2025 (7) TMI 1190 - HC - GST

Principles of natural justice - service/issuance of SCN - denial of availment and/or utilization of Input Tax Credit (ITC) by the petitioner in respect of the purchases made by the petitioner from suppliers whose registration under the said Act has been subsequently cancelled - HELD THAT - The petitioner has challenged two separate set of proceedings in one particular writ petition. Although ordinarily the same is not permissible however having regard to the fact that the parties have already argued this matter and since the petitioner has undertaken to put in additional court fees unless sufficient court fees are already paid it is proceeded to hear out this matter. It is however noticed from the submissions made by the learned counsel representing the petitioner and the materials available on record that the petitioner s primary challenge is directed against the reversal of the ITC on the ground of irregular availment of ITC since according to the petitioner such reversal has been effected contrary to the provisions contained in Section 16 of the said Act. To appropriately consider the challenge made by the petitioner it is necessary to consider the provisions of Section 16 of the said Act. The provisions of Section 74 of the said Act inter alia provides and/or authorizes the proper officer to determine in cases where any tax has not been paid or short paid or erroneously refunded or where ITC has been wrongly availed or utilized by reason of fraud or any wilful misstatement or suppression of facts to evade tax to initiate the proceeding under the said Section by issuing a notice under Section 74 of he said Act. Admittedly provisions of the said Act empower the proper officer to scrutinize and/or determine as to whether the ITC has been wrongly availed and/or utilized by reason of fraud and wilful misrepresentation. Both Section 16 as also Section 74 of the said Act provide for different consequences and stands on two different and distinguished separate footings. Unfortunately the petitioner has attempted to confuse the scope of Section 16 with that of Section 74 of the said Act. Admittedly the provisions of the said Act provide for multi-tiered adjudicatory process. Not only the said Act provides for an appeal before the appellate authority under Section 107 of the said Act but the same also provides for a further statutory appeal before the Appellate Tribunal. The statute has an in-built mechanism which provides for and seeks to maintain a balance between right of the RTP to be entitled to maintain an appeal and the right of the revenue to be entitled to the percentage of the disputed tax in relation to a determination already made pending final outcome in the appellate proceedings - The appellate authority is competent to enter into factual aspects and test out the petitioner s case. Having regard to the disputed question of facts involved it would be prudent not to entertain the writ petition and leave it for the petitioner to avail the statutory remedy. The writ petition is accordingly dismissed without any order as to costs leaving it open to the petitioner to approach the appellate authority if so advised.

Summary

ISSUES:

Whether the issuance of show cause notices under Section 74 of the WBGST/CGST Act, 2017 to deny Input Tax Credit (ITC) on purchases from suppliers whose registration was subsequently cancelled is lawful.Whether the show cause notices issued without identifying any infraction under Section 16 of the Act are without jurisdiction.Whether the writ petition challenging such show cause notices is maintainable despite the existence of an alternative statutory remedy in the form of appeals under the Act.Whether Section 16 and Section 74 of the Act operate on distinct legal grounds and how they interact in the context of ITC denial and recovery proceedings.Whether a taxing statute must be strictly construed in the context of denial of ITC.

RULINGS / HOLDINGS:

The issuance of show cause notices under Section 74 of the Act to determine liability for wrongly availed or utilized ITC by reason of fraud, wilful misstatement, or suppression of facts is within the authority and jurisdiction of the proper officer.Show cause notices that do not identify any infraction under Section 16 are not necessarily without jurisdiction, as Section 74 proceedings are distinct and may be initiated on grounds of fraud or wilful misrepresentation.The writ petition challenging the show cause notices is not maintainable in the presence of an efficacious alternative remedy under the Act, including appeals before the appellate authority and tribunal.Section 16 is an enabling provision that sets eligibility and conditions for availing ITC, while Section 74 empowers the proper officer to initiate enquiry and adjudication where ITC has been wrongly availed or utilized; these provisions stand on separate and distinguished footings.Although taxing statutes are to be strictly construed, this principle does not preclude enquiry and determination under Section 74 where fraud or wilful misstatement is alleged.

RATIONALE:

The Court applied the statutory framework of the WBGST/CGST Act, 2017, focusing on Sections 16, 73, 74, 107, and related provisions governing ITC eligibility, recovery, and appellate remedies.The Court distinguished the scope of Section 16 (eligibility and conditions for ITC) from Section 74 (enquiry and determination of liability for wrongful ITC availing), emphasizing that these provisions serve different purposes and operate independently.The Court recognized the multi-tiered adjudicatory process under the Act, which includes appeals and pre-deposit requirements, and held that the existence of such statutory remedies militates against entertaining writ petitions under Article 226 in this context.The Court rejected reliance on precedents emphasizing strict construction of taxing statutes where the issue involved allegations of fraud or wilful misstatement, noting that such enquiry falls squarely within the authority of the proper officer under Section 74.The Court noted prior judicial directions for expeditious adjudication of the show cause notices and observed that the petitioner had accepted and responded to the notices initially, indicating an attempt to circumvent the statutory remedy later.No dissent or doctrinal shift was indicated; the Court adhered to established principles governing tax adjudication and writ jurisdiction.