Facts of the Case:

In this case, the petitioner were engaged in business through proprietorship concerns and were subjected to proceedings under Section 74 of the NGST Act for alleged tax liabilities for multiple financial years. Initially, notices in Form DRC-01A were issued intimating proposed tax, interest, and penalty liabilities, pursuant to which the petitioners sought time and also made certain payments under protest through Form DRC-03, primarily towards the penalty component. Thereafter, show cause notices dated 28.06.2023 were issued under Section 74(1) alleging that only partial payments i.e. penalty to the extent of 15% had been made and calling upon the petitioners to explain why the remaining tax and interest should not be demanded. The petitioners did not file replies to these notices, and consequently, orders dated 17.07.2023 and 18.07.2023 were passed under Section 74(9), confirming the remaining tax and interest liabilities, followed by issuance of summary orders in Form DRC-07. Aggrieved by these orders, the petitioners approached the High Court by way of writ petitions after a lapse of nearly one year.

Issue:

Whether the show cause notices issued under Section 74(1) were valid in law, particularly in the absence of any allegations of fraud, willful misstatement, or suppression of facts, and whether the consequent adjudication orders were sustainable in light of non-compliance with the principles of natural justice and statutory requirements under Section 75 of the NGST Act.

Held That:

The High Court held that the impugned show cause notices and the consequential adjudication orders were legally unsustainable. It observed that invocation of Section 74 requires the existence of specific jurisdictional facts, namely fraud, willful misstatement, or suppression of facts with intent to evade tax. However, a plain reading of the show cause notices revealed that they did not contain any such allegations or foundational facts justifying initiation of proceedings under Section 74. In the absence of these essential ingredients, the notices were held to be fundamentally defective and without jurisdiction.

Further, the Court found that the adjudication orders violated the mandate of Section 75 of the NGST Act. No opportunity of personal hearing was granted to the petitioners as required under Section 75(4), despite adverse orders being passed. Additionally, the orders did not set out the relevant facts or the basis of decision as mandated under Section 75(6), rendering them non-speaking and arbitrary. The Court also noted procedural irregularities, including lack of clarity regarding the adjudicating authority before whom replies were to be filed.

In view of these deficiencies, the Court exercised its writ jurisdiction under Article 226 and set aside both the show cause notices dated 28.06.2023 and the consequential orders dated 17.07.2023 and 18.07.2023 along with the summary orders in Form DRC-07. However, it granted liberty to the department to initiate fresh proceedings in accordance with law, if permissible. The Court further directed that the period during which the writ petitions were pending shall be excluded for the purpose of computing limitation under Section 74(10).

Case Name:  Mr. Thekrubizolie And Anr, M/s. Progressive Motors Versus The Union of India, Deputy Commissioner of State Taxes Enforcement Dimapur, Asst. Commissioner of State Taxes Dimapur, Mr Anupam Roy. dated 23.03.2026

To read the complete judgement 2026 Taxo.online 723