GST Vidhi | GST Case Law

GST SCN Without Specific Allegation Of Fraud Is Invalid: Delhi HC Quashes Demand Against Netgear Technologies

Introduction

In a landmark decision, the Delhi High Court has quashed a Show Cause Notice (SCN) issued under Section 74 of the CGST Act to Netgear Technologies India Pvt. Ltd., holding that the notice lacked foundational jurisdictional elements—specifically, the absence of any clear allegation of fraud, wilful misstatement, or suppression of facts. The ruling reaffirms that mechanical issuance of SCNs, especially for refund recovery, without concrete allegations, is legally untenable.

Case Summary

• Case Title: M/s Netgear Technologies India Pvt. Ltd. v. Commissioner, CGST Karol Bagh & Anr.
• Writ Petition No.: W.P. (C) 14120/2024
• Court: High Court of Delhi
• Date of Order: 17 March 2025

Background

Netgear Technologies had earlier succeeded in appeal against a rejection of refund claims for the period October 2017 to March 2018. The Order-in-Appeal (OIA) dated 09 March 2021 concluded that the services rendered were exports and not intermediary services, and directed refund.

When no stay was obtained against this appellate order and despite direction by the Delhi High Court in a prior case [W.P. (C) 10461/2022 dated 18 May 2023], the GST authorities finally released the refund via order dated 26 July 2023.

However, on 03 August 2024, the department issued a fresh SCN under Section 74, alleging the refund was erroneously sanctioned and should be recovered, contending that the services were actually intermediary in nature and not exports.

Legal Issues Involved

1.    Whether the SCN under Section 74 was valid in absence of specific allegations of fraud or suppression?

2.    Whether the department could reopen concluded matters by reinitiating proceedings for the same period already decided by appellate authorities and the High Court?

3.    Whether refund already sanctioned can be reversed via a backdoor route using mechanical show cause notices?

Petitioner's Submissions

• The SCN fails to allege any specific fraud, wilful misstatement, or suppression.
• The matter was already concluded in petitioner’s favour via the appellate order and the High Court's direction.
• The SCN seeks to overreach the court’s ruling by circumventing it through vague allegations.
• No fresh material or discovery exists to justify reopening the refund claim.

Observations of the Court

The Court found that:

• The SCN merely reiterates statutory phrases like “misstatement” and “suppression” without supporting material or reasoning.
• Section 74 can only be invoked if refund is obtained by reason of fraud, wilful misstatement or suppression, and these grounds must be clearly spelt out.
• "By reason of" in Section 74 is not ornamental—it conditions the jurisdiction of the department to invoke that section.
• The Court cited:
• Parity Infotech Solutions Pvt. Ltd. v. State (NCT of Delhi) – where a similarly vague SCN under Section 74 was struck down.
• HCL Infotech Ltd. v. CCT (Allahabad HC) – emphasizing jurisdictional preconditions for invoking extended time under Section 74.
• Supreme Court judgments in CCE v. HMM Ltd. and Raj Bahadur Narain Singh Sugar Mills Ltd. – requiring specific allegations for extended limitation or fraud-based actions.

Key Findings

• The SCN was issued in a mechanical manner to delay or deny refund compliance as ordered by court and appellate authority.
• Jurisdiction under Section 74 was wrongly assumed, making the SCN and proceedings invalid.
• A refund granted pursuant to a court decision cannot be reversed through such circular strategies.

Judgment

The Delhi High Court held:

“The impugned Show Cause Notice dated 03.08.2024 and the entire exercise initiated pursuant thereto is absolutely without jurisdiction and is liable to be quashed.”

Accordingly:

• The writ petition was allowed.
• The impugned SCN was quashed and set aside.
• The department was directed to process and disburse the refund without any further obstruction.
• The department is free to appeal against the Order-in-Appeal, but until then, cannot deny the refund.

Legal Significance

This case reaffirms vital principles of natural justice and due process in GST adjudication:

1.    Section 74 cannot be invoked mechanically—specific and substantiated allegations are a must.

2.    Refunds sanctioned as per appellate orders and court rulings cannot be reversed casually.

3.    Reopening settled tax periods without fresh and valid grounds is an abuse of process.

4.    Courts will not tolerate delay tactics and repeated harassment of assessees via procedural tools like vague SCNs.

Conclusion

The Delhi High Court's judgment in Netgear Technologies India Pvt. Ltd. is a powerful assertion of taxpayer rights under GST. It provides a template for challenging vague and jurisdictionally defective show cause notices. It also sends a clear message to tax authorities—refunds cannot be stalled through speculative or mechanical objections once a matter is judicially concluded.

Disclaimer: All the Information is based on the notification, circular advisory and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.

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