S.Shivraj Reddy Constructions Vs Assistant Commissioner (ST) (Telangana High Court)
Telangana High Court Refuses to Interfere at Show-Cause Notice Stage; Directs Assessee to File Objections
Summary: The Telangana High Court disposed of a writ petition challenging Form GST DRC-01 dated 24.01.2025 issued for the tax period 2021–22. The petitioner, engaged in the business of extracting minor and major minerals, had entered into a Memorandum of Understanding-cum-Agreement with M/s. Reya Minerals on 23.10.2020 for quarry operations on a royalty payment basis. The show cause notice, issued based on information furnished by the Senior Audit Officer, Audit Management Group-3, Office of the Accountant General, Hyderabad, identified certain discrepancies and required payment of tax and interest or filing of objections in Form GST DRC-06 within 15 days. During the hearing, the petitioner confined its challenge to the levy of GST on royalty, while the respondents submitted that the show cause notice also contained other discrepancies. The Court directed the petitioner to participate in the proceedings by filing objections to the impugned show cause notice and observed that, if aggrieved by the adjudication order, the petitioner would be at liberty to challenge both the levy of GST on royalty and the other discrepancies in appropriate proceedings. The writ petition was accordingly disposed of without any order as to costs.
Introduction
In M/s. S.Shivraj Reddy Constructions v. Assistant Commissioner (ST) & Others, the Telangana High Court examined whether a taxpayer could invoke writ jurisdiction under Article 226 to stall or segment a show-cause notice containing multiple tax discrepancies.
The Court reaffirmed the settled principle of law that statutory adjudication processes should not be prematurely interrupted at the show-cause notice stage, mandateing that taxpayers must exhaust their departmental remedies first.
Facts of the Case
The petitioner is a firm engaged in the business of extracting minor and major minerals. It executed a Memorandum of Understanding-cum-Agreement with M/s. Reya Minerals on October 23, 2020, to handle raising, crushing, and marketing operations within a quarry on a royalty payment basis.
Based on information provided by the Senior Audit Officer, Audit Management Group-3, Office of the Accountant General, Hyderabad, the Assistant Commissioner (ST) issued a show-cause notice in Form GST DRC-01 dated January 24, 2025, for the tax period 2021-22. The notice highlighted specific audit discrepancies and asked the firm to pay tax and interest via Form GST DRC-03 or submit detailed objections in Form GST DRC-06 within 15 days. Aggrieved by the notice, the petitioner filed a writ petition, ultimately restricting their prayer during the hearing to contest only the specific levy of GST on royalty payments.
Petitioner’s Contentions
The petitioner submitted that:
- The proposed levy of GST on mining royalty payments was legally questionable and required immediate judicial scrutiny.
- While they were ready to let the department process other audit discrepancies, the specific dispute regarding royalty tax merited separate, upfront protection.
Revenue’s Stand
The Revenue submitted that:
- A statutory show-cause notice cannot be fragmented or stalled based on a single isolated legal issue when multiple discrepancies are involved.
- The petitioner must participate in the departmental proceedings by presenting all factual and legal defenses before the proper adjudicating officer.
Court’s Observations
The Division Bench observed that the petitioner had restricted their plea to challenge only the royalty component, allowing the rest of the show-cause notice proceedings to continue.
However, the Court noted that stalling a notice mid-adjudication is undesirable. The bench observed that the proper course of action under the GST framework is for the assessee to file exhaustive objections, let the department pass a final order, and then appeal the final output as a whole if they remain aggrieved.
Final Decision
The Telangana High Court:
- Directed the petitioner to fully participate in the departmental proceedings by filing their statutory objections against the show-cause notice.
- Granted explicit liberty to the petitioner to challenge both the levy of GST on royalty and any other discrepancies in appropriate subsequent proceedings if the final adjudication order goes against them.
- Disposed of the writ petition without any order as to costs and closed all pending miscellaneous applications.
Key Takeaways
1. Show-Cause Notices Cannot Be Fragmented or Split In Two
Taxpayers cannot slice a multi-issue DRC-01 notice to litigate one constitutional or legal issue in the High Court while leaving the remaining factual discrepancies for the department to handle.
2. High Courts Reluctant to Entertain Pre-Adjudication Writs
Unless a show-cause notice is issued by an authority entirely lacking jurisdiction or clearly violates natural justice, courts prefer that the statutory process run its full course.
3. Form GST DRC-06 Must Be Filed Within 15 Days
When a DRC-01 notice is issued, the proper legal step is to submit a comprehensive reply in Form GST DRC-06 within the standard 15-day window to build a strong administrative record.
4. Royalty Taxation Rights Are Preserved for Final Appeals
Participating in an audit or assessment proceeding does not mean waiving legal objections; taxpayers retain the right to challenge the constitutional validity of a tax (like GST on royalty) during the final appeal phase.
Conclusion
In M/s. S.Shivraj Reddy Constructions v. Assistant Commissioner (ST) & Others, the Telangana High Court maintained administrative discipline by refusing to truncate a pending GST show-cause notice. By directing the mining firm back to the adjudicating authority while keeping their legal objections regarding royalty taxes alive, the ruling highlights that writ remedies cannot be used as a shortcut to bypass standard departmental replies.
FULL TEXT OF THE JUDGMENT/ORDER OF TELANGANA HIGH COURT
Learned counsel Sri S.Suri Babu appears for the petitioner.
Sri Swaroop Oorilla, learned Special Government Pleader for State Tax, appears for respondents No.1 and 5.
Sri K.Shantan Rao, learned Assistant Government Pleader for Mines and Geology, appears for respondents No.2 and 3.
2. The petitioner is a firm engaged in the business of extracting minor and major minerals. It entered into a Memorandum of Understanding-cum-Agreement with M/s. Reya Minerals on 23.10.2020 for working in the quarry and to handle all the raising, crushing and marketing operations of the quarry on royalty payment basis. Petitioner states that on the information furnished by the Senior Audit Officer, Audit Management Group-3, Office of the Accountant General, Hyderabad, Form GST DRC-01 dated 24.01.2025 in ARN No.AD360125011405M was issued by respondent No.1 for the tax period 2021-22, wherein it was stated that certain discrepancies wereidentified and the petitioner was asked to pay the tax along with interest on the net tax payable in Form GST DRC-03. If the petitioner is not agreeing with the proposals in the said show cause notice, it may file its objections in Form GST DRC-06 within 15 days from the date of receipt of the said show cause notice. Aggrieved by the said show cause notice, the petitioner filed the instant writ petition.
3. After arguing the matter for some time, learned counsel for the petitioner restricts his prayer only to the extent of levying tax on royalty and the other issues may go on.
4. Learned Special Government Pleader for State Tax submits that the show cause notice cannot be stalled on only this particular issue since the same contains other discrepancies also.
5. Having regard to the facts and circumstances, the petitioner is directed to participate in the proceedings by filing objections to the impugned show cause notice. If the petitioner is aggrieved by the adjudication order, it is at liberty to assail both levy of GST on royalty and other discrepancies in an appropriate proceeding.
6. Accordingly, the writ petition is disposed of. There shall be no order as to costs.
Miscellaneous applications pending, if any, shall stand closed.
