Bad News for Himalaya: GST Notice Challenge to Rs. 4.37 Cr Demand Defeated in High Court

The Himachal Pradesh High Court has rejected Himalaya Wellness Company‘s objection against a 15-page show cause notice (SCN) which demanded inadmissible Input Tax Credit of Rs. 4.37 crores under GST laws.

The Division Bench of Justice Tarlok Singh Chauhan and Justice Sushil Kukreja was of the view that acceptance of a show cause notice per se does not indicate that the notice was one prejudiced in or in defiance of principles of natural justice. Since the proceeding remains at the stage of giving a notice, the court found that it will be premature for the court to consider a writ petition under Article 226 of the Constitution.

Himalaya Wellness Company, a partnership firm governed by the Indian Partnership Act, 1932, deals in the business of distributing personal care and pharmaceutical products such as medicaments, cosmetics, shampoos, soaps, and oral hygiene items. The company had hired the services of Goods Transport Agencies (GTAs) for transportation of goods into and out of Himachal Pradesh.

The GTA services are liable to GST under Reverse Charge vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 and Notification No. 03/2022-Central Tax (Rate) dated 13.07.2022. The company had claimed to have received ITC on the GST paid and to have discharged GST payable on services availed accordingly.

Thereafter, the Central Tax Department of the company conducted an audit and sent an audit enquiry notice with some discrepancies mentioned therein. The company replied with a detailed reply along with documents, but its explanation was rejected by issuing the Final Audit Report without accepting it, terming the reply as untenable.

The department then sent a notice in DRC-01A dated 21.05.2024 requesting payment of Rs. 4,37,17,830 under penalty and interest by 31.05.2024. The company responded on 30.05.2024 declining any tax payable.

Despite the reaction, there was a notice to show cause, indicating recovery of Rs. 4,36,75,439 under inadmissible ITC, Rs. 27,446 short-paid GST, and Rs. 14,945 by way of interest, along with penalties as recoverable under the CGST Act. The notice also suggested that Rs. 6,85,440 of the amount prepaid by the company be adjusted in the total demand.

The company subsequently approached the High Court against the show cause notice. The department replied that writ petitions in respect of a simple notice are not sustainable, since the matter would be finally determined according to natural justice.

The court ruled that the show cause notice contained complete details justifying its issuance and interfering at this point would be interrupting an otherwise lawful administrative process in its trenches. The petition was accordingly rejected.

This decision confirms that the courts do not like to intervene at the notice stage in tax matters unless there is blatant evidence of legal or constitutional violations.