Delhi HC will decide Constitutional Validity of CBIC’s 2020 GST Notification Amending Rule 142(1A): Here’s the Legal Context
The court will delve into the constitutionality of the GST notification.
The Delhi High Court will examine the constitutional validity of the Central Board of Indirect Taxes and Customs ( CBIC )’s 2020 Notification, which amended Rule 142(1A) of the GST ( Goods and services Tax ) Rules and made pre-Show Cause Notice (pre-SCN) communication to the GST ITC fraud cases discretionary rather than mandatory.
The petition, filed by Zeta International under Articles 226 and 227 of the Constitution, challenges the notification issued on 15 October 2020, arguing that the amendment diluted an important safeguard that previously required tax authorities to issue a pre-consultative intimation before issuing a formal SCN. This is a burning issue recently.
According to the petitioner, this amendment to Central Tax Notification 79/2020 dated 15th October 2025 shifts the balance in favour of the Department by removing an opportunity for early resolution and violates constitutional guarantees of fairness and procedural justice.
The Bench of Justice Prathiba M. Singh and Justice Shail Jain issued notice on the challenge and directed both sides to submit written arguments.
The Court, in the latest ruling of Manpar Exim Inc vs Additional Director DGGI & Ors, recorded that before the 2020 amendment, the language of Rule 142(1A) used the term “shall,” which courts had consistently interpreted as imposing a mandatory obligation on the proper officer to communicate tax liability in Form DRC-01A prior to issuing an SCN under Sections 73 or 74. The amendment changed “shall” to “may,” effectively rendering pre-SCN communication optional.
While issuing notice, the High Court allowed the petitioner to fully participate in ongoing adjudication emanating from the SCN dated 25 February 2025 and directed that a personal hearing be granted.
At the same time, the Court permitted the authorities to continue with the proceedings and even pass a final order but clarified that no such order shall be given effect without further orders of the Court, preserving the petitioner’s rights pending adjudication of the constitutional question. The matter has been scheduled for further hearing on 27 January 2026.
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The Delhi High Court also fixed the hearing of the cases having similar issues to the same date. Other cases before the court which are of similar issues are Aadhar India vs The Additional Director, GAIA Overseas vs The Additional Director and SSAPP Overseas vs The Additional Director.
Notification 79/2020: Play of Terminology
The Notification 79/2020 dated 15th October 2020, notified the amendment to Section Rule 142(1A) by Central Goods and Services Tax (Twelfth Amendment) Rules, 2020. The amended rule reads as follows:
“6. In the said rules, in rule 142, in sub-rule (1A), -
(i) for the words "proper officer shall", the words "proper officer may" shall be substituted;
(ii) for the words "shall communicate", the word "communicate" shall be substituted.”
Here it’s clear that the term ‘Proper Officer shall’ changed to ‘Proper Officer may’. The term ‘shall’ amounts to the meaning of ‘Mandatory’. However, when the term has changed to ‘may’, it is discretionary. Therefore, in the cases of GST ITC fraud, post-2020 notice, the department is not required to issue Pre-SCN consultative notices. This has been confirmed by the Delhi High Court in the Manpar Exim Inc case.
Access Manpar Exim Inc Judgment [Here]
Why Experts say the Notification Diluted the Safeguard
Prior to the amendment, the rule required that before issuing a Show Cause Notice (SCN) under Sections 73 or 74, the proper officer shall communicate the details of tax, interest and penalty in Form DRC-01A.
This pre-SCN consultation made sure that taxpayers were alerted early about liabilities and given an opportunity to clarify, rectify or settle issues without escalating into a formal SCN or litigation. Thus, the advocates of the aggrieved parties say that this mandatory helped the taxpayers to prove their side without escalation and maintained transparency.
However, the 2020 Notification replaced the word “shall” with “may”, turning the once-mandatory communication into an optional, discretionary step. According to counsels, this single-word amendment fundamentally altered the balance between taxpayers and the Department.
With pre-SCN consultation no longer guaranteed, taxpayers lose the chance to respond informally or correct genuine errors before proceedings take a coercive turn. Many practitioners argued that disputes that could have been resolved at a preliminary stage now automatically escalate into SCNs involving heavy demands, penalties and interest, increasing both administrative burden and litigation. This amendment is affecting the taxpayers.
Advocates also argue that discretionary power, without statutory checks, creates room for inconsistency and arbitrary decision-making. They say that the officers may choose to bypass pre-SCN consultation entirely, even in cases where the issue is minor or easily explainable.
Other side of the Coin: Department’s concern
Another concern raised is that in fraud-related or ITC cases, the Department’s side argued that consultation is impractical and therefore avoids it altogether. Also, according to them, for someone who committed a huge ITC fraud, there is no room to sit and talk and it is meaningless. The court also took the same view.
In the Manpar Exim case, the Delhi High Court expressly said that a complex maze of transactions involving multiple parties, worth crores of rupees, pre-consultation would be meaningless due to the nature of the issues involved. In this case, the same bench also stated that “In fact even when searches etc., are conducted, parties can always tender the illegally obtained amounts, but they do not do so usually.”
While concluding this legal context, from the observations taken by the Delhi HC, the court is likely to uphold the Amendment. By making the Pre-SCN consultation discretionary, there are two sides where at one side innocent ones will have to face the escalations and on the other side, the government is taking strict regulatory actions by not giving more chances for economic offence. Let’s wait for the Delhi High Court to give the interpretation and clarity of the notifications.
Pre-SCN Intimation: Observations from Andhra Pradesh High Court
In the case of M/s New Morning Star Travels, the Andhra Pradesh High Court set aside a combined GST assessment order issued for 01 July 2017 to 31 March 2021 after holding that the Department failed to comply with the mandatory requirement of issuing a pre-SCN intimation in GST DRC-01A for the pre-amendment period under Rule 142(1A) which was issued before 15th October 2020
The Department contended that since part of the period fell post-amendment, issuance of DRC-01A had become discretionary and that the AC had initially issued an intimation which was not pursued.
However, the Court, rejecting the department’s view, held that the SCN covered both pre- and post-amendment periods and, given that the majority pertained to the mandatory regime, it was incumbent on the Deputy Commissioner to ensure DRC-01A was issued before proceeding.
Therefore, applying the principle that ambiguity in tax provisions must favour the taxpayer, the Court quashed the assessment and directed issuance of a fresh DRC-01A and reconsideration thereafter.
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