TaxTMI 
TaxTMI 
2025 (12) TMI 83
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....telligence, Delhi Zonal Unit (hereinafter, 'SCN'). 4. In addition, the Petitioner has also challenged the Constitutional validity of Section 75(2) of the Central Goods and Services Tax Act, 2017 (hereinafter, 'CGST Act'). The prayer in present petition is as under: "Prayer It is, therefore, most respectfully prayed that this Hon'ble High Court be pleased to: A) issue a writ of certiorari / mandamus or any other appropriate writ/ order/ direction against the Respondents by quashing sub-section (2) of section 75 of the CGST Act, 2017 as ultra vires to CGST Act, 2017 and unconstitutional; B) issue a writ of certiorari / mandamus or any other appropriate writ/ order/ direction against the Respondents by declaring that the provisions of section 132(4) and the provisions of section 292C of the Income Tax Act 1961 have no applicability to the proceedings initiated under the CGST Act, 2017 and/or IGST Act, 2107 as said provisions have limited applicability to the Income Tax Act only; C) issue a writ of certiorari/ mandamus or any other appropriate writ/ order/ direction against the Respondents by quashing the impugned Show Cause Notice No. DGGI/DZU....
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....s of the IT Act, and the presumption under Section 292C of the IT Act. The submission of ld. Counsel for the Petitioner is that any presumption under Section 292C IT Act would apply only in respect of proceedings under the IT Act and the same cannot form the basis for any investigation under the CGST Act. 12. Further, it is submitted that the statements recorded by the IT Department, from the concerned parties, can be relied upon as evidence, only in proceedings under the Income Tax laws and not under the GST Laws. 13. Thus, it is his submission that the SCN does not give any basis for the GST Department to raise any demands against the Petitioner, merely on the basis of the findings of the IT Department. It is submitted that such an SCN could not have been issued, unless there was independent supporting evidence with the GST department, in support of the SCN. 14. In addition, it is also alleged by ld. Counsel for the Petitioner that some of the judgments referred to in paragraph 21 of the SCN do not exist, and are Artificial Intelligence generated judgments. 15. Ld. Counsel for the Petitioner also places reliance upon the decision in SLP(C) No. 6092 of 2025 titled 'Arm....
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....tation is wrongly recorded. 22. Insofar as the challenge to Section 75(2) of the IT Act is concerned, it is submitted by ld. SSC that the same is completely premature, inasmuch as the GST Department has not taken any decision to convert the inquiry or the proceedings, to proceedings under Section 73(1) of the CGST Act. Therefore, under such circumstances, no presumption can be made that the proceedings would be converted into proceedings under Section 73(1) of the CGST Act, and no challenge can be raised to Section 75(2) of the CGST Act. ANALYSIS 23. The Court has considered the matter. Undoubtedly, the IT Department did conduct a search at the Petitioner's premises, and various materials have been recovered. The said materials include computer servers, audit books, statutory audit records, digital devices including WhatsApp communication, etc. On the basis of the search and inspection, the statements of various employees were recorded. The manner in which the alleged evasion was being conducted, has also been set out in the SCN, as a background to the SCN. 24. In terms of the SCN, the Petitioner was engaged in the trading of readymade garments and was working as a comm....
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....rchis," branch-wise commission details, and digital ledgers- collectively form a strong and credible basis for GST evasion by the assessee. The findings for FY 2020-21 further reinforce the ongoing pattern of concealment, showing how M/s JM Jain continuously withheld information about commission and interest income." 28. Insofar as the Special Audit conducted for Financial Year 2021-2022 for the proprietor Mr. Jeetmal Choraria is concerned, the audit findings record is as under: "15.3.8 - The audit findings for the financial year 2021-22 clearly reveal a serious and systematic case of GST evasion by M/s J.M. Jain. The firm operated a parallel accounting system through the JSK server, which was used to record unaccounted transactions that were deliberately kept out of the official books. A significant portion of the business was carried out in cash, bypassing the formal financial system, and thereby avoiding tax liability. What makes the evasion even more apparent is the use of coded names, fictitious or dummy entities, and misleading identifiers to mask the true nature of transactions. This intentional layering created obstacles in tracing the flow of income and determi....
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....nt of commission, interest and other income (cash receipts and others) - supported by SAP logs, employee testimony, and cross- referencing-reveals a deliberate effort to evade GST and Income Tax. The AO's approach to dissect the JSK Server data and correlate it with real trade activity was methodical and conclusive." 29.2 For Financial Year 2020-21 ( RUD -1) In respect of Financial Year 2020-21, after considering the entire record, the IT Department's conclusion is set out below: "16.3.6- The assessment for FY 2020-21 reaffirms the continuing pattern of income suppression by M/s JM Jain through its JSK Server. The concealment of Rs.88,08,31,933/- in commission, interest and other income, backed by employee statements, ledger entries, and digital records, paints a clear picture of deliberate evasion of both income tax and GST. The AO's methodical treatment, backed by legal and factual evaluation, not only uncovered hidden income but also connected it directly with GST implications, reinforcing that this was not a simple error but a structured scheme to evade tax liabilities." 29.3 For Financial Year 2021-22 (RUD -1) Pertaining to Financial Year 2021-22, ....
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.... The involvement of Sh. JeetmalChoraria, indicates that this was a planned, systematic effort to hide real income and avoid tax payments. This evidence establishes that the firm was engaged in willful GST evasion through: a) Maintaining dual books of accounts b) Suppressing actual turnover and taxable supplies c) Concealing cash sales and commissions d) Using coded records and restricted access software systems to avoid detection 19.1.5 In order to confront statement given by him before Income Tax Department, summonses dated 22.04.2025, 30.04.2025, 21.05.2025 and 11.06.2025 (RUD 11A)were issued to him. However, he never appeared for tendering statement." 31. Thereafter, the statement of Mr. Shreyans Kumar Bhatera was also analyzed and it was found that M/s JM Jain was working under two business models i.e., the Pakka and Kachcha models. The Kachcha transactions were cash dealings and the Pakka transactions were alleged to be the payments made by cheques. Conversions and chats recovered from his mobile phone which was seized during the search, are stated to have confirmed these facts. Summons were issued by the GST Department to Mr. Shreyans....
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.... JM Jain. In order to confront him with the statement given to the IT Department, summons were issued to him but he also failed to appear before the GST Department. 34. Thereafter, statement of Mr. Vinay Kumar Baid was also analyzed. He is the senior executive of M/s JM Jain, managed banking operations, and audits. He denied having knowledge of any fact of unrecorded cash transactions of M/s JM Jain. 35. Pursuant thereto, statement of Mr. Radhey Shyam Saran was also assessed. He is an employee of cash department of M/s JM Jain who is stated to have confirmed that he used to collect cash on the directions of Mr. Magan Das. The WhatsApp chats with Mr. Magan Das, retrieved from his mobile phone, were also admitted by him. He confirmed that the large amount of cash was counted which were over Rs.1 crore. However, when summons were issued to him, he also refused to appear before the GST Department. 36. Further, statement of Mr. Paras Mal Khater was also analyzed. He was working as cash executive of M/s JM Jain. and stated that he used to deposit Rs.1.5 to Rs.2 lakhs cash in the company on a daily basis. However, he also did not respond to the summons by GST Department. 37. T....
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....SK Server is the parallel books of accounts of M/s JM Jain; (iv) Transactions recorded in JSK server were never recorded in any of the books of M/s JM Jain group; (v) M/s JM Jain facilitated clandestine sales of goods between suppliers and buyers by way of movement of cash through their employees, several WhatsApp chats evidencing movement of cash by employees of M/s JM Jain were seized during search; (vi) The transactions of JSK Server were never disclosed to GST Department; (vii) The cash transactions for the clandestine supply of goods and for the commission for facilitating these unaccounted transactions were carried out in a secret, systematic and well organised racket by the employees of M/s JM Jain on the instructions of Jeetmal Choraria, owner of M/s JM Jain." 41. Pertinently, Mr. Jeetmal Choraria, the proprietor of M/S JM Jain had given a statement, which was also examined by the GST Department. Summons were issued by the GST Department from April to June, 2025. However, instead of appearing in person, Mr. Jeetmal Choraria authorised Mr. Shalinder Mohan, Chartered Accountant as his authorized representative, whose statement was record....
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....18-19 Financial Year Commission and Interest Income CGST (@9%) SGST (@9%) TOTAL GST 2018-19 171243828 15411945 15411945 30823890 For the Financial year 2019-20 Financial Year Commission and Interest Income CGST (@9%) SGST (@9%) TOTAL GST 2019-20 647000000 58230000 58230000 116460000 For the Financial year 2020-21 Financial Year Commission and Interest Income CGST (@9%) SGST (@9%) TOTAL GST 2020-21 364706780 32823610 32823610 65647220 For the Financial year 2021-22 Financial Year Commission and Interest Income CGST (@9%) SGST (@9%) TOTAL GST 2021-22 457800000 41202000 41202000 82404000 45. In addition, certain 'Bad Debts' and revenue receipts under the head Neel Ratan Sarkar, which form a part of consideration under GST, were also computed for all the financial years and finally, the GST liability was calculated in the following terms: Amount in Rs. Financial Year Unaccounted Taxable Turnover (Table 1+2+3+4+5+6+7+8) CGST (@9%) SGST (@9%) TOTAL GST 2018-19 32,65,75,432 2,93,91,789 2,93,91,789 5,87,....
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....ocuments are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested." 51. In addition, Section 292C of the IT Act is also relevant and the same is extracted below: "[292C. Presumption as to assets, books of account, etc.- [(1)] Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search under section 132 [or survey under section 133A], it may, in any proceeding under this Act, be presumed- (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account a....
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....aws (Amendment) Act, 1975 with effect from 1-10-1975 to permit a presumption to be raised in the circumstances mentioned therein. Before the insertion of sub-section (4-A) the onus of proving that the books of account, other documents, money, bullion, jewellery, etc. found in possession or control of a person in the course of a search belonged to that person was on the Income Tax Department. Sub-section (4-A) enables an assessing authority to raise a rebuttable presumption that such books of account, money, bullion, etc. belonged to such person; that the contents of such books of account and other documents are true, and, that the signatures and every other part of such books of account and other documents are signed by such person or are in the handwriting of that particular person. xxx 23. A presumption is an inference of fact drawn from other known or proved facts. It is a rule of law under which courts are authorised to draw a particular inference from a particular fact. It is of three types, (i) "may presume", (ii) "shall presume" and (iii) "conclusive proof". "May presume" leaves it to the discretion of the court to make the presumption according to the circ....
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....ing the regular assessment. 54. Similar is the position in respect of Section 292C of the IT Act, which was considered by the Calcutta High Court in Commissioner of Income Tax v. Ashok Kumar Poddar 2023 SCC OnLine Cal 6527, where the Calcutta High Court, following the decision in PR Metrani (supra), had observed as under: "20. A presumption may be rebuttable or irrebuttable. If it is irrebuttable, it is conclusive proof of the fact. The court will not admit any evidence to disprove the presumption. Take for example, the common law presumption that a child under seven years of age is incapable of committing a crime. It is an irrebuttable presumption. Or the fact that the sun rises in the east. When a fact may be presumed by the court or shall be presumed by the court makes the presumption rebuttable. The assertion of fact is taken to be true till it is disproved. 21. The question is who has the onus of disproving the presumed fact. One who challenges the presumption has the onus to disprove the fact. 22. Therefore, the adjudicating authority has two options, either not to presume that the papers and other documents seized during search and seizure belon....
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..... It is for the Assessing Officer to rebut that presumption and come to a conclusion or "satisfaction" that the document in fact belongs to somebody else. There must be some cogent material available with the Assessing Officer before he/she arrives at the satisfaction that the seized document does not belong to the searched person but to somebody else. Surmise and conjecture cannot take the place of "satisfaction"." 57. A perusal of the above-mentioned decisions would show that the presumption under Section 132(4A) and 292C of the IT Act is merely for the purposes of the proceedings under the specific provisions of the IT Act. The said presumption is a rebuttable presumption, and the assessee can rebut the same. The presumption is also for the purpose of provisional assessment and not for framing of the final assessment order. 58. Under such circumstances, the question would be whether there is a presumption in respect of proceedings under the CGST Act, qua the said assets which are seized during the search. 59. The IT Act and the CGST Act are taxation statutes and are to be interpreted strictly. It is clear from the above-mentioned judicial precedents that, the documents ....
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.... are certain presumptions qua the said material, which again would be rebuttable presumptions. 64. Insofar as the decision of Armour Security (India) Ltd (Supra) is concerned, the relevant portion of the said decision is set out below: "65. A show cause notice is a document served on a noticee, requiring them to explain why a particular action should not be initiated against them. Under the GST regime, issuance of a show cause notice is a mandatory precondition for raising a demand. It forms the bedrock for proceedings related to the recovery of tax, interest, and penalty. The notice ensures adherence to the principles of natural justice by granting the assessee an opportunity to present their case before any adverse action is taken. In essence, it serves as both a procedural safeguard and a legal necessity, marking the commencement of quasi-judicial adjudication under the Act. 66. A show cause notice sets the law in motion concerning the liability under the statute, containing charges that a specific person is called upon to answer. In other words, it sets out the alleged violations of legal provisions and requires the assessee to explain why the duty should n....
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....ed upon are to be disclosed to the assessee. 66. A perusal of the SCN would show that, at this stage, it cannot be said that the SCN is bereft of material particulars or that it is vague, in fact, all the documents, statements, evidence, etc. which was seized by the IT Department, and passed onto the GST Department is well within the knowledge of the Petitioner. Moreover, the RUDs have been supplied to the Petitioner. Thus, the SCN cannot be held to be baseless or vague. 67. In respect of the genuineness of the three judgements which were cited in paragraph 21 of the SCN are concerned, the said paragraph reads as under: "21. Evidentiary Value of Statement Recorded under Section 132(4) of the Income Tax Act, 1961 During a search conducted by the Income Tax Department, statements were recorded under Section 132(4) of the Income Tax Act, 1961, from key employees of M/s J.M. Jain, including employees, some of the suppliers and buyers etc. These statements were made under oath and revealed that the entity was engaged in systematic suppression of taxable turnover, maintenance of parallel accounts through a concealed "JSK Server," and non-payment of GST on substant....
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....physical verification from the books would reveal that for citation (2003) 258 ITR 359 (Del HC), the actual judgement is Commissioner of Income Tax v. Kishan Lal (HUF) and the same relates to Section 234A and Section 234B of the IT Act. 70. Thus, there are discrepancies in the judgments which are cited by the GST Department. The GST Department and even other Departments, including the IT Department ought to be careful while citing judicial precedents in this manner, specially if the same has been produced or accessed through Artificial Intelligence software, as there is a clear possibility of the citations themselves being fake, as is clear from one of the judgments, which is cited in the present SCN. 71. In this regard, various High Courts have cautioned against using Artificial Intelligence while citing case laws. Recently, a Coordinate Bench of Bombay High Court in KMG Wires Private Limited v. The National Faceless Assessment Centre, Delhi and Ors. 2025:BHC-OS:19789-DB, while deciding a challenge to an Assessment order under Section 143(3) read with Section 144B of the IT Act had quashed the Assessment order and recorded as under: "[...] 9. On the second ....
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....lement in the adjudicatory process. At best the tool could be utilised for a preliminary understanding or for preliminary research and nothing more" 73. The above-mentioned judicial precedents clearly demonstrate the risk of Artificial Intelligence hallucinating, by citing fake and non- existent judgements. Under such circumstances, the GST Department as well as the IT Department must exercise utmost caution while citing judgements and must take full responsibility in case the same is cited or generated by using Artificial Intelligence softwares. Moreover, before issuing SCNs or finalising assessments, all judgements ought to be verified. 74. Insofar as the challenge to Section 75(2) of the CGST Act is concerned, the SCN at this stage has been issued under Section 74 of the CGST Act and therefore, there cannot be a presumption that this would be converted into Section 73(1) of the CGST Act. If such a situation arises, the Petitioner is at liberty to challenge the vires at that stage, if the Petitioner is aggrieved in any manner. 75. Finally, this Court notices that the present writ petition is the second one, which has been filed by the Petitioner. In the earlier writ peti....