GST Dispute: Company Directed to Appeal & Reply to SCN; No Coercive Action Allowed

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Case Name

M/s. George Clinical India Private Limited vs. Union of India & Others

Court Name: High Court of Karnataka at Bengaluru

Case No.: Writ Petition No. 9425 of 2020 (T-RES)

Decided on: 15th September, 2020

Before: Hon’ble Mr. Justice S.G. Pandit

Key Takeaways

1. GST Appellate Tribunal Not Yet Constituted: The court acknowledged that the GST Appellate Tribunal had not yet been constituted as of the date of the judgment, which affected the timeline for filing an appeal.

2. Appeal Timeline Clarified: The petitioner was directed to file an appeal under Section 112 of the Central Goods and Services Tax Act, 2017 (CGST Act) within three months from the date of constitution of the Tribunal or from the date the President of the Tribunal enters office — whichever is applicable.

3. SCN Must Be Replied To: The court made it clear that a Show Cause Notice is not an order — it’s just a notice. The petitioner must reply to it, and the authorities must then adjudicate fairly.

4. Protection from Coercive Action: The court granted interim protection — no precipitative (coercive) action can be taken by the tax authorities pursuant to either the appellate order (Annexure-AG) or the SCN (Annexure-AH) until the Adjudicating Authority passes an order.

5. Discrepancy in SCN Noted: The court noted a discrepancy in the SCN — it included demands for the period July 2017 to April 2018, which was also covered in the appellate order. The petitioner was directed to bring this discrepancy to the attention of the authorities in their reply.

Issue

The central legal questions were:

• Can the High Court quash the appellate order (Annexure-AG) dated 06.03.2020 passed by the Commissioner of Central Tax (Appeals-II), or should the petitioner be directed to use the statutory appeal mechanism under the CGST Act?

• Can the High Court quash the Show Cause Notice (Annexure-AH) dated 04.06.2020, particularly when it includes demands for a period (July 2017 to April 2018) that was already covered in the appellate order?

In short: Should the court intervene directly, or should the petitioner exhaust the statutory remedies available under the CGST Act?

Facts

• The Petitioner: M/s. George Clinical India Private Limited is a company incorporated under the Companies Act, 1956, with its registered office at Plot No. 5, Raj Bhavan Road, 5th Floor, Prestige Khoday Towers, Bangalore-560 001. It was represented by its Director, Shri Ganesh Panduranga Pai.

• The Respondents: The Union of India (Ministry of Finance), the Deputy Commissioner of Central Tax (North Division-I), the Assistant Commissioner of Central Tax (North Division-I), and the Commissioner of Central Tax (Bengaluru North Commissionerate).

• What Happened: The Commissioner of Central Tax (Appeals-II) passed an order on 06.03.2020 (Annexure-AG) in GST Appeal No. 19-24/2019-20. This was an appellate order against which a further appeal would normally lie before the GST Appellate Tribunal.

• Then came the SCN: On 04.06.2020, a Show Cause Notice (Annexure-AH) was issued bearing No. C.No.IV/09/09/2019-20 ND-1. The petitioner’s grievance was that this SCN included demands for the period July 2017 to April 2018 — the same period covered in the appellate order — even though there was no separate order directing the petitioner to file an appeal for that period.

• The Petitioner Approached the High Court: Feeling aggrieved by both the appellate order and the SCN, the petitioner filed this Writ Petition under Articles 226 and 227 of the Constitution of India seeking to quash both documents.

Arguments

Petitioner’s Arguments (M/s. George Clinical India Private Limited):

• The petitioner argued that the SCN (Annexure-AH) was improper because it included demands for the period July 2017 to April 2018, which was already the subject matter of the appellate order (Annexure-AG).
• The petitioner pointed out that there was no order directing them to file an appeal for the period July 2017 to April 2018, so that demand could not have been included in the SCN.
• Therefore, the SCN required interference by the High Court.

Respondents’ Arguments (Tax Authorities):

• The respondents’ counsel, Sri. Jeevan J. Neeralgi, filed a memo dated 10.09.2020 enclosing a clarification circular dated 18.03.2020, specifically pointing to Clause No. 4.2 thereof.
• He argued that Annexure-AG (the appellate order) is an appealable order under the CGST Act, 2017 — meaning the petitioner should file an appeal before the GST Appellate Tribunal rather than approaching the High Court directly.
• Regarding the SCN (Annexure-AH), he submitted that it is merely a show cause notice — the petitioner should submit a reply, and the authorities will adjudicate the issue and pass orders in accordance with law.

Key Legal Precedents

This judgment is relatively brief and does not cite any prior case law precedents. However, it does reference the following statutory provisions and documents:

1. Article 226 of the Constitution of India — This is the provision under which the writ petition was filed. It empowers High Courts to issue writs (like certiorari) to quash orders of lower authorities.

2. Article 227 of the Constitution of India — Also invoked in the writ petition, this gives High Courts supervisory jurisdiction over all courts and tribunals within their territory.

3. Section 112 of the Central Goods and Services Tax Act, 2017 (CGST Act) — This is the key statutory provision here. It provides for appeals to the GST Appellate Tribunal. The court directed the petitioner to file an appeal under this section.

4. Clarification Circular dated 18.03.2020, Clause No. 4.2 — This circular (produced by the respondents) clarified the timeline for filing appeals before the GST Appellate Tribunal — specifically that appeals can be filed within three months from the date of constitution of the Tribunal or from the date the President enters office.

Judgment

What Did the Court Decide?

The court did not quash either Annexure-AG or Annexure-AH. Instead, it disposed of the writ petition with the following directions:

Regarding Annexure-AG (Appellate Order dated 06.03.2020):

• The court held that the petitioner must file an appeal under Section 112 of the CGST Act against this order.
• Since the GST Appellate Tribunal had not yet been constituted as of the date of the judgment, the petitioner was given time to file the appeal within three months from the date of constitution of the Tribunal or within three months from the date the President of the Tribunal enters office.

Regarding Annexure-AH (Show Cause Notice dated 04.06.2020):

• The court directed the petitioner to file a reply to the SCN within two weeks, specifically bringing to the authorities’ notice the discrepancy regarding the inclusion of demands for the period July 2017 to April 2018.
• After receiving the reply, the Adjudicating Authority must consider the objections, adjudicate the issue, and pass orders in accordance with law.

Protection Granted:

• The court ordered that no precipitative (coercive) action shall be taken by the respondents pursuant to either Annexure-AG or Annexure-AH until the Adjudicating Authority passes an order.

Note: The order was subsequently corrected vide Court Order dated 01.10.2020.

FAQs

Q1: Did the petitioner (George Clinical India) win this case?

It’s a mixed outcome. The court didn’t quash the orders as the petitioner wanted, but it did grant protection from coercive action and gave the petitioner a clear path forward — appeal the order and reply to the SCN.

Q2: Why didn’t the court quash the appellate order (Annexure-AG)?

Because there is a statutory remedy available — an appeal under Section 112 of the CGST Act before the GST Appellate Tribunal. Courts generally don’t interfere when a statutory remedy exists.

Q3: Why hasn’t the GST Appellate Tribunal been constituted yet?

The judgment doesn’t explain why, but it acknowledges the fact. This is actually a well-known issue in GST law — the Appellate Tribunal took several years to be set up after the GST regime was introduced in 2017.

Q4: What is the significance of the “three months” timeline for filing the appeal?

The clarification circular dated 18.03.2020 (Clause 4.2) provides that taxpayers can file appeals within three months from the date the Tribunal is constituted or the President enters office. This protects taxpayers from losing their right to appeal just because the Tribunal wasn’t set up in time.

Q5: What is the discrepancy in the SCN that the court noted?

The SCN (Annexure-AH) included demands for the period July 2017 to April 2018, which was already covered in the appellate order (Annexure-AG). The petitioner argued there was no separate order directing them to file an appeal for this period, so it shouldn’t have been included in the SCN. The court directed the petitioner to raise this in their reply to the SCN.

Q6: What does “no precipitative action” mean practically?

It means the tax authorities cannot take any coercive steps — like recovering the tax demand, attaching bank accounts, or taking enforcement action — until the Adjudicating Authority passes a final order on the SCN. This is a significant protection for the petitioner.

Q7: What happens after the petitioner files a reply to the SCN?

The Adjudicating Authority must consider the petitioner’s objections and pass orders in accordance with law. The petitioner will then have the opportunity to challenge that order if needed.

The petitioner is before this Court under Article 226 of the Constitution of India, praying for writ of certiorari to quash the order dated 16.03.2020 passed by the Commissioner of Central Tax (Appeals-II) in GST A.No.19-24/2019-20 A-II ADC No.39-44/ADC/AII/GST/2020 dated 06.03.2020, Annexure-

‘AG’ to the writ petition as well as to quash show cause notice dated 04.06.2020 bearing No.C.No. IV/09/09/2019-20 ND-1 DIN: 20200657YW00009X3D76 which is at Annexure-‘AH’ and for other reliefs.

2. Sri. Jeevan. J. Neeralgi, learned counsel has taken notice for respondent Nos.1 to 4 and has entered appearance.

3. Heard both the learned counsels for the petitioner and respondents through video conference.

4. Sri. Jeevan. J. Neeralgi, learned counsel for the respondents submits that he has filed a memo dated 10.09.2020 enclosing clarification circular dated 18.03.2020 and points out Clause No.4.2 therein. Further, learned counsel submits that Annexure-‘AG’ is an appealable order under the Central Goods and Services Act, 2017 (for short ‘CGST Act’). It is further submitted that Annexure-‘AH’ is only a show cause notice to which the petitioner has to submit his reply and thereafter the Authorities have to adjudicate the

issue and pass orders in accordance with law.

5. Learned counsel for the petitioner would submit that the show cause notice includes the demand arising out of Annexure-‘AG’ dated 06.03.2020 also for the previous period from July-2017 to April-2018. Further he submits that there is no order directing the petitioner to file an appeal in respect of demand from July-2017 to April-2018. As such, the same could not

have been included in the show cause notice, hence the same requires to be interfered with.

6. Having heard the learned counsels for the

parties and on perusal of the material placed on

record, I am of the view that insofar as Annexure-‘AG’

dated 06.03.2020 is concerned, the petitioner to file

appeal as provided under Section 112 of the CGST

Act. The clarification circular produced along with

memo dated 10.09.2020 provides for filing of appeal

within three months from the date of constitution of

the Tribunal or the date on which the President enters

office. As on this date, the Tribunal has not been

constituted. Thus, the petitioner is directed to file an

appeal against the impugned order

bearing No.GST A.No.19-24/2019-20 A-II ADC

No.39-44/ADC/AII/GST/2020 dated 06.03.2020,

Annexure-‘AG’ within three months from the date of

constitution of the Tribunal or within three months

from the date of President enters office.

7. Annexure-‘AH’ dated 04.06.2020 is a show cause

notice. The petitioner to reply to the said show cause

notice bringing to their notice discrepancy therein as

noted above. The said reply shall be filed within two

weeks. Thereafter, the Adjudicating Authority shall

consider the objection filed if any, adjudicate the issue

in question and pass orders in accordance with law.

No precipitative action shall be taken by the

respondents in pursuance to *Annexure-‘AG’ dated

06-03-2020 and Annexure-‘AH’ dated 04.06.2020 till

Adjudicating Authority passes an order.

With the above observation, the writ petition is

disposed off.