Case Law Details
Swarn Cosmetics (India) Vs Union of India & Ors. (Delhi High Court)
The Delhi High Court delivered its judgment in a petition filed by Swarn Cosmetics (India) challenging a Show Cause Notice (SCN) dated 21st November, 2024 and the consequent order dated 23rd February, 2025 issued by the Department of Trade & Taxes, Government of N.C.T. of Delhi. The impugned order raised a demand for the financial year 2020-21. The SCN alleged multiple discrepancies, including non-reconciliation of GSTR-01 with GSTR-09, excess Input Tax Credit (ITC) claimed due to non-reconciliation, ITC claimed on non-business transactions and exempt supplies, and ITC claimed from cancelled dealers, defaulters, and non-taxpayers. The Petitioner did not respond to the SCN, leading to the issuance of the demand.
The petitioner challenged the SCN and the order on three grounds: (i) the documents were not signed physically or digitally, (ii) the pre-consultation notice under Rule 142(1A) of the CGST Rules, 2017 was not issued, and (iii) Section 16(2)(c) of the CGST Act, 2017 was under judicial scrutiny in other pending matters. Counsel for the petitioner argued that the absence of signatures invalidated the documents, relying on prior judgments emphasizing the importance of signatures.
The CGST Department countered that all SCNs and orders are authenticated using the officer’s digital key, which includes the officer’s credentials such as name, designation, and jurisdiction. Digital authentication is mandatory to upload SCNs or orders on the GST portal, and the system generates these documents only after proper validation of the officer’s digital key and an OTP verification. Hence, the Department contended that the lack of visible signatures on the PDF documents did not amount to any technical flaw, and the orders and notices are authentic and legally valid unless the digital key is misused.
Regarding the pre-consultation notice under Rule 142(1A), the Department noted that the rule had been amended on 15th October, 2020. Earlier, the issuance of a pre-consultation notice was mandatory, as recognized in prior cases such as Gulati Enterprises v. CBIC. However, following the amendment, issuance of a pre-consultation notice became discretionary, and the absence of such notice could not invalidate the SCN or order.
As for Section 16(2)(c) of the CGST Act, the petitioner’s challenge was pending consideration before the Court in other matters, specifically in Bharti Telemedia Ltd. v. Union of India. Therefore, the Court did not examine the merits of this challenge in the present petition.
The Court carefully analyzed the process followed by tax authorities for issuing SCNs and orders. It observed that notices and orders are uploaded electronically, authenticated with a digital key that confirms the proper officer’s identity, and issued only after the system verifies the officer’s credentials. Consequently, the absence of a visible signature on the downloaded PDF does not undermine the genuineness of the SCN or the order.
The Court concluded that the petitioner’s contentions regarding unsigned documents and non-issuance of pre-consultation notice were untenable. It held that digital key authentication ensures technical and legal validity of all GST orders and SCNs. The Court further observed that, as the challenge under Section 16(2)(c) was pending in separate proceedings, the petitioner should avail the statutory appellate remedy under Section 107 of the CGST Act, 2017, instead of seeking relief under writ jurisdiction.
The Delhi High Court directed that if the petitioner files an appeal by 30th November, 2025, it shall not be rejected on grounds of limitation and shall be adjudicated on merits. The appellate authority is to follow the guidance provided in Bharti Telemedia Ltd. regarding Section 16(2)(c), specifically in relation to claims involving cancelled dealers.
Finally, the Court disposed of the petition, rejecting the challenge to the SCN and impugned order and granting the petitioner the opportunity to file a statutory appeal. All pending applications, if any, were also disposed of. The judgment establishes that in the context of GST proceedings, digital key authentication suffices for validating orders and notices, pre-consultation SCNs are discretionary post-amendment, and statutory appeals remain the proper forum for challenging demands arising under the CGST Act.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This hearing has been done through hybrid mode.
2. The present petition has been filed by the Petitioner seeking setting aside of the impugned Show Cause Notice dated 21st November, 2024 issued by the Department of Trade & Taxes, Government of N.C.T. of Delhi (hereinafter, ‘impugned SCN’) and the consequent impugned order dated 23rd February, 2025 passed by the Office of Sales Tax Officer Class II (hereinafter, ‘impugned order’). The demand raised in the impugned order relates to the financial year 2020-21.
3. The said demand has been raised in the following terms:
4. The background of the present case is that the impugned SCN was issued to the Petitioner on 21st November, 2024. The said SCN was issued on various grounds, including:
i. Reconciliation of GSTR-01 with GSTR-09;
ii. Excess input tax credit (ITC) claimed on account of non-reconciliation of information;
iii. ITC to be reversed on non-business transactions & exempt supplies;
iv. ITC claimed from cancelled dealers, return defaulters & non tax payers.
5. No reply to the impugned SCN was filed by the Petitioner, thus leading to the impugned demand raised on 23rd February, 2025.
6. The Petitioner, in this petition, has sought setting aside of the impugned SCN as also the impugned order. Additionally, challenge has also been raised Section 16 (2)(c) of the Central Goods and Service Tax Act, 2017.
7. The contentions raised by the Petitioner are three-fold:
(i) That the impugned SCN and the impugned order are not duly signed either physically or digitally;
ii. That the pre-consultation notice under Rule 142 (1A) of the CGST Rules, 2017, has not been issued by the Department;
iii That the challenge to Section 16 (2)(c) of the CGST Act, 2017, is pending consideration before this Court in a batch of matters.
8. Ld. Counsel for the Petitioner has relied upon various judgments of this Court to argue that the non-appending of the signatures on the impugned SCN and the impugned order would go to the root of the matter.
9. Ld. Counsel for the CGST Department, on the other hand, made the following submissions on all the three aspects:
- Firstly, insofar as the issue of signatures is concerned, the Department now uses digital keys to upload the orders on the GST Portal and without the digital key of the concerned officer, in addition to the name and designation of the officer, the orders as well as the SCNs cannot be uploaded. Since the digital key is mandatorily required to upload both the SCN and the orders, it cannot be held that there is any technical discrepancy in the signatures.
- Secondly, it is argued by Mr. Batra, ld. Counsel that the Rule 142 (1A) of the CGST Rules, 2017, earlier required a mandatory pre-SCN to be issued, however, the amendment in the Rule 142 (1A) came into effect on 15th October, 2020, wherein the issuance of the pre-SCN consultation notice was made discretionary. It is conceded that the earlier language of the said Rule had made the said pre-SCN notice mandatory as was also highlighted by this Court in P.(C) 5407/2020 titled Gulati Enterprises v. Central Board of Indirect Taxes & Customs & Ors. However, post-amendment, the same is not mandatory anymore.
- Lastly, insofar Section 16 (2)(c) of the CGST Act, 2017 is concerned, the challenge to the same has already been raised and is pending consideration before this Court.
10. Further, upon direction of the Court, Mr. Sumit K. Batra, ld. Counsel for the Department has handed over a short note, explaining the process followed by the proper officers while issuing any order or show cause notice. The said process, as explained on behalf of the Department is as follows:
i. All orders and notices issued by tax authorities are uploaded electronically to the common portal and authenticated using a Digital Key/Signature which contains the credentials of the proper officer including his name, designation and jurisdiction.
ii. As per the mandate of Rule 26(3) of the CGST Rules, 2017, all notices, certificates, and orders are to be issued electronically. Such service of notices, certificates and orders is made available to the taxpayer by uploading the same on the GST portal.
iii. A proper officer can log in to the GST portal by using his/her Digital Key/Signature followed by a system generated OTP which is sent by the GST portal to the registered mobile number of the proper officer.
iv. It is only after such authentication that the proper officer permits the system to generate the document (e.g., Show Cause Notices in FORM GST DRC-01, Orders in FORM GST DRC-07) and the same is stored with the proper officer’s digital signature in the system.
Hence, the note filed on behalf of the Department clearly states that even though the PDF documents downloaded from the GST portal may not show a physical signature impression, but it is generated only after a thorough authentication of the proper officer.
11. Thus, this Court is of the view that the argument raised by the Petitioner with respect to the impugned order and SCN being unsigned is untenable. Thus, insofar as the issue of signatures on the impugned order and impugned SCN is concerned, since the SCNs and orders are now uploaded through the GST portal only through the digital key of the concerned officer, as also because the orders and SCNs bear the name of the officer and the designation of the officer, the authenticity and genuinity of the order cannot be disputed, unless there is a misuse of the digital key.
12. Insofar as the question of pre-consultation SCN is concerned, the relevant amended rule e. Rule 142(1A) of the CGST Rules, 2017, is stated herein below:
Rule 142 (1A)- The proper officer may, before service of notice to the person chargeable with tax, interest and penalty, under sub-section (1) of Section 73 or sub-section (1) of Section 74, as the case may be, communicate the details of any tax, interest and penalty as ascertained by the said officer, in Part A of FORM GST DRC-01A.
Hence, in light of the amendment in the rule, since the issuance of the pre-consultation SCN is now discretionary, the impugned SCN and the impugned order cannot be set aside merely on the ground of non-issuance of the pre-consultation notice.
13. Further, the final contention raised by the Petitioner is with respect to the challenge to Section 16 (2)(c) of the CGST Act, 2017. The said issue is pending before the Court in P. (C) 6293/2019titled ‘Bharti Telemedia Ltd. Vs. Union ofIndia and Ors.’.
14. Under such circumstances, this Court is of the view that the Petitioner ought to avail of its appellate remedy under Section 107 of the CGST Act, 2017, to file an appeal against the impugned order.
15. If the said appeal is filed by the Petitioner by 30th November, 2025, it shall not be dismissed on the ground of limitation and shall be adjudicated on merits.
16. However, insofar as the Appellate Authority’s order is concerned, the same shall be bound by the decision in Bharti Telemedia Ltd. (supra) where Section 16(2)(c)of the CGST Act, 2017 is under challenge, that too only in respect of the demand qua cancelled dealers.
17. The petition is disposed of in these terms. Pending applications, if any, are also disposed of.
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