Pre-SCN Consultation Under Rule 142(1A) CGST Rules Not Mandatory Post-Amendment: Delhi High Court

The High Court of Delhi has reaffirmed that, following the 2022 legislative amendments, pre-show cause notice (SCN) consultation under Rule 142(1A) of the CGST Rules is no longer a mandatory prerequisite for tax authorities. In a judgment delivered by Justice Prathiba M. Singh and Justice Renu Bhatnagar, the court emphasized that in instances of complex, large-scale fraudulent Input Tax Credit (ITC) activity, such consultations may be procedurally redundant.

The Backdrop: A Maze of Input Tax Credit

The petition was filed by Manpar Exim Inc, a firm engaged in the readymade garments and leather goods trade in Delhi, and its partner, Mr. Parag Garg. The firm found itself in the crosshairs of the Directorate General of Goods and Services Tax Intelligence (DGGI) following allegations of sophisticated fraudulent ITC availment. According to the investigation, the firm was part of a broader operation involving multiple non-existent entities, resulting in a staggering tax demand of over Rs 9.6 Crore.

The dispute arose after the issuance of an Order-in-Original on October 22, 2025, which confirmed the tax demand, interest, and substantial penalties. The petitioner challenged this order primarily on the lack of a pre-SCN consultative notice, citing Rule 142(1A) of the 2017 Rules and questioning the constitutional validity of the Notification No. 79/2022, which transitioned the mandatory requirement (the word "shall") to a discretionary one (the word "may").

Legal Arguments: Mandatory vs. Discretionary

The petitioner’s counsel, Mr. Chinmaya Seth, argued that the failure to issue a pre-SCN consultative notice rendered the subsequent proceedings legally untenable. They relied upon previous jurisprudence that established the consultation process as a safeguard for taxpayers.

Conversely, the Respondents contended that the writ petition was not maintainable, pointing to a recent history of fraudulent claims where, despite the availability of appellate remedies, petitioners attempted to bypass regular channels. The Respondents pointed to the precedent set in Zeta International v. The Additional Director , noting that the 2022 notification effectively stripped the pre-SCN consultation of its mandatory status.

The Court’s Reasoning: Procedural Reality

The Court’s analysis focused on the legislative evolution of Rule 142(1A). By replacing "shall" with "may," the legislature explicitly opened the door for instances where consultation might not be necessary.

The Court further observed that the mandate of pre-consultation is designed for simple, minor discrepancies, and is functionally ineffective when dealing with complex, multi-entity fraud schemes.

> "It is noticed that after the change, which has been brought about, the issuance of pre-SCN consultation notice would not be mandatory. Moreover, in the case of such large scale fraudulent availment of ITC with multiple entities, pre-SCN consultation notice may also have no impact."

Final Decision: The Path to Appeal

The High Court declined to exercise its extraordinary writ jurisdiction, finding that the petitioner still had the legal option to pursue an appeal under Section 107 of the CGST Act. The Court noted that the petitioner had already deposited Rs 1.66 Crore during the investigation—an amount that could be adjusted toward the necessary pre-deposit requirement for the statutory appeal.

The judgment effectively signals a stricter stance on the maintenance of writ petitions in tax fraud cases and solidifies the discretionary nature of pre-SCN consultations in the post-amendment GST regime. The Court further clarified that the ongoing challenge to the constitutionality of Notification No. 79/2022 would be governed by the ruling in Zeta International , ensuring consistency for future proceedings.

This decision underscores the court's commitment to ensuring that taxpayers follow the established hierarchical appellate process, especially in matters of significant tax evasion, rather than initiating constitutional challenges as a means to circumvent tax recovery mechanisms.