reliance was placed on CBIC Instruction No. 5/2023 dated 13.12.2023 and on the decision of the Madhya Pradesh High Court in GR Infra Projects Limited, Ratlam v. State of Madhya Pradesh W.P. No.40749/2025.

Existence of two plausible views on taxability

Where two views are reasonably possible regarding the interpretation of a statutory provision, the extended period of limitation cannot be invoked merely because the Department adopts a different interpretation. Reliance was placed on the decision of the Hon'ble Supreme Court in Commissioner, Central Excise and Customs v. Reliance Industries Ltd (2023 INSC 591).

Impermissible clubbing of multiple financial years

The impugned notice covered several financial years in a single proceeding which is impermissible and prejudicial to the petitioner.

Lack of jurisdiction after completion of audit proceedings

The petitioner argued that the same Final Audit Report had already resulted in the issuance of several show cause notices by the Superintendent. In terms of Section 65(7) read with Section 2(91) of the CGST Act, proceedings arising out of an audit are required to be initiated by the proper officer. Therefore, the same audit report could not form the basis for a fresh and parallel exercise of jurisdiction by another officer.

Non-issuance of intimation in FORM GST DRC-01A

No prior intimation in FORM GST DRC-01A was served upon the petitioner before issuance of the impugned show cause notice thereby depriving of the opportunity contemplated under Rule 142(1A) and Rule 142(1B) of the CGST Rules to make payment or submit its objections before formal initiation of proceedings.

Issuance of FORM GST DRC-01 by a different officer

The petitioner further contended that the summary of the show cause notice in FORM GST DRC-01 was issued by the Superintendent, whereas the substantive show cause notice was issued by the Additional Commissioner.

Nature of receipts and absence of taxable supply

The petitioner contended that mere non-payment or short payment of GST could not, by itself, justify invocation of Section 74 of the CGST Act. It was submitted that the ingredients of fraud, wilful misstatement or suppression of facts, coupled with an intention to evade tax, were essential for invoking the said provision. A bona fide dispute concerning the interpretation or taxability of a transaction, particularly where the receipts were duly recorded in the books of accounts and the issue involved two plausible interpretations of law, could not automatically be treated as an act of tax evasion. The petitioner further contended that the Department had mechanically invoked Section 74 to avail the extended period of limitation and impose a higher penalty, despite the absence of any material establishing an intention to evade tax. Therefore, the very invocation of Section 74 was without jurisdiction and the impugned show cause notice was liable to be quashed.

Brief Arguments by Respondent

Availability of an Alternative Statutory Remedy

The respondents contended that the proceedings were at a nascent stage, as only a show cause notice had been issued to the petitioner. It was submitted that the petitioner was required to respond to the notice by furnishing the relevant material and explaining its position before the adjudicating authority. The petitioner could not bypass the statutory remedy by invoking the writ jurisdiction of the High Court. Reliance was placed on Punj Lloyd Ltd. (JV) v. Union of India and M/s Trillion Lead Factory Private Limited v. Superintendent of Central Tax.

Show Cause Notice Reflects Only a Prima Facie View

The impugned show cause notice merely reflected a prima facie view of the Department and did not demonstrate any pre-determined opinion on the part of the adjudicating authority. If the explanation and supporting material furnished by the petitioner were found satisfactory, the proceedings could be dropped at the adjudication stage itself.

Disputed Questions of Fact

The respondents further contended that the matter involved disputed questions of fact which ought to be examined by the adjudicating authority in the first instance and not the High Court. Reliance was placed on M/s GEA Westfalia Separator India Pvt. Ltd. v. State of HaryanaCWP No. 19296/2024. Reliance was also placed on M/s Shree Balaji Metal Works v. Union of India D.B. Civil Writ Petition No. 13625/2025.

Intimation in FORM GST DRC-01A is Optional

With regard to the petitioner's objection regarding non-issuance of an intimation in FORM GST DRC-01A, the respondents submitted that Notification No.79/2020-Central Tax dated 15.10.2020 had amended Rule 142(1A) of the CGST Rules by substituting the word "shall" with "may". Consequently, furnishing an intimation in FORM GST DRC-01A before issuance of the show cause notice had become optional and was not mandatory.

Findings and Judgement

Maintainability of Writ Petition Against a Show Cause Notice

The Court observed that ordinarily, a writ court does not interfere with a show cause notice. However, this rule is one of self-restraint and does not operate as a bar on the jurisdiction of the High Court. Relying upon the principles laid down by the Supreme Court in Whirlpool Corporation, Siemens Ltd. v. State of Maharashtra and Calcutta Discount Co. Ltd. v. Income Tax Officer (2006) 12 SCC 33, the Court held that a writ petition can be entertained where the proceedings are wholly without jurisdiction.
Since Section 74 can be invoked only upon the existence of specified jurisdictional facts, the Court held that where such facts are absent on the face of the notice, the petitioner need not be relegated to the statutory adjudication process. Therefore, a person who is wrongly subjected to proceedings under Section 74 and suffers adverse consequences from the very issuance of the notice, the said person can challenge the jurisdiction of Section 74. The Court accordingly held that where the challenge raises a pure question of law concerning the jurisdictional foundation of the notice, the writ can be entertained.

Allegation of Misstatement and Suppression Together

The Court did not accept the petitioner's contention that wilful misstatement and suppression could not be alleged simultaneously. It observed that the two expressions may overlap, as a misstatement may itself amount to suppression. The Court further observed that Explanation 2 to Section 74 defines suppression to include non-declaration of facts or information required to be declared under the Act or failure to furnish information when called for in writing by the proper officer. Accordingly, a wrong declaration in a return may amount to both misstatement and non-declaration of the true facts. The Court, however, clarified that this observation did not mean that the petitioner had actually indulged in any such conduct.

Intent to evade tax

The Court observed that Section 74 is a special and harsher provision which can be invoked only where non-payment or short payment of tax is attributable to fraud, wilful misstatement or suppression of facts with intent to evade tax. On the other hand, Section 73 applies to cases where tax has not been paid or has been short paid for reasons other than fraud, wilful misstatement or suppression of facts to evade tax. Thus, the two provisions are mutually exclusive and a case must fall under one or the other. The Revenue cannot treat Section 74 as the default route and Section 73 as an exception.
Intention to Evade Tax is an Essential Jurisdictional Requirement
The Court emphasised that the words "to evade tax" govern each of the expressions fraud, wilful misstatement and suppression. These expressions constitute the means, whereas evasion of tax is the intended end. Both elements must coexist for invoking Section 74. Merely establishing non-declaration of facts or suppression within the meaning of Explanation 2 to Section 74 would not be sufficient unless such suppression is shown to have been committed with the intention to evade tax. Any interpretation which dispenses with the requirement of intention to evade tax would render the said words redundant and obliterate the distinction between Sections 73 and 74. Accordingly, the notice must disclose not merely the alleged act of fraud, wilful misstatement or suppression, but also the intention behind such conduct to evade tax.
Absence of Any Identifiable Benefit or Motive to Evade Tax in the Present Case
The Court took note of the fact that the petitioner was a statutory authority of the State of Rajasthan, administered by public servants and headed by an officer of the Indian Administrative Service posted on deputation by the State Government. It observed that the intention of a body corporate has to be gathered from the minds of those who direct its affairs. Unlike a private company, where persons in control may stand to gain through higher profits, dividends or increase in the value of their holdings, no such benefit could be attributed to the officers of the petitioner authority. If the tax was payable, the amount would merely move from the funds of the petitioner authority, which are public funds, to the public exchequer. The Court observed that evasion, in its true sense, presupposes a specific and identifiable person who stands to be enriched at the cost of the exchequer. In the circumstances, attributing an intention to evade tax to the officers of the petitioner authority, without any identifiable benefit or gain, would be imprudent and contrary to administrative propriety.
Mere Non-payment of Tax Cannot Establish Intention to Evade
The Court rejected the Revenue's contention that the petitioner's failure to disclose and deposit the tax itself established an intention to evade tax. It observed that failure to pay tax is the starting point of both Sections 73 and 74. If non-payment by itself were sufficient to establish an intention to evade tax, Section 73 would have no field left to operate and every case of short payment would automatically become a case of evasion. Something more than mere non-payment was therefore required. In the present case, the notice did not disclose any such additional material demonstrating an intention to evade tax.
In the instant case, the Court noted that the receipts in question had been found in the petitioner's own books of accounts during the course of audit and had not been concealed or discovered through any search or information obtained from an outside source. It also took note of the fact that the issue admitted of two plausible views and that an advance ruling in a similar matter had taken a view supporting the petitioner's position. The Court clarified that it was not deciding whether the petitioner's interpretation regarding taxability was correct; it was sufficient that the petitioner had adopted an arguable position which was openly taken.
Criminal Consequences Under Section 132 of the Act
The Court further observed that a finding of intention to evade tax may have consequences beyond civil liability, as criminal proceedings may also follow under Section 132 of the Act. The opening words of Section 132(1), referring to a person who commits or causes to commit an offence and retains the benefits arising therefrom, indicate that the element of benefit is built into the penal provision. The Court observed that attributing an intention to evade tax to officers of a State authority, who neither stand to gain nor can derive any personal benefit from such evasion, would lead to an anomalous situation where one government officer prosecutes another without any personal gain being attributed or even possible in law. This consequence further reinforced the Court's view regarding the requirement of intention to evade tax.
Absence of Jurisdictional Foundation for Invoking Section 74
The Court clarified that it was not laying down that a public authority could never be proceeded against under Section 74. There could be cases involving deliberate falsification of records or where persons in charge had acted for some collateral purpose. However, in the present case, the impugned notice did not disclose the jurisdictional fact of intention to evade tax. The Court held that even if the other ingredients of fraud, wilful misstatement or suppression were assumed to exist, the absence of intention to evade tax would be fatal to the invocation of Section 74. Consequently, the proceedings initiated under the said provision were held to be without jurisdiction.

CA Pradeep Jain_

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GST update /2026-27/0116

GST UPDATE

Question before Hon’ble Court:

Brief Facts of the Case

Brief Arguments by Petitioner

Brief Arguments by Respondent

Findings and Judgement

CA Pradeep Jain_

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