Gauhati High Court Quashes ₹19.5 Crore GST Notice Against PepsiCo, Upholds Mandatory Scrutiny Process

Guwahati, Assam – In a significant ruling reinforcing the principles of procedural fairness in tax administration, the Gauhati High Court has quashed a ₹19.5 crore show cause notice (SCN) issued to beverage giant PepsiCo India Holdings Pvt. Ltd. The Court held that the GST department's failure to adhere to the mandatory pre-show cause notice scrutiny process rendered the entire tax demand proceeding invalid and unauthorized.

The judgment, delivered by a single-judge bench of Justice Soumitra Saikia on September 19, 2025, sets a crucial precedent on the non-negotiable nature of the procedure laid down in Section 61 of the Central Goods and Services Tax (CGST) Act, 2017. The Court unequivocally stated that revenue authorities cannot bypass the scrutiny of returns and directly invoke demand and recovery proceedings under Section 73 of the Act.

The case, M/S. PEPSICO INDIA HOLDINGS PVT. LTD. v THE UNION OF INDIA AND 3 ORS [WP(C)/6960/2023], provides critical clarity for taxpayers and practitioners navigating the complexities of GST compliance and litigation.

Background of the Dispute

The controversy stemmed from a show cause notice dated September 5, 2023, issued by the GST authorities to PepsiCo. The notice alleged that the company had wrongly availed and utilized Input Tax Credit (ITC) amounting to ₹19,51,41,111 for the financial year 2017–18. The department's entire case was built on an alleged discrepancy between the ITC figures reported in PepsiCo's Form GSTR-9C (the annual reconciliation statement) and the expenses disclosed in its audited financial statements, specifically referencing Table 14 of the form.

Representing PepsiCo, Senior Advocate R. Shah mounted a two-pronged challenge to the SCN. The primary argument was a fundamental procedural error by the department. He contended that before initiating any demand action under Section 73 for discrepancies found during a review of returns, the proper officer is statutorily mandated to follow the procedure prescribed under Section 61 of the CGST Act. This section, read with Rule 99 of the CGST Rules, 2017, requires the issuance of a notice in Form GST ASMT-10, intimating the taxpayer of the discrepancies and providing an opportunity to furnish an explanation.

Shah argued that this step acts as a crucial preliminary filter, allowing taxpayers to rectify inadvertent errors or provide clarifications, potentially resolving the issue without escalating to a formal demand proceeding. He submitted that the department had completely skipped this step, thereby violating a mandatory statutory requirement and rendering the subsequent SCN under Section 73 void ab initio.

The Court’s Comprehensive Analysis

Justice Saikia, in a detailed and reasoned judgment, thoroughly endorsed the petitioner's arguments. The Court emphasized that the GST Act is a self-contained code with a clear, sequential procedural framework that must be respected by the tax authorities.

The bench observed that the very scheme of the Act provides a taxpayer an opportunity to explain their position before any coercive action is initiated. The judgment highlighted the importance of this preliminary stage, stating, “where the statute itself prescribes a procedure enabling the registered taxpayer to rectify any defects... and if the explanation or rectification offered is found acceptable by the proper officer, there arises no occasion to invoke proceedings under Section 73.”

The Court held that the failure to provide this opportunity, mandated by Section 61, was not a mere technical oversight but a fatal flaw that vitiated the entire proceeding. In a powerfully worded conclusion on this point, the Court declared:

"Invocation of jurisdiction under Section 73, without mandatorily following the procedure prescribed under Section 61 read with Rule 61 of the Act, 2017, read with Rule 99 of the Rules, 2017, is contrary to the prescribed procedure and opposed to the very scheme of the Act... such invocation of jurisdiction is completely unauthorized, and consequently, all further actions taken thereunder must be held to be contrary to the provisions of law."

Optional Filing of GSTR-9C Table 14

The Court also addressed the substantive basis of the department's allegation—the mismatch in Table 14 of Form GSTR-9C. PepsiCo had argued that for the financial year 2017-18, the filing of details in this particular table was not mandatory. The company pointed to a series of official notifications issued by the competent authority that had explicitly made this disclosure optional.

The High Court concurred with this submission, noting that the exemption was not only applicable for FY 2017-18 and 2018-19 but was subsequently extended up to FY 2022-23. The Court remarked:

“The competent authority has notified that the submission of information in Table 14 in Form GSTR-9C was optional for the period 2017-18 and 2018-19.”

Crucially, however, the Court clarified that even if the department held a contrary view and believed the filing was mandatory, it could not have been used to bypass the prescribed procedure. The judgment stated that if the department intended to invoke Section 73, “the procedure prescribed under Section 61 was nonetheless mandatorily required to be followed by the revenue.”

Overruling Objections on Alternate Remedy

The revenue department raised a preliminary objection regarding the maintainability of the writ petition, arguing that PepsiCo had an alternate remedy available in the form of replying to the SCN and participating in the adjudication process.

The Court, however, dismissed this objection, relying on established legal precedent that writ jurisdiction under Article 226 of the Constitution can be invoked in exceptional circumstances, particularly when an action is taken without jurisdiction. Since the Court had already found the invocation of Section 73 to be "completely unauthorized," it held that the writ petition was maintainable.

Implications for Tax Litigation and Practice

This judgment from the Gauhati High Court has far-reaching implications for GST litigation across the country.

1. Reinforces Procedural Sanctity: It serves as a strong reminder to tax authorities that procedural shortcuts are impermissible. The judgment underscores that the "how" of tax administration is as important as the "what."
2. Empowers Taxpayers: It provides a robust legal shield for taxpayers facing demand notices issued without prior scrutiny and intimation under Form GST ASMT-10. This ruling can be cited as a definitive precedent to challenge such SCNs at the writ stage itself, saving significant time and resources.
3. Clarity on Section 61 vs. Section 73: The decision delineates the distinct roles of Section 61 (Scrutiny) and Section 73 (Demand). Section 61 is the gateway, and only if discrepancies remain unresolved after this stage can the department proceed to the more adversarial process under Section 73.
4. Limits Arbitrary Action: By insisting on a structured, step-by-step process, the judgment helps curb the potential for arbitrary action by tax officials and promotes a more transparent and fair assessment environment.

As the GST regime matures, judicial pronouncements like this play a vital role in interpreting the law and ensuring that its implementation aligns with the principles of natural justice and due process. For PepsiCo, the ruling brings an end to a significant tax demand, but for the broader legal and business community, its value lies in the reaffirmation of the rule of law in taxation. The petition was accordingly allowed, and the impugned show cause notice was quashed.