Section 61 GST Scrutiny Procedure Failure Vitiates SCN Under Section 73: Gauhati High Court

In a significant ruling for taxpayers, the Gauhati High Court has held that the revenue authorities cannot bypass mandatory procedural safeguards when issuing show cause notices (SCN) under the Central Goods and Services Tax (CGST) Act, 2017. Mr. Justice Soumitra Saikia underscored that for any recovery proceedings initiated based on discrepancies found in returns, the procedural requirements of Section 61, read with Rule 99, act as a condition precedent that cannot be ignored.

Chronology of the Dispute

The petitioner, M/S. Pepsico India Holdings Pvt. Ltd., challenged an SCN issued on September 5, 2023, by the revenue authorities. The department had alleged a mismatch between the Input Tax Credit (ITC) reported in the annual return (GSTR-9) and the reconciliation statement (GSTR-9C), specifically regarding Table 14. The authorities claimed a wrongful availment of ITC amounting to over Rs. 19.5 crore.

Pepsico argued that, according to various government notifications, filing information in Table 14 of GSTR-9C was strictly optional for the period in question. Furthermore, the petitioner contended that the department acted in a legal vacuum by jumping straight to Section 73 proceedings without first initiating the mandatory scrutiny process established under Section 61 and Rule 99.

Arguments: A Question of Due Process

The petitioner emphasized that the law provides a clear structure: before issuing an SCN for tax recovery under Section 73, the tax official must scrutinize returns, identify discrepancies, and issue an ASMT-10 notice to invite an explanation. The petitioner argued that this opportunity is not a mere formality but a statutory right.

Conversely, the Revenue maintained that since the alleged discrepancy involved ITC availment, immediate action under Section 73 was justified. The department further argued that the petitioner failed to exhaust available statutory remedies, rendering the writ petition premature.

The Judicial Intervention

Drawing heavily on the precedent set by the Rajasthan High Court in Joint Commissioner vs. Goverdhandham Estate Pvt. Ltd. —which was affirmed by the Supreme Court—Justice Saikia held that the procedural sequence is cardinal to a fair tax assessment.

"The mandate of Section 61 is very clear and any discrepancy noticed in the returns filed and which are scrutinized by the revenue is to be confronted to the registered dealer in Form GST ASMT-10," the High Court observed. The ruling emphasized that where specific statutory procedures exist to rectify defects before full-scale recovery happens, the department is legally bound to follow them.

Key Observations

The judgment offers clarity for both regulators and the business community:

• Binding Nature of Procedures: "The failure to [issue Form GST ASMT-10] clearly indicates that the demand and recovery proceedings initiated under Section 73 were without a proper finding that the amount sought to be recovered was wrongfully availed by the petitioner."
• Optional Disclosures: The Court noted that ignoring consistent notifications making Table 14 optional "is contrary to the prescribed procedure and opposed to the very scheme of the Act."
• Judicial Review: Rejecting the argument against the writ petition, the Court affirmed: "Where the jurisdiction invoked by a statutory authority is unauthorized and contrary to the statutory provisions itself, presence of alternative remedy... is not a bar for invoking the jurisdiction under Article 226."

The Verdict and Its Impact

Finding that the revenue department lacked the authority to initiate Section 73 proceedings without complying with Section 61, the High Court set aside the impugned SCN. This decision reinforces the principle that procedural fairness in tax administration is not secondary to the revenue-collection mandate. For taxpayers, this serves as a critical defense against the arbitrary invocation of recovery processes and emphasizes that the "four corners of the law" apply as much to regulators as they do to businesses.