MP High Court dismisses writ petition challenging show-cause notice under sections 74 and 122 for fake input tax credit in circular trading scheme

The MP HC dismissed a writ petition challenging a show-cause notice issued under sections 74 and 122 of CGST Act, 2017 for fake input tax credit generation. The court found that five firms were involved in circular trading from 2017-2022 to inflate turnover and obtain higher bank loans while availing fraudulent ITC. The HC held that joint assessment of all six companies was necessary given the interconnected nature of the circular trading scheme. Since only the petitioner challenged the notice while four other companies did not approach the court, the petitioner could not be singled out from the assessment proceedings. The court ruled the show-cause notice was validly issued and joint assessment under section 74 was required.

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Issues:
Validity of show-cause notice under CGST Act, 2017. Challenge to the show-cause notice based on limitation period. Maintainability of the writ petition challenging the show-cause notice. Joint assessment of multiple companies involved in circular trading under Section 74 of CGST Act, 2017.

Validity of Show-Cause Notice:
The petitioners challenged the validity of the show-cause notice issued under Section 74 and 122 of the CGST Act, 2017. The notice alleged circular trading among various companies to inflate turnover, increase valuation for loan benefits, and avail fake input tax credit. The petitioners contended that the notice was uploaded beyond the limitation period specified in the Act. The respondents argued that technical glitches causing delay in uploading should not invalidate the notice. The High Court examined the evidence of circular trading and upheld the validity of the notice, dismissing the challenge.

Challenge Based on Limitation Period:
The petitioners argued that the show-cause notice was uploaded after the limitation period specified in the CGST Act, 2017. The respondents contended that delay due to technical issues should not affect the validity of the notice. The Court considered the timeline of events and concluded that the notice was validly issued within the statutory framework, rejecting the challenge based on the limitation period.

Maintainability of Writ Petition:
The respondents contended that the writ petition challenging the show-cause notice was not maintainable as adjudication was pending before the tax authority. The petitioners relied on judgments from other High Courts to support their argument that separate notices should be issued for each assessment year. The Court noted the involvement of multiple companies in circular trading and held that a joint assessment of all companies involved was appropriate under Section 74 of the CGST Act, 2017. The Court dismissed the writ petition for lack of merit.

Joint Assessment of Multiple Companies:
The Court found that multiple companies were engaged in circular trading to generate fake input tax credits over several years. The Court determined that a joint assessment of all companies involved in the trading scheme was necessary to address the complex nature of the transactions. The Court emphasized the need for a comprehensive assessment involving all relevant parties to address the circular trading issue effectively. The Court dismissed the petitioners' attempt to single themselves out from the joint assessment proceedings, upholding the validity of the joint assessment under Section 74 of the CGST Act, 2017.

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