No Piecemeal Adjudication of S.74 GST Notices; High Court Cannot Direct Staged Decisions Under Art. 226: Kerala High Court - 2025-02-06

Kerala High Court: GST Adjudication Must Be Composite, No Staged Decisions on Preliminary Issues

THRURSDAY, 6TH FEBRUARY 2025 - In a significant ruling on the procedural aspects of the Goods and Services Tax (GST) law, the Kerala High Court has held that a show-cause notice issued under Section 74 of the GST Act must be adjudicated in a single, composite manner. The Division Bench, comprising Dr. Justice A.K. Jayasankaran Nambiar and Justice Easwaran S. , clarified that High Courts, in their writ jurisdiction under Article 226, should refrain from directing tax authorities to decide preliminary issues in stages.

The court allowed an appeal filed by the State, setting aside a Single Judge's order that had instructed the GST authorities to first decide a preliminary objection raised by the assessee against a show-cause notice.

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Case Background

The case, The Deputy Commissioner (Intelligence) vs. Minimol Sabu , stemmed from a writ petition filed by Ms. Minimol Sabu , a dealer in gold and silver ornaments. Following a search of her business premises, the GST department issued a show-cause notice under Section 74 of the GST Act, alleging a suppression of turnover and demanding approximately Rs. 4.88 crores in tax and Rs. 11.85 lakhs in flood cess.

In her reply, Ms. Sabu raised a preliminary objection, contending that a portion of the alleged suppressed turnover actually belonged to a separate business entity of her late husband, which had a separate GST registration. She approached the High Court seeking to quash the notice, and the learned Single Judge directed the authorities to first adjudicate this preliminary issue before proceeding with the main case. Aggrieved by this direction, the State GST Department filed the present intra-court appeal.

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Arguments Presented

Appellant (The State): Represented by Government Pleader Smt. Resmitha Ramachandran, the State argued that the scheme of the GST Act, particularly Section 74, does not envisage piecemeal adjudication. They contended that directing a preliminary decision would disrupt the statutory timelines for completing the assessment and would be detrimental to the Revenue.

Respondent (The Assessee): Represented by Advocate Sri. Akhil Suresh, the assessee maintained that the jurisdictional challenge regarding the turnover of a separate entity should be decided first, as it fundamentally impacted the validity of the notice.

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Court's Rationale and Legal Principles

The Division Bench decisively sided with the State, providing a detailed analysis of the statutory framework and constitutional powers.

No Provision for Staged Adjudication

The Court emphasized that a cohesive reading of Section 74 of the CGST/SGST Act reveals a clear legislative intent for a single, comprehensive adjudication process. The statute empowers the proper officer to issue a notice, consider the assessee's representation, and pass a final order determining tax, interest, and penalty within a prescribed five-year period. The judgment stated:

"When the statutory provisions under Section 74 of the CGST/SGST Act is read altogether, we find that there is no provision enabling either the assessee to claim adjudication in stages nor has any power being conferred upon the proper officer to adjudicate the lis in stages."

Detrimental to Both Revenue and Assessee

The Bench observed that breaking up the adjudication process is counterproductive for all parties. It not only risks the proceedings becoming time-barred, causing "irreversible damage to the Revenue," but also harms the assessee, as interest on the potential tax liability continues to accumulate during the prolonged litigation on peripheral issues.

Limits on Writ Jurisdiction under Article 226

The Court invoked the Supreme Court's precedent in D.P. Maheswari v. Delhi Administration & Ors to delineate the High Court's role in interfering with show-cause notices. While acknowledging that writ petitions can be entertained in cases of a "total lack of jurisdiction," the Bench held that this power should not be used to micromanage statutory proceedings. The Court issued a strong caution:

"Article 226 of the Constitution of India is not meant to be used to break the resistance of the Revenue in this fashion. In exercise of such jurisdiction, the High Court is required to refrain from issuing directions to the authorities under the taxation statute to decide issues in stages or on a preliminary basis."

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Final Decision and Directions

The High Court allowed the State's appeal and modified the Single Judge's judgment. Noting that the statutory deadline for completing the adjudication was imminent (15.02.2025, after accounting for a seven-day stay), the Court directed the assessee, Ms. Minimol Sabu , to appear before the adjudicating officer on 10.02.2025.

The Bench further directed the proper officer to complete the hearing on the same day and pass a composite final order on or before 15.02.2025, ensuring a swift conclusion to the matter in line with the statutory mandate.