Facts of the Case:

In this case, the petitioner challenged a demand-cum-show cause notice covering FYs 2021-22 to 2024-25, as well as the search proceedings conducted under Section 67 of the CGST Act on 01.02.2024. The search was authorized through FORM GST INS-01 and was followed by INS-02 and a panchnama. During investigation, the Department examined records and obtaining information from persons connected with the business.

Based on these materials, the Department alleged suppression/misdeclaration of taxable supplies of ₹3,42,61,665, involving GST liability of ₹61,67,100, for FYs 2021-22 to 2023-24. Section 74(1) was invoked for these years, while Section 74A(1) was invoked for FY 2024-25, along with interest and penalties, including under Section 122. The notice also accounted for ₹3 lakh paid through DRC-03 on 22.02.2024.

Issue:

Whether the search was invalid in the absence of disclosure of the “reasons to believe” and DIN in the search authorization; whether proceedings under Section 74/74A were impermissible without prior scrutiny under Section 61 and issuance of ASMT-10; whether a consolidated SCN covering multiple financial years was legally sustainable; and whether proposing penalties under Sections 74/74A and 122 in the same SCN violated Section 75(13).

Held That:

The Gauhati High Court declined to quash either the search proceedings or the impugned SCN. On the requirement of “reasons to believe” under Section 67(2), the Court held that the existence of FORM GST INS-01 by itself does not establish compliance with the statutory pre-condition, but non-furnishing of the reasons to the taxpayer cannot, by itself, be treated as absence of such reasons. The competent officer must have formed the requisite belief on the basis of material available before issuing the authorization. Since the question whether such contemporaneous reasons actually existed required examination of the original INS-01 and departmental record, the matter was left to the adjudicating authority. The Court also held that the sufficiency of such reasons was not a matter for examination in writ proceedings against an SCN.

On the DIN objection, the Court recognized that CBIC Circular No. 122/41/2019-GST dated 05.11.2019 prescribed DIN for specified communications, including search authorizations. However, whether the authorization contained a DIN, fell within an exception, or was subsequently regularized involved factual determination. Such an objection, without examination of the relevant records, could not by itself justify quashing the entire SCN.

The Court rejected the contention that Section 61 scrutiny and ASMT-10 must invariably precede proceedings under Section 74/74A. Section 61 applies where the demand is founded upon discrepancies detected through scrutiny of returns, but it is not a mandatory preliminary stage for every investigation. In the present case, the demand was founded upon the search under Section 67 and materials subsequently gathered during investigation, including business records, software entries, slip pads and statements. Therefore, the absence of Section 61 proceedings did not invalidate the SCN. However, the Court clarified that if any particular component of the demand was based solely on a discrepancy detected during Section 61 scrutiny, the statutory procedure applicable to such scrutiny would have to be followed.

The Court further upheld the consolidated SCN covering multiple financial years, holding that there is no statutory prohibition against issuing a common notice for different years. However, the adjudicating authority must determine the liability separately for each financial year, apply the provision applicable to that year, and independently examine limitation and the ingredients necessary for invoking Section 74 or Section 74A.

As regards Section 75(13), the Court held that the provision does not prohibit the Department from referring to Sections 74/74A and Section 122 in the same SCN. Its purpose is to prevent imposition of more than one penalty on the same person for the same act or omission. Thus, the mere proposal of penalties under both provisions does not invalidate the SCN, although the adjudicating authority must ensure that there is no double penalty contrary to Section 75(13).

The Court also declined to examine at the writ stage whether the materials established fraud, suppression or wilful misstatement or whether the alleged suppressed turnover had been correctly quantified. These were held to be matters for statutory adjudication. Since the SCN contained quantified allegations supported by investigative material and was not wholly without jurisdiction or patently illegal, interference under Article 226 was considered unwarranted.

Accordingly, the writ petition was dismissed. However, in the interests of justice, the Court granted the petitioner 45 days to submit its reply to the SCN and directed the adjudicating authority to decide all factual and legal objections in accordance with law. The Court clarified that its observations would not constitute findings on the merits of the allegations.

Case Name: M/s HD Associates v. Union of India & Ors. dated 03.09.2026

Citation No. 2026 Taxo.online 2696