TaxTMI 
13 Nov 2026 
The invocation of Section 74 of the CGST Act, 2017 in cases involving alleged fraudulent Input Tax Credit (ITC) has frequently raised questions about the adequacy of show-cause notices, the responsibility of individual noticees and the availability of writ jurisdiction under Article 226 of the Constitution. A show-cause notice must disclose the factual basis for alleging fraud, wilful misstatement or suppression of facts. However, an objection to the adequacy of such a notice does not automatically justify bypassing the statutory appellate remedy. This distinction is particularly important where an investigation involves numerous firms, interconnected transactions and allegations of invoices issued without actual movement of goods.
These issues were examined by the Delhi High Court in Manoj Kumar Prop M.K. Steel Traders Versus Additional Commissioner, Central Goods And Services Tax & Anr. - 2026 (10) TMI 1945 - DELHI HIGH COURT. The Court considered two connected writ petitions challenging separate adjudication orders arising from an investigation into alleged fraudulent ITC transactions. The petitioner questioned the adequacy of the notices issued under Section 74 and, in one proceeding, the legality of a penalty allegedly imposed without being proposed in the show-cause notice.
The Court declined to interfere with the adjudication orders and directed the petitioner to pursue the statutory appellate remedy. Importantly, the Court did not uphold the demands on merits or finally decide whether the requirements of Section 74 had been satisfied. The judgment therefore highlights the distinction between a notice containing sufficient particulars to warrant examination in appeal and the Department's ultimate obligation to establish the liability of the person concerned.
An Alleged Network of Fake Invoices Led to Two Separate Tax Demands
The petitioner, Shri Manoj Kumar, proprietor of M K Steel Traders, was among those investigated in connection with the alleged availing and passing on of ineligible ITC through invoices not supported by genuine supplies of goods. The investigation followed a search under Section 67(2) of the CGST Act at the premises of Shri Mohit Jain, during which stamps, letterheads and invoices relating to several firms were allegedly recovered. According to the Department, these materials indicated the existence of a network of firms used to generate and circulate invoices without corresponding supplies.
The investigation also referred to the petitioner's statement recorded on 19.05.2023, in which he was said to have acknowledged assisting in the distribution of invoices not backed by actual supplies through brokers against commission. The Department further alleged that M/s Metal Tech had availed ITC of Rs. 2,94,04,610 on invoices received from M/s Shree Shyam Enterprises, which was connected with other firms in the alleged transaction chain. These were departmental allegations forming part of the investigation and not findings of guilt finally affirmed by the High Court.
Show-cause notices dated 01.08.2024, accompanied by FORM GST DRC-01 dated 02.08.2024, resulted in separate orders-in-original dated 04.02.2025. One order raised a demand of Rs. 6,14,568, while the other raised Rs. 2,93,53,860. The petitioner challenged both orders through W.P.(C) 50/2026 and W.P.(C) 2528/2026, notwithstanding the availability of a statutory appeal under the CGST Act.
Two Writ Petitions Raised Different Objections to the Adjudication Orders
In W.P.(C) 50/2026, the principal objection was to the validity of the show-cause notice under Section 74. The petitioner argued that the notice was non-speaking and failed to disclose the essential particulars required to establish fraud, wilful misstatement, or suppression of facts attributable to him. According to the petitioner, proceedings under Section 74 could not be sustained on general allegations concerning a larger network of firms.
In W.P.(C) 2528/2026, the objection was different. The petitioner maintained that the show-cause notice had not proposed the imposition of a penalty against him, even though the subsequent adjudication order directed him to pay a penalty. He therefore questioned whether an adjudicating authority could impose a penalty not specifically proposed in the notice.
Both objections raised important questions about the legal foundation of GST adjudication. However, the immediate issue before the High Court was whether these objections justified interference under Article 226, given that the petitioner could challenge the adjudication orders through the statutory appellate mechanism. The Court examined the two proceedings separately while applying the same general principle governing alternative remedies.
Availability of a Statutory Appeal Does Not Completely Bar Writ Jurisdiction
The High Court recognised that its jurisdiction under Article 226 is wide and that the existence of an alternative statutory remedy does not bar the exercise of writ powers. Nevertheless, where the CGST Act provides an effective mechanism for challenging an adjudication order, the High Court ordinarily exercises restraint. The availability of an appeal is therefore an important consideration in deciding whether a writ petition should be entertained.
This distinction is significant because the existence of an alleged legal defect does not necessarily require the High Court to examine it at the first instance. Questions involving the interpretation of a show-cause notice, the evaluation of documents, the appreciation of evidence, and the determination of individual liability can ordinarily be examined by the statutory appellate authority. Writ jurisdiction remains available in appropriate cases, but it is not intended to replace the normal appellate process merely because the taxpayer disputes the adjudication order.
In the present case, the petitioner had a statutory remedy against both orders dated 04.02.2025. The Court therefore considered whether the alleged deficiencies in the notices were sufficiently serious to justify bypassing that remedy. Its examination was confined to this procedural question rather than to the final correctness of the tax demands.
Fraud Allegations Under Section 74 Must Be Supported by Specific Facts
Section 74 of the CGST Act, 2017, as applicable to the disputed proceedings, deals with specified cases involving fraud, wilful misstatement or suppression of facts to evade tax. The mere use of these expressions in a show-cause notice is not sufficient to justify proceedings under Section 74. The notice must disclose the material facts and circumstances forming the basis of the allegations so that the taxpayer can understand the Department's case and respond effectively.
The petitioner relied on the Supreme Court's decision in M/s G.R. Infra Projects Limited Ratlam Versus The State of Madhya Pradesh & Ors. - 2026 (8) TMI 1497 - Supreme Court, wherein the Court held that mechanically reproducing expressions such as fraud, wilful misstatement or suppression of facts, without disclosing the supporting particulars, cannot sustain proceedings under Section 74. The factual foundation for invoking the provision must be apparent from the show-cause notice itself. The Delhi High Court recognised this principle but emphasised that its application depends upon the actual contents of the notice.
In the present case, the High Court found that the notices contained details of the alleged transactions, the network of firms and the manner in which ineligible ITC was allegedly availed and passed on. Accordingly, the Court declined to interfere in writ jurisdiction merely on the ground that the notices lacked essential particulars. However, the Court did not finally decide whether the allegations established fraud or satisfied the requirements of Section 74. These questions were left open for examination by the statutory appellate authority.
A Common Show-Cause Notice Must Disclose the Allegations Against the Persons Concerned
The show-cause notice challenged in W.P.(C) 50/2026 formed part of a wider investigation involving several firms allegedly engaged in issuing invoices without genuine supplies of goods. The notice ran into nearly eighty pages of the paper book and described the alleged transactions, the interconnected firms and the manner in which ineligible ITC was allegedly availed and passed on. The High Court observed that a common notice does not become invalid merely because it covers several noticees, provided the allegations and their factual basis are sufficiently disclosed.
The Court also noted that the Adjudicating Authority had considered the petitioner's reply before passing the order dated 04.02.2025. Having regard to the detailed contents of the notice and the availability of the statutory appellate remedy, the Court found no sufficient ground for interference under Article 226. However, the adequacy of the notice for establishing the petitioner's liability remained open to challenge in appeal. The petitioner could still dispute the allegations, supporting evidence and findings recorded in the adjudication order.
A Large Number of Noticees Cannot Establish Individual GST Liability
The High Court observed that the investigation involved as many as 158 noticees, including Shri Mohit Jain, who was alleged to have created a network of firms for availing and passing on ineligible ITC through invoices unsupported by genuine supplies. However, the involvement of numerous persons in a common investigation does not, by itself, establish the liability of any individual noticee. Each person's alleged involvement must be examined separately.
The liability of a particular noticee must be determined with reference to the specific transactions, role attributed to that person and supporting evidence. Merely being connected with firms under investigation cannot automatically establish fraudulent conduct or wrongful availment or passing on of ITC. The Department must establish the relevant statutory contravention against the person concerned.
The High Court did not determine the petitioner's individual liability or express any final opinion on the allegations against him. These matters were left open for examination by the statutory appellate authority. Thus, a common investigation may involve several persons, but liability must ultimately be established individually on the basis of relevant facts and evidence.
Penalty Imposed Without a Proposal in the Notice Requires Independent Examination
In W.P.(C) 2528/2026, the petitioner argued that the show-cause notice had not proposed any penalty against him, whereas the adjudication order subsequently imposed one. This raised a separate question about the relationship between the allegations in the notice and the relief or liability determined in the final order.
A show-cause notice serves the important purpose of informing the person concerned of the proposed action and providing an opportunity to respond. Accordingly, whether a penalty can lawfully be imposed depends on the contents of the notice read as a whole, the applicable statutory provisions and the circumstances of the proceedings. The petitioner maintained that the absence of a penalty proposal rendered the consequential direction unlawful.
The High Court did not finally decide this objection. Instead, it held that the appellate authority could examine the notice, the petitioner's reply, the statement recorded during the investigation, the adjudication findings and the relevant statutory provisions. The Court expressly clarified that declining writ interference did not amount to accepting the Department's position on penalty. The legality of the penalty remained open for independent determination in the statutory appeal.
The Statutory Appellate Remedy Must Be Pursued Without Ignoring Limitation
The High Court ultimately directed the petitioner to pursue the statutory remedy of appeal against the two adjudication orders. This direction has an important procedural consequence, as the orders were passed on 04.02.2025, while the writ petitions remained pending before the High Court.
The Court specifically addressed the possibility of an application under Section 14 of the Limitation Act, 1963, seeking exclusion of the period during which the writ petitions were pending. It directed that, if such an application were filed, the competent appellate authority should consider it in accordance with law.
This direction should not be misunderstood as an automatic extension of limitation or an unconditional condonation of delay. The petitioner must pursue the appropriate remedy and establish the legal basis for any claimed exclusion. The appellate authority must then decide the application under the applicable law. The judgment therefore preserves the opportunity to seek exclusion of time without deciding in advance whether the conditions for such exclusion have been satisfied.
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