TaxTMI 
TaxTMI 
2026 (3) TMI 83
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....as issued by the respondent no. 1 to the petitioner no. 1 (hereafter "the petitioner") in FORM GST DRC-01A in terms of Rule 142 (1A) of the West Bengal Goods and Services Tax Rules, 2017 (hereafter "the Rules") thereby intimating the petitioner about the tax ascertained as being payable by it under Section 74(5) of the said Act of 2017. The said notice was accompanied by an annexure containing the relevant factual summary pertaining to the said case whereby the petitioner was advised to "pay the amount of Tax (CGST: Rs. 18,02,276.00 and SGST : Rs. 18,02,276.00) as ascertained above along with applicable interest in full by 20/07/2024, failing which Show Cause Notice shall be issued under section 73(1)/74(1)". c. The petitioner furnished a detailed reply dated July 18, 2024 (along with Part B of FORM GST DRC-01A dated July 20, 2024) to the said intimation/notice dated July 10, 2024. d. The respondent no. 1 was not satisfied with the petitioner's response to the intimation and as such on August 08, 2024 the said respondent issued a notice calling upon the petitioner to show cause, as to why should the petitioner not pay the amounts demanded in the said notice under ....
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.... j. Ultimately on August 06, 2025, the respondent no. 1 issued a notice calling upon the petitioner to show cause as why should it not be held liable to make payment of tax, interest and penalty as indicated therein. The notice records a prima facie satisfaction that input tax credit (hereafter ITC) had been wrongly availed or utilised by reason of fraud, or any wilful misstatement or suppression of facts to evade tax. k. Assailing the said show cause notice the petitioners have approached this Court by filing the instant writ petition. l. During pendency of the writ petition, the proper officer went ahead and passed an adjudication order dated November 04, 2025, thereby confirming the demand raised by the notice to show cause. The said order has also been brought on record and put to challenge by way of an application being CAN 1 of 2025. m. Parties were heard both on the writ petition as well as the application. SUBMISSIONS ON BEHALF OF THE PETITIONERS: 3. A brief summary of the submissions made by Mr. Kanodia, learned Counsel appearing for the petitioner (both orally as well as in the written notes) is as follows:- a. The pre-show....
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....the contention that ITC cannot be denied to the recipient due to default of the supplier, he relied on a judgment of the Hon'ble Division Bench of this Court in the case of Suncraft Energy Private Limited vs. Assistant Commissioner, State Tax, Ballygunge Charge (2023) 9 Centax 48 (Cal.), It was also pointed out that the said judgment remained unfazed even before the Hon'ble Supreme Court inasmuch as the revenue's appeal thereagainst being SLP (C). Nos. 27827-27828 of 2023 (Assistant Commissioner, State Tax vs. Suncraft Energy Private Limited) (2023) 13 Centax 189 (S.C.) was dismissed by the Hon'ble Supreme Court by an order dated December 14, 2023. j. It was asserted that the Hon'ble Supreme Court has repeatedly held that buyers cannot be blamed if a supplier who appeared to be legitimate on government records at the time of the transaction was later found to be bogus or its registration was cancelled retrospectively. It was contended that any due diligence on the supplier's GSTIN at the time of the relevant transaction was sufficient and it was not the buyer's duty to verify the supplier's operational status beyond that. k. To buttress the aforesaid contention, j....
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....put tax credit has been wrongly availed or utilized by reason of fraud, or any wilful misstatement or suppression of facts to evade tax. Therefore, notice is to be served requiring you to pay such tax along with interest under Section 50 and a penalty equivalent to the tax specified in the notice as per provisions laid down under Section 74 of the GST Act". o. ITC was availed on the basis of valid tax invoices, which are duly reflected in FORM GSTR-2A of the Petitioner. It is evident from the GST portal that the concerned suppliers have filed both GSTR-1 and GSTR-3B for the relevant period. The ITC so availed was duly reported in the petitioner's monthly and annual GST returns, and the department had complete knowledge of the inward suppliers as reflected in FORM GSTR-2A. There has been no suppression of facts with respect to inward supplies, and the department was fully aware of the same from the records available on the portal. p. The respondent No. 1 has not provided any material on record to establish any collusion between your petitioner and its suppliers for availing inadmissible or fake credits. In the absence of any suppression or collusion, the extended p....
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.... opportunity to present its case. This is followed by a well-defined appellate mechanism. b. The multi-tier adjudicatory framework under the GST regime is designed to ensure that registered taxable persons are granted sufficient opportunities to present their cases. c. The petitioner has prematurely invoked the writ jurisdiction of this Court at the stage of a show cause notice, wherein the assessing authority has merely recorded a prima facie view. Such prima facie stand was required to be taken pursuant to the order of the Hon'ble Division Bench on the basis of the reply filed by the writ petitioner. d. The show cause notice cannot be said to be any final determination or adjudication and the same would only occur after consideration of the petitioner's reply. e. The said Act of 2017 is a self-contained Code that provides adequate remedies, including appellate recourse, in the event of an adverse order. The petitioner ought to raise all objections before the assessing authority in response to the show cause notice and seek redress under the statutory scheme, if necessary. f. A judgment of the Hon'ble Supreme Court in the case of Commis....
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....he same reads thus:- "74(1). Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice." 10. Thus the proper officer would be justified in issuing a show cause notice under Section 74 of the said Act of 2017 if "it appears" to him that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful misstatement or suppression of facts to evade tax. 11. A challenge to a notice to show cause in cases like the one at hand would be required to be examined in the li....
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....tes a chain of the petitioner's suppliers and alleges connivance between the petitioner and its suppliers in tax evasion through fraudulent passing on of ITC in the following manner:- "Moreover as per data available in CTD database and moving further down the ITC chain of JYOTI TAR PRODUCTS PRIVATE LIMITED the following facts came to the fore: (a) EJAJUL HAQUE SK (Proprietor) of M/s STAR ENTERPRISES (GSTIN: 19NKJPS6613F1ZI) claimed majority of ITC from M/s JAY LAXMI TRADERS (GSTIN: 18KXCPS4738E1Z0) and M/s SAHU TRADING CO (GSTIN: 33PRLPS4836M1ZQ). M/s JAY LAXMI TRADERS has been cancelled on application by taxpayer on 11/05/2023. The date of registration of JAY LAXMI TRADING was 25/11/2022. M/s SAHU TRADING Co was cancelled suo-moto effective from 12/11/2022. (b) NITAI DAS (Proprietor) of M/s SAI GANESH ENTERPRISE (GSTIN: 19CARPD2017D1ZZ) claimed majority of ITC from M/s JAY LAXMI TRADERS (GSTIN: 18KXCPS4738E1Z0). (c) VISHAL JAISWARA (Proprietor) of M/s JAISWARA ENTERPRISE (GSTIN: 19CRIPJ3681D1ZZ) claimed majority of ITC from M/s SAHU TRADING Co (GSTIN: 33PRLPS4836M1ZQ) & M/s AAHANA ENTERPRISE (GSTIN: 19HBOPP0633L1Z0). M/s SAHU TRADING CO WAS CANC....
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....y missed the aspect that the standard of proof required for satisfaction of the listed conditions would vary by case. To be precise, where the genuineness of the transaction between the purchaser and the supplier is undisputed even basic documentation may suffice but in cases where the transaction's legitimacy is doubted a higher standard of proof would be required, particularly, in the light of the burden of proof as mandated by Section 155 of the said Act of 2017. In such cases a person cannot assert that basic documents like invoices, e-way bills etc. must always be treated as the "be-all and end-all" to support eligibility for ITC. 15. This Court is unable to agree with the submissions of Mr. Kanodia that the show cause notice has been issued with a predetermined mindset. The petitioners would do well to remember that the Hon'ble Division Bench had while disposing of MAT 2291 of 2024 (i.e. the petitioner's own appeal) by the order dated January 21, 2025 observed that "when the authority has thought fit to exercise its powers under section 74(5), he is enjoined upon a duty to consider the reply before it takes a decision to issue a show-cause notice under section 74(1) of the....
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....annot be lost sight of that the notice issuing authority has at the end of almost every paragraph referring to a certain allegation stated that its assertions are "prima facie". The profuse use of the expression "prima facie" in the impugned notice is clearly demonstrative of the fact that process is still at the stage of inquiry and the show cause notice does not constitute a final verdict. 18. Mr. Kanodia has strenuously contended that e-way bills would be sufficient to prove movement of goods as the same contain details of vehicle numbers and the same can be verified by the proper officer to check the movement of goods. Mr. Kanodia's submissions are correct to some extent but then the same are not so weighty as to persuade the Court to hold that the GST authority could not have issued the show cause notice at all after the e-way bills being placed before it. Both e-way bills and weigh bridge slips are self-generated documents. E-way bills are generated prior to the commencement of the transportation. Therefore, the same may or may not by themselves be sufficient to prove actual movement of the goods in all cases. Evidentiary value thereof would vary from case to case. This Co....
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.... 70 of the 2003 Act." [Emphasis supplied] 20. Where the genuineness of the transactions has been doubted based on an ITC chain, it would be improper for the writ Court to interfere with a show cause notice holding that presence of e-way bills and weighment slips are sufficient to prove movement of goods. It should not be forgotten that the proper officer has a duty to check and prevent tax evasion and law allows such officer to issue a show-cause notice based on "reason to believe" derived from the ITC chain. 21. In a sense the notice is a mere invitation for the tax payer to prove the proper officer wrong as the burden to prove eligibility for ITC is on the tax payer only. While discouraging interference at the stage of issuance of show cause, the purpose of issuing a notice to show cause was succinctly expressed by the Hon'ble Supreme Court in the case of State of Uttar Pradesh vs. Brahm Datt Sharma & Another (1987) 2 SCC 179 thus:- "9. The High Court was not justified in quashing the show cause notice. When a show cause notice is issued to a government servant under a statutory provision calling upon him to show cause, ordinarily the government servant mu....
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....itioner even at the threshold by the interim protection granted." [Emphasis supplied] 23. In the case at hand the bona fides and genuineness of the transactions have been questioned by the GST authority and there is prima facie material to support the question raised, in such view of the matter, the GST authority cannot be faulted for issuing a show-case notice. 24. As regards the judgments cited by Mr. Kanodia, insofar as the judgment in the case of National Plasto Moulding (supra), Arise India Limited & Others (supra) and Suncraft Energy Private Limited (supra) are concerned, the same hold that purchasing dealers who have entered into transactions bona fide cannot be held responsible for defaults of the sellers but then the said judgments in the same breath also add the rider that the relevant department would be free to act against the purchasing dealers in cases where bona fides have been questioned or a case of collusion is made out. In the case at hand the genuineness of the transactions between the petitioner and its sellers have been questioned by the revenue by seeking to demonstrate collusion. The said judgments therefore do not aid the petitioners. 25. ....
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....matter, the same cannot aid the petitioner. That apart in the case at hand the burden of proof clearly lies on the petitioner in terms of Section 155 of the said Act of 2017. Furthermore, the decision as to whether burden has been discharged or not can only be taken in the adjudication proceedings and not at the show cause stage. 32. Chandrashekhar Yadav (supra) and Ajnara Realtech Ltd. (supra) were passed in cases where the show cause notice lacked the essential ingredients of Section 74 of the said Act of 2017. The instant case is clearly not so. 33. Siemens Limited (supra) and ORYX Fisheries Private Limited (supra) also do not help the petitioner inasmuch as in the facts of the present case, it has been found that the show cause notice is not a product of meditated mind-set. In the said case the authority had confronted the notice with conclusions while in the present case the authority has only stated its prima facie case. 34. For all the reasons aforesaid, the challenge to the show cause notice cannot be sustained. The impugned show cause notice is not interfered with. 35. Insofar as the adjudication order dated November 04, 2025 is concerned, it is evident from th....