Writ Jurisdiction Not Exercised for Demand Order Under Section 74 When Assessee Lacked Diligence in Reply and Document Requests.

Writ Jurisdiction Not Exercised for Demand Order Under Section 74 When Assessee Lacked Diligence in Reply and Document Requests.

Issue:

Whether a writ petition challenging a demand order for issuing bogus invoices and fraudulent diversion of goods, made under Section 74 of the CGST Act (involving fraud), should be entertained when the assessee claims non-supply of relied-upon documents and denial of cross-examination, but is found to have delayed their response and lacked diligence, and there are indications of fraudulent insolvency proceedings related to the case.

Facts:

For the period 2017-18, a show cause notice (SCN) was issued to the assessee under Section 74 (involving fraud, suppression of facts, etc.). The modus operandi alleged in the SCN was that the assessee was issuing bogus invoices for packaging material/laminates to various non-existent or non-operational firms, and this material was then diverted to various paan masala and tobacco manufacturing units.

The assessee sought an extension of time to reply to the SCN. Later, the assessee sought relied-upon documents. The revenue department contended that these documents were already in the assessee’s possession as they were part of other ongoing proceedings. The assessee eventually filed a reply only after a personal hearing notice was issued. Throughout the process, the assessee raised objections regarding the supply of relied-upon documents and the opportunity for cross-examination. It was also noted that insolvency proceedings were allegedly fraudulently initiated against companies from whom recoveries were to be made by the department.

Decision:

In favor of the revenue: The court held that the assessee had sufficient information to reply to the SCN but chose not to file one for six months. Furthermore, the fraudulent initiation of insolvency proceedings against companies from whom recoveries were due by the department was a material consideration. The court found that the requests for relied-upon documents and cross-examination were belated and not bona fide. The assessee was deemed not diligent in this matter. Therefore, the court concluded that this was not a fit case for exercising extraordinary writ jurisdiction. However, the assessee was free to avail themselves of appellate remedies.

Key Takeaways:

• Diligence of Assessee in Responding to SCNs: This case strongly emphasizes the importance of an assessee’s prompt and diligent response to a show cause notice, especially when serious allegations like fraud (under Section 74) are involved. Delaying the reply for six months, despite having “requisite information,” significantly weakens the assessee’s position.
• Bona Fide Request for Documents/Cross-Examination: Requests for relied-upon documents and cross-examination must be genuine and made in a timely manner. If such requests are perceived as dilatory tactics or made belatedly when the assessee has already had access to information (e.g., through other proceedings), courts may not entertain them.
• Fraudulent Activities and Writ Jurisdiction: In cases involving allegations of widespread fraud and a complex modus operandi (like bogus invoices and diversion of goods), courts are generally less inclined to exercise their extraordinary writ jurisdiction on technical or procedural grounds if the assessee’s conduct appears to be contributing to the delay or obfuscation.
• Alternative Remedy: The court reiterated the principle that when an efficacious alternate statutory remedy (i.e., appeal) is available, a writ petition is generally not maintainable. By stating that the assessee was free to avail appellate remedies, the court indicated that the issues could be raised before the statutory appellate authority.
• Impact of Related Fraudulent Proceedings: The mention of fraudulently initiated insolvency proceedings against other entities involved in the chain indicates a broader pattern of fraudulent conduct, which likely influenced the court’s perception of the assessee’s bona fides.
• No Violation of Natural Justice if Opportunity Provided: The court implicitly found that there was no fundamental denial of natural justice because the SCN was issued, and the assessee had opportunities to respond, even if they were not fully utilized to the court’s satisfaction. The onus was on the assessee to establish a clear violation, which they failed to do given their lack of diligence.