Coercive action on GST demand stayed due to pending Supreme Court challenge on limitation extension

Coercive action on GST demand stayed due to pending Supreme Court challenge on limitation extension notification and non-issuance of full SCN.

Issue:

Whether coercive action arising from a Summary Show Cause Notice (SSCN) and a subsequent order should be stayed, when the SSCN relies on Notification No. 56/2023-CT, dated December 28, 2023 (extending limitation period under Section 168A of the CGST Act, 2017), whose legality is pending before the Supreme Court, and when a mandatory Show Cause Notice (SCN) under Section 73(1) was allegedly not issued.

Facts:

• For the period 2018-19, the petitioner challenged a Summary Show Cause Notice (SSCN) and an order passed in deference to it.
• The petitioner assailed the SSCN and order on the ground that the respondent authorities had resorted to Notification No. 56/2023-CT, dated December 28, 2023, issued under Section 168A of the CGST Act, 2017, to issue the SSCN.
• The petitioner contended that this Notification No. 56/2023-CT was issued in violation of the procedure laid down in Section 168A of the CGST Act, 2017.
• Furthermore, the petitioner argued that no full-fledged Show Cause Notice (SCN) as required under Section 73(1) of the CGST/SGST Act, 2017, was issued to the petitioner prior to the impugned order.
• The petitioner’s contention was that a mandatory SCN under Section 73(1) cannot be equated with a Summary Show Cause Notice issued under rules.

Decision:

The court held that in view of the projection that the legality, validity, and propriety of Notification No. 56/2023-CT, dated December 28, 2023, was under examination of the Supreme Court, and that this Notification had also been interfered with by a judgment of a Coordinate Bench (another High Court with similar jurisdiction), no coercive action was to be taken against the petitioner in terms of the impugned order till the returnable date. The ruling was “partly in favour of assessee” and the matter was stayed.

Key Takeaways:

• Challenge to Limitation Extension (Section 168A): The core of the legal challenge pertains to the validity of Notification No. 56/2023-CT, which extended the limitation period for passing orders. The petitioner alleges procedural violation of Section 168A itself.
• Supreme Court Pendency and Coordinate Bench Interference: The fact that the validity of the notification is pending before the Supreme Court, and a Coordinate Bench has already interfered with it, provides strong grounds for the High Court to grant interim relief. This reflects judicial comity and the desire to avoid multiplicity of conflicting orders.
• Summary Show Cause Notice (SSCN) vs. Full SCN (Section 73(1)): The petitioner’s argument that an SSCN under rules cannot substitute a mandatory SCN under Section 73(1) is critical. A proper SCN is a foundational requirement for demanding tax under Section 73, ensuring due process and a detailed opportunity to respond to specific allegations and proposed liabilities.
• Coercive Action Stayed: The court granted interim relief by staying “no coercive action.” This protects the assessee from immediate recovery measures until the validity of the underlying notification (which extends the time limit for demand) and the procedural adequacy of the SSCN are definitively settled.
• “Partly in favour of assessee/Matter stayed”: This means the assessee did not get a final ruling on the merits of their challenge but secured a significant interim relief, preventing immediate recovery, pending the outcome of the Supreme Court’s decision on the notification’s validity.
• Impact of Procedural Lapses: The case highlights that even if a substantive demand exists, procedural lapses (like improper notice or reliance on a questionable extension notification) can lead to the setting aside of the demand or a stay on recovery.