Supreme Court clarifies the scope of alternate remedy under GST Act: Assistant Commissioner of State Tax vs. M/s Commercial Steel Limited (2021) INSC 615

Date of the Judgment: September 3, 2021
Citation: (2021) INSC 615
Judges: Dr Dhananjaya Y Chandrachud, Vikram Nath, Hima Kohli

Can a High Court entertain a writ petition when there is an alternative remedy available under the Goods and Services Tax (GST) Act? The Supreme Court addressed this question in a recent case concerning the detention of goods and the imposition of tax and penalty. The Court clarified the exceptional circumstances under which a High Court can exercise its writ jurisdiction despite the availability of a statutory remedy. This judgment provides clarity on the interplay between writ jurisdiction and statutory remedies in tax matters. The judgment was authored by Justice Dr. Dhananjaya Y Chandrachud, with Justices Vikram Nath and Hima Kohli concurring.

Case Background

M/s Commercial Steel Limited, the respondent, is a business dealing in iron and steel and is registered under the Central Goods and Services Tax Act, 2017. On December 11, 2019, the respondent purchased goods from JSW Steel Limited in Karnataka. These goods were being transported in a truck with registration number KA 35 C 0141.

On December 12, 2019, at 5:30 pm, the truck was stopped at Jeedimetala. The tax invoice indicated that the delivery was to be made at Balanagar, Telangana. The tax authorities, the appellants, argued that Balanagar is located before Jeedimetala, and it was illogical for the truck to bypass Balanagar and then turn back. They suspected that the respondent was trying to sell the goods locally without paying the State Goods and Services Tax (SGST) and Central Goods and Services Tax (CGST). The value of the goods was Rs 11,14,579.

Consequently, an order of detention was issued, and a notice was served. The respondent paid the tax and penalty, and the goods were released on December 13, 2019.

Timeline

Course of Proceedings

The respondent filed a writ petition before the High Court of Telangana challenging the detention order and the notice issued under Section 20 of the Integrated Goods and Services Tax Act, 2017, seeking a refund of the tax and penalty paid. The High Court ruled in favor of the respondent, ordering a refund with interest and directing disciplinary action against the Assistant Commissioner. The High Court reasoned that the mere possibility of a local sale was not sufficient grounds for the tax authorities to take action. The High Court also noted the possibility of the driver being unfamiliar with the roads and losing his way.

Legal Framework

The Supreme Court examined Section 107 of the Central Goods and Services Tax Act, 2017, which provides a mechanism for appeals against decisions or orders passed by an adjudicating authority. Section 107(1) of the CGST Act states:

“Any person aggrieved by any decision or order passed under this Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act by an adjudicating authority may appeal to such Appellate Authority as may be prescribed within three months from the date on which the said decision or order is communicated to such person.”

The Court noted that this section provides a clear avenue for those aggrieved by tax orders to seek redress. The Court also highlighted the exceptions under which the High Court can exercise its powers under Article 226 of the Constitution, despite the availability of an alternative remedy.

Arguments

The appellant, represented by Mr. Prashant Tyagi, argued that the High Court should not have entertained the writ petition under Article 226 of the Constitution because the respondent had an alternative remedy available under Section 107 of the CGST Act. While acknowledging that the existence of an alternative remedy is not an absolute bar to a writ petition, the appellant contended that none of the exceptions warranting the exercise of writ jurisdiction were applicable in this case. It was also argued that the High Court’s decision was based on surmises.

The respondent, represented by Mr. Shaik Mohamad Haneef, countered that the High Court was justified in entertaining the writ petition and in setting aside the detention order and the collection of tax and penalty. The respondent argued that the High Court’s order was correct on merits and no interference by the Supreme Court was needed.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:
✓ Whether the High Court was correct in entertaining a writ petition under Article 226 of the Constitution when an alternative statutory remedy was available under Section 107 of the Central Goods and Services Tax Act, 2017?

Treatment of the Issue by the Court

Authorities

The Court considered Section 107 of the Central Goods and Services Tax Act, 2017, which provides for appeals to the Appellate Authority. The Court also reiterated the conditions under which a writ petition can be entertained despite the availability of an alternative remedy.

Judgment

The Supreme Court held that the High Court should not have entertained the writ petition under Article 226 of the Constitution, given the availability of an alternative remedy under Section 107 of the CGST Act. The Court noted that none of the exceptional circumstances that allow for the exercise of writ jurisdiction, such as a breach of fundamental rights, a violation of natural justice, excess of jurisdiction, or a challenge to the vires of the statute, were present in this case. The Court observed that the High Court had made its assessment of facts based on surmises.

The Supreme Court set aside the High Court’s order and dismissed the writ petition. However, the Court clarified that this would not prevent the respondent from pursuing the statutory remedy available under Section 107 of the CGST Act.

The Supreme Court observed:

“The existence of an alternate remedy is not an absolute bar to the maintainability of a writ petition under Article 226 of the Constitution. But a writ petition can be entertained in exceptional circumstances where there is: (i) a breach of fundamental rights; (ii) a violation of the principles of natural justice; (iii) an excess of jurisdiction; or (iv) a challenge to the vires of the statute or delegated legislation.”

The Court further stated:

“In the present case, none of the above exceptions was established. There was, in fact, no violation of the principles of natural justice since a notice was served on the person in charge of the conveyance. In this backdrop, it was not appropriate for the High Court to entertain a writ petition.”

The Court also noted:

“As a matter of fact, the High Court has while doing this exercise proceeded on the basis of surmises. However, since we are inclined to relegate the respondent to the pursuit of the alternate statutory remedy under Section 107, this Court makes no observation on the merits of the case of the respondent.”

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle that a High Court should not entertain a writ petition when an effective alternative remedy is available. The Court emphasized that writ jurisdiction is exceptional and should only be exercised when there is a clear violation of fundamental rights, principles of natural justice, an excess of jurisdiction, or a challenge to the vires of a statute. The Court’s reasoning focused on maintaining the statutory framework for dispute resolution and ensuring that the prescribed appellate mechanisms are utilized. The Court also noted the High Court’s reliance on surmises rather than established facts.

Key Takeaways

• ✓ A writ petition under Article 226 of the Constitution should generally not be entertained if an alternative statutory remedy is available.
• ✓ Writ jurisdiction is an exceptional remedy and should only be invoked in specific circumstances, such as a breach of fundamental rights, a violation of natural justice, an excess of jurisdiction, or a challenge to the vires of a statute.
• ✓ The existence of an alternative remedy does not automatically bar a writ petition, but the High Court must exercise caution and restraint.
• ✓ High Courts should not make assessments of facts based on surmises.
• ✓ Parties must first exhaust the statutory remedies available to them before approaching the High Court under Article 226.

Directions

The Supreme Court directed that the writ petition filed by the respondent be dismissed. However, the Court clarified that this would not prevent the respondent from pursuing the statutory remedy available under Section 107 of the CGST Act.

Development of Law

The ratio decidendi of this case is that the High Court should not entertain a writ petition under Article 226 of the Constitution if an alternative statutory remedy is available, unless exceptional circumstances exist. This judgment reinforces the principle of exhaustion of statutory remedies before invoking writ jurisdiction, thereby maintaining the integrity of the statutory framework for dispute resolution. There is no change in the previous position of law, but it clarifies the position of law.

Conclusion

The Supreme Court’s judgment in Assistant Commissioner of State Tax vs. M/s Commercial Steel Limited clarifies the scope of writ jurisdiction in cases where an alternative statutory remedy is available under the GST Act. The Court emphasized that the High Court should not have entertained the writ petition and directed the respondent to pursue the statutory remedy under Section 107 of the CGST Act. This decision reinforces the principle that statutory remedies should be exhausted before approaching the High Court under Article 226 of the Constitution, and that High Courts should not make assessments of facts based on surmises.