Safiya Malik

The Gujarat High Court has issued an interim order restraining tax authorities from passing final orders in ongoing adjudication proceedings under the Goods and Services Tax (GST) framework. The court, however, allowed the adjudication process to continue, directing the petitioners to participate and file appropriate replies. The order came in response to a set of petitions challenging show cause notices issued by tax authorities based on assessment orders passed by the Income Tax Department. The petitioners also questioned the constitutional validity of Section 75(2) of the Central/State Goods and Services Tax Act, 2017.

The petitioners approached the Gujarat High Court seeking relief against show cause notices issued pursuant to income tax assessment orders for financial years 2017-18 and 2018-19. These notices were issued following a search operation conducted under Section 132 of the Income Tax Act, 1961.

The petitioners contended that the tax authorities failed to conduct an independent investigation before issuing the show cause notices. They argued that the impugned notices relied solely on assessment orders prepared by the Income Tax Department and did not include any original inquiry or verification by the GST authorities.

Their counsel, Advocate J.K. Mittal, stated that the show cause notices explicitly referred to a meeting between the Directorate General of GST Intelligence (DGGI), Ahmedabad Zonal Unit, and the Income Tax Department. During this meeting, soft copies of the relevant show cause notices and assessment orders were provided to the GST authorities, forming the primary basis of the current proceedings. The petitioners submitted that the notices merely reproduced extracts from the income tax assessment orders without any independent analysis or fresh findings.

The petitioners further challenged the constitutional validity of Section 75(2) of the Central/State Goods and Services Tax Act, 2017. This provision empowers tax authorities to issue demands based on findings from other proceedings, including those conducted by the Income Tax Department. The petitioners argued that such a mechanism undermines the principles of natural justice by allowing tax authorities to rely on assessments from separate proceedings without providing taxpayers a fair opportunity to contest the conclusions independently.

The petitioners urged the court to intervene and set aside the show cause notices, contending that the adjudication proceedings initiated on this basis lacked legal justification and were inherently flawed.

The matter was heard by a division bench comprising Justice Bhargav D. Karia and Justice D.N. Ray. The court considered the submissions made by both parties and took note of the petitioners’ argument that the show cause notices lacked an independent factual basis.

Referring to the petitioners’ submission, the court recorded that “the respondent authorities have reproduced the extract from the assessment orders passed by the income tax department, which is subject matter of further challenge.”

The bench observed that the tax authorities’ reliance on the income tax assessment orders raised legal questions that warranted judicial examination. The court took cognizance of the challenge to Section 75(2) of the GST Act and decided to examine its validity in due course.

The court also noted the petitioners’ argument that they were willing to cooperate with the ongoing adjudication proceedings but sought judicial protection to prevent adverse consequences from orders issued solely on the basis of income tax assessments.

After hearing the submissions, the Gujarat High Court issued the following directives:

1. Interim Relief: The court granted interim relief to the petitioners by directing that “no final order shall be passed without the permission of this Court during the pendency of this petition.”

2. Adjudication Proceedings to Continue: While granting interim relief, the court clarified that the adjudication process itself would not be stalled. The court stated that “the adjudication proceedings may continue, and the petitioners shall cooperate in such adjudication proceedings by filing appropriate reply etc.”

3. No Final Orders Without Court’s Permission: The court categorically restricted the tax authorities from issuing a final adjudication order in the matter until further directions were issued.

4. Service Through Email Permitted: The court allowed direct service of its order through email, ensuring that all parties received timely communication regarding the court’s directives.

The case is scheduled for further hearing on March 12, 2025.

Case Title: Manojbhai Dhirubhai Gondaliya v. Union of India & Ors.
Case Number: R/Special Civil Application No. 17608 of 2024 (with connected matters)
Bench: Justice Bhargav D. Karia, Justice D.N. Ray

[Read/Download order]