“High Court’s Tax Probe Decision: Balancing Subjectivity and Jurisdiction

In a recent ruling by the Honorable Allahabad High Court in the case of Mgs Palace v. State of Uttar Pradesh [Writ Tax No. 1390 of 2023 dated January 03, 2024], a significant legal principle regarding tax proceedings was highlighted. The court emphasized the subjective nature of the satisfaction required under Section 61(3) of the Central Goods and Services Tax Act, 2017 (CGST Act) and the Uttar Pradesh Goods and Services Tax Act, 2017 (UPGST Act). The ruling underscored that unless there is a clear lack of jurisdiction or a complete absence of relevant material, the court should refrain from interfering using its extraordinary jurisdiction under Article 226 of the Constitution of India.

The case originated from Mgs Palace (“the Petitioner”) receiving a Show Cause Notice dated May 19, 2023, under Section 74 of the UPGST Act, and another Show Cause Notice dated May 19, 2023, under Section 61(1) of the UPGST Act. The Petitioner responded offline, disclosing transaction values, but the Revenue Department did not consider the response.

Challenging the Impugned SCN, the Petitioner filed a writ petition, raising the issue of whether the assessee must respond to the SCN or approach the Court when the adjudicating authority fails to hear the case.

Upon deliberation, the Allahabad High Court articulated that the satisfaction required under Section 61(3) of the UPGST/CGST Act is inherently subjective. The Court emphasized that interference through Article 226 of the Constitution of India should only occur in cases where there is a clear lack of jurisdiction or a complete absence of relevant material.

Consequently, the Court concluded that there was no evident jurisdictional or fundamental error in the proceedings that would necessitate the Court’s intervention at such a premature stage. Therefore, the writ petition was dismissed.

This ruling by the Allahabad High Court underscores the importance of maintaining a subjective approach in tax proceedings while ensuring that the principles of natural justice and fair play are upheld throughout the adjudication process.