Writ petition challenging Show Cause Notice under Section 74 for wrongful ITC availment dismissed as premature interference

Calcutta HC dismissed writ petition challenging Show Cause Notice under Section 74 of CGST/WBGST Acts for alleged wrongful ITC availment from unregistered/non-existent suppliers. Court held SCN merely initiates adjudicatory process and doesn't warrant judicial interference unless issued without jurisdiction or ex-facie perverse. Petitioners failed to demonstrate jurisdictional error. Natural justice violation claim rejected as adequate opportunity was provided to respond to draft audit report. Court emphasized statutory framework provides sufficient opportunity for defense during adjudication process, making premature judicial intervention impermissible. Taxpayers must follow statutory adjudication mechanism rather than seeking writ relief.

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Issues:
Challenge to Show Cause cum Demand Notice under CGST and WBGST Acts for wrongful availment of Input Tax Credit (ITC) based on alleged transactions with unregistered or non-existent suppliers.

Analysis:
The petitioners approached the High Court seeking the quashing of the Show Cause cum Demand Notice (SCN) issued under Section 74 of the CGST Act and the WBGST Act for the financial year 2023-2024. The notice demanded payment of Rs. 36,04,552/- as CGST and WBGST along with penalties, alleging wrongful availment of ITC from suppliers found to be unregistered, non-existent, or not conducting business at their registered places.

The petitioners contended that they met all criteria under Section 16 of the CGST/WBGST Act for availing ITC in good faith, including possessing valid tax invoices, receiving goods, and paying taxes to suppliers. They argued that the retrospective cancellation of suppliers' GST registrations did not invalidate transactions, and they had no prior knowledge of such cancellations.

Moreover, the petitioners emphasized that they had submitted a detailed reply refuting the allegations in the pre-show cause notice but respondent no. 1 did not take recovery action against defaulting suppliers as required by law. They argued that recovery of unpaid tax should primarily be made from defaulting suppliers as per CBIC guidelines.

The petitioners also cited judicial precedents emphasizing that recovery actions must be initiated against defaulting suppliers before seeking ITC reversal from buyers. They argued that the SCN was vague and failed to provide a clear rationale, rendering it unsustainable in law. The petitioners prayed for quashing the SCN and compliance with the legal framework for ITC disputes.

However, the Court dismissed the writ petition, stating that an SCN under Section 74 of the CGST and WBGST Acts initiates an adjudicatory process and does not warrant judicial interference unless issued wholly without jurisdiction or ex-facie perverse. The Court held that the petitioners failed to demonstrate lack of jurisdiction or perversity in the SCN issuance.

The Court emphasized that procedural grievances could be addressed during adjudication under Section 74 (9) and that statutory mechanisms provided sufficient opportunities for taxpayers to raise defenses. It noted that reliance on CBIC guidelines did not absolve buyers of their responsibilities under the Acts and reinforced the need for adherence to the statutory adjudication process rather than premature judicial intervention.

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