Writ Petition Challenging GST Demand Based on Audit Memos Dismissed; Assessee Directed to Avail Appellate Remedy.

Writ Petition Challenging GST Demand Based on Audit Memos Dismissed; Assessee Directed to Avail Appellate Remedy.

Issue:

Whether a writ petition challenging a demand order passed under Section 74 of the CGST Act (involving fraud, etc.), which arose from multiple audit memos and concerns late fees, wrongful ITC availment, or short payment of tax, should be entertained when the original demand-cum-show cause notice (SCN) was previously upheld by a writ court, and the final adjudication order addresses factual issues in detail.

Facts:

The assessee, engaged in the export and import of mobile phones and other products, challenged a demand order passed under Section 74 of the GST Act. This demand pertained to late fees and allegations of wrongful availment of Input Tax Credit (ITC) or short payment of tax.

Previously, the assessee had filed a refund claim which was rejected as time-barred. The assessee filed a writ petition against this rejection, and an order was passed directing the processing of the refund. However, subsequent to this refund order, various audit memos were issued against the assessee, demanding payments, which the assessee deposited. Later, a revised audit memo was issued along with other summons. The assessee was also issued a demand-cum-show cause notice (SCN), which was challenged in another writ petition. In that previous writ petition, it was held that although the SCN might be premised on the findings of an audit report, it was within the statutory framework, and any irregularities in issuing audit memos did not impinge on the validity of the SCN. This SCN then got adjudicated by the impugned demand order.

The assessee now challenged this final demand order.

Decision:

In favor of the revenue: The court observed that in the impugned order, the reply and written submissions of the assessee had been duly considered. A perusal of the adjudication order showed that there was a “detailed adjudication of various factual issues.” Therefore, the court concluded that the petition was not entertainable and the assessee was to be directed to avail the appellate remedy under Section 107 of the CGST Act.

Key Takeaways:

• Exhaustion of Alternate Statutory Remedy: This judgment strongly reinforces the principle that when an efficacious statutory appellate remedy (like an appeal under Section 107 of the CGST Act) is available, a High Court will generally not entertain a writ petition. Factual disputes and detailed adjudications are best handled by the specialized appellate authorities.
• Detailed Adjudication Order: If the impugned adjudication order is a “speaking order” that demonstrates a detailed consideration of the assessee’s reply and written submissions, and delves into the factual issues, it reduces the likelihood of a writ court interfering on grounds of lack of application of mind or denial of natural justice.
• Prior Writ Petition on SCN Validity: The fact that the validity of the SCN (even if arising from audit memos) was already upheld in a previous writ petition means the assessee cannot re-litigate the foundational validity of the demand at the writ stage once it has been adjudicated.
• Audit Memos vs. SCNs/Orders: Audit memos are typically preliminary communications. The actual demand is created through a proper SCN and adjudication order. While irregularities in audit memos might be a ground for initial challenge, once the SCN is upheld and an adjudication order is passed, the focus shifts to the validity of that order itself, not the preceding audit memos, unless those irregularities lead to a fundamental jurisdictional defect or denial of natural justice in the SCN/Order.
• Section 74 – Fraudulent ITC/Short Payment: Cases under Section 74 involve allegations of fraud, willful misstatement, or suppression of facts, which are serious matters requiring a thorough factual examination. Writ courts typically avoid entering into such detailed factual controversies.
• No Extraordinary Circumstances: The court found no extraordinary circumstances (such as a patent lack of jurisdiction, violation of fundamental rights, or a completely unreasoned order) that would warrant bypassing the normal appellate hierarchy.