The concept of alternative remedies often serves as a primary justification for the dismissal of writ petitions at the preliminary stage in many high courts. Petitioners are typically advised to pursue statutory appeals or revisions available to them. In cases involving show cause notices, the petitioner is expected to respond and present their case before the adjudicating authority. Unfortunately, a significant number of high courts apply this practice as a blanket rule without adequately assessing the efficacy of the statutory remedy. This is especially problematic when the right to appeal requires a preliminary deposit of part of the tax or duty.
In tax-related matters, a common rationale for dismissing writs is the need to protect the revenue interests of the state, often suggesting that the government cannot function on bank guarantees alone. Recent trends have seen disproportionately high tax demands in comparison to the sales turnover of the assessee. Under certain statutory provisions, particularly Section 74 of the Central Goods and Services Tax (CGST) Act, 2017, recovery of taxes for a five-year period is permissible only if there is evidence of suppression, fraud, or willful default by the assessee. However, it is concerning that high courts frequently overlook the indiscriminate invocation of the five-year period, even in the absence of such factors.
Legitimate disputes regarding product classification or duty quantum often warrant recovery under Section 73 of the CGST Act, 2017, which allows for a three-year period. The prevalent misuse of allegations of suppression and fraud is highlighted by the failure of the GST Amnesty Scheme, 2024. This scheme was applicable only to assessees who received notices under Section 73, without suppression, fraud, or willful default. The fact that few notices were issued under Section 73 and the widespread reliance on Section 74 resulted in limited cases for settlement.
The current regulations permit duty recovery for 42 months across all cases, neglecting the fact that GST, being an indirect tax, can be passed onto consumers. However, recovering taxes after 42 months places an undue burden on assessees, especially if the tax rate is 18% or higher. For businesses, particularly those in the Micro, Small and Medium Enterprises (MSME) sector, facing tax demands covering the last five years can be devastating. Instances have emerged where a company’s turnover is approximately ₹4 crore, yet the tax demand exceeds ₹15 crore. This is exacerbated by the denial of input tax credits, freezing of bank accounts, and other coercive measures.
Some businesses face sudden challenges to long-accepted practices by tax authorities, while others encounter jurisdictional issues. Despite clear errors and lack of jurisdiction, many high courts remain hesitant to intervene, particularly when tax demands are excessively high. Ironically, intervention by high courts is most crucial in cases where tax demands are substantial.
While safeguarding state tax revenues is essential, it is imperative for courts to balance this by protecting taxpayers, especially within the MSME sector. Small business owners often struggle to afford even the pre-deposit amounts. Courts need to assess the reasonableness of demands relative to an assessee’s turnover and consider if demands for the past five years are justified.
Courts should also recognize that once a show cause notice is issued, it is confirmed in the majority of cases. Even when an assessee has a strong case or if the issue is covered by Supreme Court rulings, demands are still confirmed. Unfortunately, no accountability is placed on officers issuing such orders, even when they contradict binding court decisions.
Practical challenges arise when assessees respond to show cause notices, arguing that demands are unjustified, yet refrain from filing writ petitions at the initial stage. Subsequent confirmation of demands often leads to writ dismissals on the grounds of available appellate remedies. Numerous high courts resist examining such orders, despite failures to adhere to Supreme Court or high court precedents or statutory laws.
The dismissal of writs based on alternative remedies at final hearings or before the Supreme Court can be particularly detrimental. Once a bench has accepted a writ petition and requested a counter, dismissing it due to an alternative remedy undermines the merits of the case.
A significant portion of these issues could be resolved, and the impact on business ease could be mitigated if high-level directives were issued to ensure show cause notices are raised only when genuine disputes or clear evidence of fraud, suppression, or willful default exist. Unfortunately, many notices are issued to meet revenue targets, creating a disincentive for establishing manufacturing units in India due to fiscal uncertainty. When high courts fail to intervene in appropriate cases, they indirectly sanction departmental actions, even when such actions are legally unsound. Thus, the alternative remedy becomes an elusive mirage.
Arvind P Datar is a Senior Advocate practicing in the Supreme Court of India.
