TaxTMI 
TaxTMI 
2026 (9) TMI 731
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....esh Goods and Services Tax Act, 2017 are ultra vires to Articles 14, 19(1)(g) and 300A of the Constitution of India, or in the alternative, to read down the aforesaid provision, so as to hold that the denial of Input Tax Credit thereunder shall not apply to a bona fide recipient who has otherwise satisfied the conditions of Section 16(2)(a), (b) and (d) and has paid the tax to the supplier, in the facts and circumstances of the case. 3.Briefly stating the petitioner, M/s Neelkanth Entrepreneurs Private Limited, is a private limited company, registered under the Goods and Services Tax Act, with GSTIN No. 09AADCN8452H1Z6 and engaged in the supply of works-contract services under SAC No. 9954. (i.e General construction, building work, civil engineering, specialized trades (plumbing, electrical installation), and completion or repair services for residential, commercial, and industrial properties etc.) 4.The petitioner claims to be engaged in the execution of large-scale sub-contract works for NCC Limited (a public infrastructure company) across the States of Bihar, Jharkhand, Uttar Pradesh and Maharashtra. The works inter alia include excavation and diaphragm-wall construction f....
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.... as active at the time of the transactions), and signed undertakings from the authorized signatories/proprietors of the sub-contractors confirming execution of the works, amounts billed, GST charged, receipt of consideration, and filing of GSTR-1 and GSTR-3B returns with discharge of GST liability forms the part of the record and the figures mentioned in several of these undertakings correspond to the amounts reflected in the impugned show-cause notice. 7.The petitioner has placed on record its own outward tax invoices raised upon NCC Limited under HSN/SAC 995421, 995422 and 995461 (together with a credit note), alleging that the works/services received from the sub-contractors were utilized in the execution of its contractual obligations towards NCC Limited. The petitioner has also carried on a separate trade in medical consumables with government departments. 8.It is the case of the petitioner that, although they are GST complaint, however, the respondents vide the impugned Show Cause Notice dated 9.07.2026, issued under Section 74A (1) of the Central Goods and Services Tax Act, 2017 has proposed to deny the Input Tax Credit availed by the petitioner, together with levy of ....
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....Court finds that the aforesaid decision confirms the Constitutional validity of Section 16(2)(c) of the CGST Act, 2017, holding that Input Tax Credit (I.T.C.) is available only if the supplier has actually paid the corresponding GST to the Government and the Court declined to dilute or read down this statutory condition, reiterating that I.T.C. is a conditional statutory benefit rather than an absolute or vested right. Thus, Shri Mishra in view of the said subsequent development, wishes not to press for the second relief(s). 12.As far as the first relief concerning the challenge to the impugned show cause notice dated 09.07.2026 is concerned, Shri Mishra has attacked the same with great vigour on its four corners. According to him, a jurisdictional error has crept in the issuance of the said show cause notice denting the very validating of the same. He has submitted that the entire Tax Component relates to genuine Input Tax Credit arising from actual inward supplies received from registered selling dealers, who were all registered at the relevant point of time and have reported the tax pertaining to the supplies in their GST returns, which stood reflected in the petitioner's GST....
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.... the nature of discrepancy contemplated under Section 61 has been put forth to challenge the issuance of the impugned Show Cause Notice. 15.The learned Counsel has taken this Court through Rule 99(1) of the GST Rules to submit that the said Rules provide for a complete statutory mechanism for dealing with discrepancies noticed during scrutiny of returns. According to him, the respondent has neither followed the steps as required under Section 61 or Rule 99 and has technically deprived the petitioner an opportunity to explain the discrepancy at the threshold and straightaway issued the impugned Show Cause Notice under section 74A of the GST Act, thus, according to him, the impugned Show Cause Notice is contrary to the statutory scheme and suffers from a fundamental procedural illegality. He further has relied on the following judgment to bring home his aforesaid submission: (i) Judgment of Division Bench of the Orissa High Court in M/s Qualicum Solutions Pvt. Ltd. Kolkata V/s The Chief Commissioner of CT & GST (W.P (Civil) No. 27986 of 2024, decided vide judgment dated 14.11.2024); (ii)Judgment of Single Judge of the Calcutta High Court in Amex Services & Anr. v....
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.....C. cannot be automatically denied to the recipient solely on the ground of GSTR-2A and 3B mismatch and the department should first proceed against the defaulter supplier and cannot arbitrarily shift the liability to a buyer unless the supplier is a missing dealer. 18.Per contra, Shri Sanjay Sarin, learned Additional Chief Standing Counsel for the Respondent-Department has submitted that the GST returns of the petitioner was never picked for scrutiny, so as to mandatorily follow the provisions of Section 61 of the GST Act or Rule 99 of the GST Rules. According to the learned Counsel, the said provisions are purely meant, in case the department choose to scrutiny the return and notes some discrepancy. He submits that the present impugned Show Cause Notice was issued not in the background that a discrepancy was noted in the GST returns of the petitioner, but on the fact that the petitioner has availed illegal I.T.C. of firms, which were not registered with the department. 19.The learned Additional Chief Standing Counsel has further submitted that the present case is at the stage of Show Cause Notice and as on date no reply has been filed by the petitioner. According to him, the....
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....gned Show Cause Notice dated 09.07.2026 is vitiated for non-compliance with Section 61 of the GST Act read with Rule 99 of the Rules framed thereunder; (ii) Whether the invocation of Section 74A(5)(ii) of the GST Act in the impugned notice is without jurisdiction for want of the necessary ingredients of fraud, wilful misstatement or suppression of facts; (iii) Whether, in the facts of the present case, this Court ought to exercise its extra-ordinary writ jurisdiction under Article 226 of the Constitution of India to interdict the impugned Show Cause Notice at the threshold. 22.As far as the first issue is concerned, this Court finds that Section 61 of the GST Act empowers the proper officer to scrutinize the returns and related particulars furnished by a registered person, so as "to verify the correctness of the return" and, upon noticing any discrepancy, to seek an explanation from the registered person in the manner prescribed under Rule 99 and for which Form GST ASMT-10 has been prescribed under the GST Act. Further, the provisions provide that the assessee is required to file an explanation to the said notice in terms of form ASMT-11 and this scrutiny proce....
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....ugh audit under Section 65; or (c) special audit under Section 66; or (d) inspection, search and seizure under Sections 67 to 72; or, as in the present case, independent verification and cross-examination of the antecedents of the sub-contractors from whom Input Tax Credit is claimed to have arisen. The list of grounds is not exhaustive as there can be several grounds for issuance of Show Cause Notice under Section 74A of the GST Act. Therefore, to say that Section 61 is the only mode and/or route through which Section 74A notice can be issued is a wrong understanding of the GST provisions. Nothing in the scheme of the Act renders the resort to Section 61 a mandatory pre-condition for invoking Section 74A; such a construction would render otiose the independent and free-standing powers conferred upon the proper officer under the latter provision. 25.Thus, according to this Court, Section 61 does not constitute the sole or exclusive gateway through which the Department must necessarily pass, before it can proceed under Section 73 or Section 74A of the Act. 26.The submission of learned Counsel for the petitioner, founded upon the word "shall" occurring in Rule 99(1), proceeds o....
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....wn terms operates "in case any discrepancy is noticed" during scrutiny is not attracted in the first place. This Court finds that an identical issue was raised before a Division Bench of the Andhra Pradesh High Court in Devi Traders Case (supra) wherein, the division Bench of that Court after discussing the various provisions of the GST Act returned a finding that scrutiny under Section 61 is not sine qua non for proceedings under Section 74 and that the proper officer may act on any material that causes tax evasion to "appear" to him. 30.The judgments relied upon by the petitioner, as fairly pointed out by learned Additional Chief Standing Counsel, were all rendered in a factual matrix where scrutiny under Section 61 had admittedly been undertaken by the Department. For instance, as far as the reliance on the Rajasthan High Court judgment, in Goverdhandham Estate (P) Ltd. v. State of Rajasthan and others, reported in (2025) 147 GSTR 239; (decided on 17/01/2024), is concerned, the facts clearly reveal that department undertook scrutiny of the returns and even issued notice in prescribed GST form of ASMT-10 intimating certain discrepancies, thereby drawing proceeding under Sectio....
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.... by the learned Counsel for the petitioner, basing his reliance on the judgment of the learned Single Judge of the Gauhati High Court is not only trying to give a very restrictive meaning to Section 73 of the GST Act but also tries to give Section 61 such a predominance, which it does not deserve for the operation and effect of Section 74A of the GST Act. On a facial reading of Section 73, it is clear that it is not inter-dependent on Section 61 and no doubt scrutiny of case under Section 61 may eventually lead to issuance of Show Cause Notice under Section 73 but to say that Section 73 can be invoked only once Section 61 has been followed and/or complied, would be a misnomer and an absolute absurdity. According to this Court, Section 61 and Section 74A lacks commutative property, as Section 61 may lead to Section 74A but the reverse is not true. It has to be remembered that literal or strict interpretation is essential for fiscal, tax and penal laws and the Court cannot abridge or elongate the meaning of those statutory provisions, particularly, when the language employed therein is plain, unambiguous and simple. The Apex Court has reiterated the strict rule of interpretation in a....
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....oner in accordance with the principles of natural justice'. Therefore, on the fact of that case, the Rajasthan High Court found that although the department has initiated scrutiny under Section 61 of the GST Act, however, actually no notice was ever served on the assessee and it was in this background that the said High Court after recording Section 61 and Rule 99 of the GST Rules, went on to hold the mandatory nature of compliance of the said Section and the Rules framed therein. In contrast, in the present case, it is an admitted fact of the department that they have not initiated any scrutiny under Section 61 of the GST Act, therefore, to the mind of this Court, there was no requirement of issuance of any notice under the said provision, nor any compliance was required under Rule 99 of the GST Rules, as is being agitated by the petitioner. The Rajasthan High Court case is thus like the earlier one, is absolutely distinguishable on facts, as in both the case, there is a clear admission on the part of the revenue authority that they have initiated scrutiny under Section 61 of the GST Act. 34.Similarly, in other cases relied by the petitioner, rendered by a Division Bench of the....
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....ed in 2024 SCC Online Mad 3501; (decided on 16 July 2024), the Madras High Court held that Sections 61 and 73 operate as distinct and independent proceedings and a scrutiny under Section 61 is a pre-adjudication exercise under which no demand can be confirmed or recovered, and is not a condition precedent to proceedings under Chapter XV (Sections 73/74) of the CGST Act. The Court clarified that although an ASMT-10 notice, once scrutiny is undertaken and a discrepancy is found, must itself be issued (failing which the scrutiny exercise is vitiated), scrutiny as such is not a mandatory prerequisite to a Section 73 proceeding, since the Show Cause Notice represents the culmination of an investigation which the proper officer is free to conduct on material gathered from any source, and is not restricted to material unearthed only through Section 61 scrutiny. 37.Having noted the various precedents and on its reconciliation, we are clear in our mind that Section 61 is not, as a matter of law, an invariable jurisdictional precondition to issuance of every Section 74A notice; but where the proper officer in fact possesses only return-based discrepancy material and no independent source ....
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....d supply based on fictitious documents without any actual movement of goods and deliberately utilized the so generated ITC illegally and improperly.' The contention of the learned Counsel for the petitioner that these firms were very much in existence and thus, Show Cause Notice would not have had been issued in the manner as it has been issued, does not help the case of the petitioner. It is one thing to say that the Show Cause Notice does not contain any of the ingredients as mentioned under Section 74A(5)(ii) and an absolutely different thing to say that the allegations mentioned are disputed or erroneous, because the former being an issue of jurisdiction error can always be raised in a writ petition, however, for the later an adjudication of the Show Cause Notice necessarily has to follow as per law. For, whether the allegation is ultimately made out on facts or not, that is to say, whether the sub-contractors were in truth bogus and non-existent, or whether, as the petitioner asserts, they were genuinely registered, functional and had actually executed the works in question; is a matter requiring appreciation of evidence, work orders, measurement sheets, bank statements, GSTR-....
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....le of natural justice; (iii) want of jurisdiction; and (iv) vires challenge, is being attracted as noticed herein above. 44.We note that all objections available to the noticee/ petitioner, including the very grounds urged before this Court, namely, the genuineness of the sub-contractors, actual execution of works, banking-channel payments, reflection of the transactions in GSTR-2A, absence of any adverse finding upon physical verification, the applicability or otherwise of the ratio in Suncraft Energy (supra), as affirmed by the order of the Hon'ble Supreme Court dismissing the Department's Special Leave Petition (C) Nos. 27827-27828 of 2023 vide order dated 14.12.2023, are available to be urged before, and considered by, the adjudicating authority in reply to the Show Cause Notice. The reliance placed by the petitioner upon Suncraft Energy (supra) is, in any event, premature at this stage and, on a closer reading, distinguishable as apparently the said decision proceeds on the footing of a genuine, existing supplier who had charged and collected tax but failed to deposit it, and expressly holds that the Department must, ordinarily, proceed against such a defaulting sup....