GST SCN on bogus input tax credit under Section 74(9) upheld; petitioner directed to statutory reply remedy

HC held that the impugned GST show cause notice alleging wrongful input tax credit on a bogus supply was not patently illegal or without jurisdiction. Though the notice incorrectly directed the petitioner to reply only regarding tax and penalty and referred to Section 74(9), HC found that it nonetheless contained sufficient foundational facts and specific allegations, including the assertion of no actual supply of goods by the supplier on the relevant date. Relying on SC precedents on adequacy of show cause notices, HC refused to quash the notice under Article 226 and relegated the petitioner to the statutory remedy of filing a detailed reply. The petition was disposed of.

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Issues involved:
The controversy in the present writ petition is regarding a notice served to the petitioner for the Assessment Year 2018-19, questioning the actual supply of goods from a purportedly bogus firm, and the subsequent imposition of tax, penalty, and interest based on the alleged wrongful claim of Input Tax Credit.

Controversy Regarding Notice:
The petitioner challenged the notice as vague and argued that the conclusion of no goods supplied was incorrect, emphasizing the need for a proper opportunity to respond. The petitioner relied on a judgment from the High Court of Jharkhand to support their argument.

Legal Interpretation of Section 74:
Respondents cited Section 74(1) of the Uttar Pradesh Goods and Services Tax Act, 2017, stating that proceedings could be initiated if it "appeared" that Input Tax Credit had been wrongly availed. They argued that the notice was valid and the petitioner could respond at the appropriate stage, citing a Gujarat High Court judgment.

Analysis of Show Cause Notice:
The Court considered the adequacy of the impugned notice in light of principles of natural justice, quoting previous judgments to emphasize the need for clear imputations and proposed actions in such notices. It was noted that the notice should provide the opportunity for the respondent to rebut the charges and establish innocence.

Court's Decision and Order:
The Court observed that the impugned notice contained necessary details and grounds but directed the petitioner to reply regarding tax and penalty, rather than the specific allegations. The Court decided not to quash the notice but allowed the petitioner to respond, specifically addressing the claim of goods supplied by the alleged bogus firm.

Final Disposition and Directions:
The writ petition was disposed of, granting the petitioner one month to file a reply to the notice, including relevant material. The petitioner was permitted to explain the actual supply of goods and challenge the taxation, penalty, and interest charges. The report of the Special Investigation Branch was deemed non-final, subject to the Assessing Authority's decision after considering the petitioner's response and evidence submitted.

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