Assessee must respond to SCN, raise all grounds & pursue appeal if aggrieved: Bombay HC

Viswaat Chemicals Ltd. & anr. Vs Union of India (Bombay High Court)

Assessee should respond to the SCN and take all grounds before the authority, and if aggrieved, should avail an alternate statutory remedy of appeal: Bombay High Court

Summary: The Bombay High Court in Viswaat Chemicals Ltd. & Anr. v. Union of India [Writ Petition (L) No. 27725 of 2024] addressed a case where the petitioners challenged a show cause notice (SCN) and the subsequent adjudicating order. The petitioners argued that the SCN, issued in December 2023, was vague and deprived them of a proper opportunity to respond, thus violating principles of natural justice. However, the court found that the SCN contained all necessary details, giving the petitioners sufficient information about the case against them. The petitioners had filed a detailed response in April 2024 but did not seriously contest the clarity of the SCN at that stage. The court deemed their claim of vagueness as an afterthought aimed at bypassing the available statutory appeals process.

The court reiterated the importance of exhausting alternative remedies before filing a writ petition. The petitioners were seen as attempting to circumvent the appeal process and avoid the requirement for a pre-deposit before filing appeals. The court referred to several precedents, including the Whirlpool Corporation case, which emphasized that writ petitions should only be entertained under specific circumstances, such as a violation of fundamental rights or jurisdictional issues. Ultimately, the writ petition was dismissed with costs, and the petitioners were directed to pursue alternate remedies under the Central Goods and Services Tax (CGST) Act if still aggrieved by the adjudicating authority’s order.

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The Hon’ble High Court of Bombay in the case of Viswaat Chemicals Ltd. & Anr. v. Union of India [Writ Petition (L) No. 27725 of 2024 dated October 14, 2024] dismissed the writ petition and held that an Assessee should respond to the Show Cause Notice (“SCN”) and taken all grounds before the authority, and if aggrieved, should have availed the alternate statutory remedy of appeal.

Facts:

M/s Viswaat Chemicals Ltd. & Anr. [“the Petitioner”] was served a show cause notice dated December 07, 2023 (“the Impugned SCN”). The Petitioners were deprived of an effective opportunity to respond to the Impugned SCN because it was vague. It was urged that there was a violation of principles of natural justice.

It was further urged that an order dated July 22, 2024 [“the Impugned Order”] was made on adjudicating the Impugned SCN is, therefore, a nullity.

Hence, aggrieved by the Impugned SCN and the Impugned Order, the Petitioner filed the present writ petition.

Issue:

Whether Assessee should respond to the SCN and take all grounds before the authority, and if aggrieved, should avail an alternate statutory remedy of appeal?

Held:

The Hon’ble High Court of Bombay in Writ Petition (L) No. 27725 of 2024 held as under:

• Noted that, the Impugned SCN is not at all vague but rather contains all material particulars, giving the Petitioners a very clear idea about the case that they were required to meet with. Therefore, the Petitioner made no serious grievance of any alleged vagueness in response to the notice. The allegation of vagueness is an afterthought besides being frivolous. It is raised only to avoid resorting to the alternate remedial appeal available to the Petitioners.
• Observed that, the Petitioners have only tried to “take a chance in the matter”. Upon receipt of the Impugned SCN, the Petitioners filed a detailed reply on April 18, 2024. The reply nowhere seriously alleges any vagueness in the Impugned SCN.
• Noted that, if the Petitioners genuinely regarded the Impugned SCN as vague or if there were any real difficulties in responding to the allegations in the show cause notice, it was expected that the Petitioners challenge such Impugned SCN at the earliest instance. This is nothing but an attempt to circumvent the alternate remedy and to take a chance to see whether any relief can be wriggled out. In some cases, the object is to avoid the provisions requiring pre-deposit of some portion of the demanded amounts as a pre-condition for institution or hearing of the statutory appeals.
• Relied on, the case of Whirlpool Corporation v. Registrar of Trade Marks, Mumbai and others [(1998) 8 SCC 1 – 1998-VIL-09-SC] wherein the Hon’ble Supreme Court explained that writ petitions may be entertained against the show cause notices where the Petitioner seeks enforcement of any of the fundamental rights, where there is a violation of the principles of natural justice; or where the order or proceedings are wholly without jurisdiction, or vires of the Act is challenged.
• Relied on, Special Director and Another v. Mohd. Ghulam Ghouse and another [(2004) 3 SCC 440] the Hon’ble Supreme Court has held that unless the High Court is satisfied that the show-cause notice was totally non-est in the eye of the law for absolute want of jurisdiction of the authority to even investigate into facts, writ petitions should not be entertained for the mere asking and as a matter of routine. The writ petitioner should invariably be directed to respond to the show cause notice and take all the grounds that may now be highlighted in the writ petition. Whether the show cause notice was founded on any legal premises is a jurisdictional issue which the recipient of the notice can even urge, and such issues also can be adjudicated by the authority issuing the very notice initially, before the aggrieved could approach the Court.
• Further relied on, the Union of India and others Vs. Coastal Container Transporters Association and others [(2019) 20 SCC 446 – 2019-VIL-05-SC-ST] the Hon’ble Supreme Court held that where the case was neither of lack of jurisdiction nor any violation of principles of natural justice, the High Court ought not to have entertained the writ petition at the stage of notice, more so, when against the final orders, appeal lies to the Supreme Court. Further, the Court held that when there is a serious dispute concerning the classification of service, the respondents ought to have responded to the show cause notices by placing material in support of their stand. Accordingly, the appeals against the quashing of the show cause notices were allowed.
• Relied on the case of Mahanagar Telephone Nigam Ltd. v. Chairman Central Board, Direct Taxes and another [(2004) 6 SCC 431], the Hon’ble Supreme Court held that it was settled law that the litigation against show cause notices should not be encouraged.
• Lastly relied on, Malladi Drugs and Pharma Limited v. Union of India and another [(2020) 12 SCC 808] the Hon’ble Supreme Court held that the High Court was absolutely correct in dismissing the writ petition against the mere show cause notice. The High Court, by the impugned judgment, held that the appellant should first raise all the objections before the authority that has issued the show cause notice. If any adverse order was passed against the appellant, liberty was granted to approach the High Court.
• Held that, in order to institute a petition, the parameters the Hon’ble Supreme Court laid down in Whirlpool Corporation (supra) shall be satisfied. The present writ petition deserves to be dismissed with costs of Rs.5,00,000/- (Rupees Five Lakhs) payable by the Petitioners to the Maharashtra Legal Services Authority within four weeks. This will, however, not preclude the Petitioners from availing the alternate statutory remedies of appeal, etc., under the provisions of the CGST Act.

Our Comments:

Through Articles 32 and 226 of the Constitution, the judiciary has been granted specific specialized powers to enforce any of the rights outlined in Part III of the Constitution as well as other legal rights. Prerogative remedies are writ remedies. While availing these writ jurisdictions, the Court may interfere and say that you have an alternate remedy therefore, there is no need for issuance of order under writ, exhaust that remedy first.

The judicial rule of convenience underpins the doctrine of exhaustion of alternatives. It asserts that litigants should first approach the court nearest to them within the judicial hierarchy, avoiding unnecessary use of judicial resources through forum shopping, both in lower specialized courts and higher ones. This doctrine is especially important today, given the vast backlog of cases and increasing litigation. Numerous Supreme Court decisions have shaped the jurisprudence supporting this principle.

The Supreme Court in the case of Union of India v. T.R. Verma [MANU/SC/0121/1957] held that when an alternative and equally efficacious remedy is open to a litigant, he should be required to pursue that remedy and not to invoke the special jurisdiction of the High Court to issue a prerogative writ. When such remedy exists, it will be a sound exercise of discretion to refuse to interfere in a petition under Article 226, unless there are good grounds therefore.

Further, in the case of Sohan Lal v. Union of India [MANU/SC/0091/1957] the Hon’ble Supreme Court held that whether the alternate remedy is equally efficient and adequate is question of fact to be decided in each case, the onus being on the applicant to show that it is not adequate. Certain observations were made by the court in regard to above matter where the remedy under writ jurisdiction may be refused by the court:

1. Where Petitioner may get an adequate relief by ordinary action of law

2. For the enforcement of contract and compensation

3. Where the Petitioner has already instituted a case

4. Where matter is time barred.

Another point that the courts must consider when applying the above doctrine is that the necessary remedies available to the petitioner should not be unduly burdensome or protracted. This can be due to various reasons, including delays. The Supreme Court also held that there is no need to apply the exhaustion rule when the decision of the authority for which alternative relief is sought is known. This may be because decisions on the relevant issues are known or remedies have already been taken. In this case, it is usually exhausted.

Thus, it is not binding in nature, but certainly has a persuasive value. In the case of Veerappa v. Raman [MANU/SC/0057/1952], the Hon’ble Supreme Court held that if the right and liability is created by a statute and it prescribes a remedy or procedure for enforcing, then the court may refuse to entertain the writ petition and direct the petitioner to seek remedy under the statute only.

Exception to the Doctrine of Exhaustion of Alternate Remedy

The Supreme Court adopted a similar stance in Harbanslal Sahnia v. Indian Oil Corporation Ltd. [MANU/SC/1199/2002], where it held that the existence of alternative remedies does not serve as an absolute barrier to granting writs under Article 226. In Rajasthan State Electricity Board v. Union of India, the Court reaffirmed that it is a well-established legal principle that the availability of alternative remedies does not preclude relief through Article 226. In a related case, an appeal was made to the Supreme Court after the Bombay High Court dismissed a writ petition on the grounds that the Railway Claims Tribunal provided better remedies. However, the Supreme Court ruled that the High Court could not dismiss the writ petition or direct the appellants to pursue an alternate remedy since the respondent had already admitted liability.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. Heard learned counsel for the parties.

2. The learned counsel for the Petitioners has only pressed for relief in terms of prayer clause (a) of this Petition, which reads as follows:-

“a) that this Hon’ble Court be pleased to issue a Writ of Certiorari or a writ in the nature of Certiorari or any other writ, order or direction under Article 226 of the Constitution of India calling for the records pertaining to the Petitioner case and after going into the validity and legality thereof quash and set aside the Impugned Order dated 22.07.2024 (Exhibit “A”) as also the Show Cause Notice dated 07.12.2023.”

3. The argument is that the impugned show cause notice dated 07 December 2023 was vague and bereft of the relevant particulars. As a result, the Petitioners were deprived of an effective opportunity to respond to the impugned show cause notice or otherwise defend themselves. On this ground, it was urged that there was a violation of principles of natural justice or, in any event, the impugned show cause notice dated 07 December 2023 was without jurisdiction. It was further urged that the order dated 22 July 2024 made on adjudicating the impugned show cause notice dated 07 December 2023 is, therefore, a nullity.

4. Mr Agrawal, the learned counsel for the Petitioners, submitted that the impugned show cause notice was utterly vague. He pointed out that in the impugned order da4. ted 22 July 2024, the adjudicating authority had also admitted that the impugned show cause notice was vague. He submitted that under these circumstances, there is a gross violation of the principles of natural justice, thereby vitiating not only the impugned show cause notice dated 07 December 2023 but also the impugned order dated 22 July 2024, based upon the impugned show cause notice dated 07 December 2023.

5. On perusing the impugned show cause notice dated 07 December 2023 at Exhibit-I (pages 103 to 145 of the paper book in this Petition), we are satisfied that it is not at all vague but rather contains all material particulars, giving the Petitioners a very clear idea about the case that they were required to meet with. Therefore, the Petitioner made no serious grievance of any alleged vagueness in response to the notice.

6. The impugned show cause notice refers to the intelligence inputs based upon which the impugned show cause notice was issued. There is detailed reference to several factual aspects and the legal provisions, notifications and circulars proposed to be relied upon. There is also a reference to some Supreme Court decisions on the subject. The grounds on which the impugned show cause notice was issued are in paragraphs 6, i.e. paragraphs 6.1 to 6.11 of the impugned show cause notice. Detailed grounds with full particulars have been supplied. The allegation of vagueness is an afterthought besides being frivolous.

7. Paragraph 7 of the impugned show cause notice refers to the investigation findings. Annexure-A to the impugned show cause notice contains a list of relied-upon judgments. The answers on behalf of the Petitioners have also been incorporated in the impugned show cause notice. Thus, the charge about the impugned show cause notice being vague or bereft of any material particulars is frivolous and raised only to avoid resorting to the alternate remedial appeal available to the Petitioners.

8. The record suggests that the Petitioners have only tried to “take a chance in the matter”. Upon receipt of the impugned show cause notice, the Petitioners filed a detailed reply to the show cause notice on 18 April 2024. This reply is in Exhibit-J (pages 147 to 177 of the Petition paper book). From the detailed reply, it is apparent that the Petitioners were not in the least prejudiced in either understanding the revenue case or responding to the multiple allegations in the impugned show cause notice. All possible defences were raised in the detailed reply. The reply nowhere seriously alleges any vagueness in the impugned show cause notice or the corresponding difficulties allegedly faced by the Petitioners in responding to the impugned show cause notice. In the context of invocation of the larger period of limitation, there is only one statement that the noticee could not comprehend the exact allegations. Still, no less than six arguments were urged regarding the invocation of the larger period of limitation.

9. The contention that the impugned order dated 22 July 2024 admits that the impugned show cause notice was vague is misconceived. There is no such admission in the impugned order. The impugned order, which is quite detailed, has to be construed holistically. This is not the occasion to examine the merits of the impugned order dated 22 July 2024 since the Petitioners are proposed to be relegated to the alternate remedy of appeal in this matter.

10. Incidentally, if the Petitioners genuinely regarded the impugned show cause notice as vague or if there were any real difficulties in responding to the allegations in the show cause notice, it was expected that the Petitioners challenge such show cause notice at the earliest instance. Here, the Petitioners filed a detailed response without making any serious grievance about the alleged vagueness in the impugned show cause notice. After the impugned show cause notice was adjudicated and the impugned order dated 22 July 2024 was made, this Petition was instituted inter alia to question the impugned show cause notice dated 07 December 2023. We are satisfied that this is nothing but an attempt to circumvent the alternate remedy and to take a chance to see whether any relief can be wriggled out of this Court.

11. In Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai and others¹ the Hon’ble Supreme Court has explained that writ petitions may be entertained against the show cause notices where the Petitioner seeks enforcement of any of the fundamental rights, where there is a violation of the principles of natural justice; or where the order or proceedings are wholly without jurisdiction, or vires of the Act is challenged. Of late, almost as a matter of routine in Petitions to challenge show cause notices, a challenge is thrown to some provisions of the statute.

12. In the present case, considering the relief pressed, the argument was about violating the principles of natural justice because of the alleged vagueness of the impugned show cause notice. However, as noted above, there was no vagueness in the impugned show cause notice. The impugned show cause notice was quite detailed and gave the Petitioners a complete idea of the case they were required to meet. The Petitioners’ reply is pretty thorough, and no serious grievance was made about any alleged vagueness in the impugned show cause notice.

13. Mr Mishra, the learned counsel for the Revenue, pointed out that the impugned order least and considers no less than 15 grounds urged by the Petitioners in their defence. Accordingly, the allegations about the vagueness and consequent failure of principles of natural justice are wholly misconceived, and no case is made out to entertain the present Petition.

14. In Special Director and Another Vs. Mohd. Ghulam Ghouse and another² the Hon’ble Supreme Court has held that unless the High Court is satisfied that the show-cause notice was totally non-est in the eye of the law for absolute want of jurisdiction of the authority to even investigate into facts, writ petitions should not be entertained for the mere asking and as a matter of routine. The writ petitioner should invariably be directed to respond to the show cause notice and take all the grounds that may now be highlighted in the writ petition. Whether the show cause notice was founded on any legal premises is a jurisdictional issue which the recipient of the notice can even urge, and such issues also can be adjudicated by the authority issuing the very notice initially, before the aggrieved could approach the Court.

15. In Union of India and others Vs. Coastal Container Transporters Association and others³ the Hon’ble Supreme Court held that where the case was neither of lack of jurisdiction nor any violation of principles of natural justice, the High Court ought not to have entertained the writ petition at the stage of notice, more so, when against the final orders, appeal lies to the Supreme Court. Further, the Court held that when there is a serious dispute concerning the classification of service, the respondents ought to have responded to the show cause notices by placing material in support of their stand. Accordingly, the appeals against the quashing of the show cause notices were allowed.

16. In Mahanagar Telephone Nigam Ltd. Vs. Chairman Central Board, Direct Taxes and another⁴, the Hon’ble Supreme Court held that it was settled law that the litigation against show cause notices should not be encouraged. The Court approved the decision of the High Powered Committee, which was eminently fair and aimed at preventing frivolous litigation. The Court held that the appellant’s right was not affected. It was clarified that the appellant could move a court of law against an appealable order. By not maintaining discipline and abiding by the decision, the appellant had wasted the public money and time of the courts.

17. In Malladi Drugs and Pharma Limited Vs. Union of India and another⁵ the Hon’ble Supreme Court held that the High Court was absolutely correct in dismissing the writ petition against the mere show cause notice. The High Court, by the impugned judgment, held that the appellant should first raise all the objections before the authority that has issued the show cause notice. If any adverse order was passed against the appellant, liberty was granted to approach the High Court.

18. For all the above reasons, we are satisfied that this Petition warrants dismissal with exemplary costs.

19. Several Petitions have been instituted to question the show cause notices. Most of these Petitions, like the present one, do not satisfy the parameters the Hon’ble Supreme Court laid down in Whirlpool Corporation (supra). The entire objective of instituting such Petitions is to wriggle out some orders by taking undue advantage of the pressure on the Court’s docket or to keep otherwise such matters pending and delay the adjudication proceedings by citing the pendency of the Petitions. In some cases, the object is to avoid the provisions requiring pre-deposit of some portion of the demanded amounts as a pre-condition for institution or hearing of the statutory appeals. As noted earlier, the grounds for alleged vagueness in the impugned show cause notice so belatedly raised were entirely misconceived. Therefore, we are satisfied that this Petition deserves to be dismissed with exemplary costs. This will, however, not preclude the Petitioners from availing the alternate statutory remedies of appeal, etc., under the provisions of the CGST Act.

20. Accordingly, we dismiss this Petition with costs of Rs.5,00,000/- (Rupees Five Lakhs) payable by the Petitioners to the Maharashtra Legal Services Authority within four weeks from today. The Petitioners must file receipts/proof of payment with the Registry by 21 November 2024.

Notes:-

1 (1998) 8 SCC 1

2 (2004) 3 SCC 440

³(2019) 20 SCC 446

4 (2004) 6 SCC 431

5 (2020) 12 SCC 808

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(Author can be reached at [email protected])