2024 (12) TMI 831 - HC - GST

Challenge to Show Cause cum Demand Notice - wrongful availment of Input Tax Credit (ITC) by the Petitioners on inward supplies from suppliers allegedly found to be either unregistered, non-existent or not conducting business at their registered places - violation of principles of natural justice. HELD THAT - After providing sufficient opportunity to the petitioners to respond to the draft audit report on 21st March 2017, the respondent issued the final report on 22nd December 2017. The report addressed the petitioners rebuttals point by point, conclusively denying their claims. The allegation of violation of natural justice is therefore, baseless and untenable. Upon a thorough examination of the documents presented to the Court and taking into account the arguments put forth by the parties, this Court dismisses the writ petition on the grounds that a Show Cause Notice (SCN) issued under Section 74 of the CGST Act and WBGST Act is merely the initiation of an adjudicatory process and does not warrant judicial interference unless it is shown to be issued wholly without jurisdiction or is ex-facie perverse. This Court relied on the principles established in SPECIAL DIRECTOR VERSUS MOHD. GHULAM GHOUSE 2004 (1) TMI 378 - SUPREME COURT emphasizing that writ jurisdiction can be invoked only when the SCN is issued wholly without jurisdiction wherein it has been held by the Hon ble Supreme Court that ' Whether the show-cause notice was founded on any legal premises, is a jurisdictional issue which can even be urged by the recipient of the notice and such issues also can be adjudicated by the authority issuing the very notice initially, before the aggrieved could approach the court. Further, when the court passes an interim order, it should be careful to see that the statutory functionaries specially and specifically constituted for the purpose are not denuded of powers and authority to initially decide the matter and ensure that ultimate relief which may or may not be finally granted in the writ petition is not accorded to the writ petitioner even at the threshold by the interim protection not granted.' Therefore, this Court helds that the Petitioners failed to demonstrate that the SCN lacked jurisdiction or was perverse in its issuance. It reiterated that procedural grievances, including alleged non-consideration of the reply to FORM GST-DRC-01A, could be effectively addressed during the adjudication process as per Section 74 (9). This Court emphasizes that the statutory framework under the GST Acts provides sufficient opportunity for taxpayers to raise their defences during the adjudication process and bypassing this statutory mechanism through writ jurisdiction is impermissible. This Court finds no merit in the allegations of jurisdictional error or procedural impropriety in the issuance of the show cause notice and dismissed the writ petition, reinforcing the need for taxpayers to adhere to the statutory adjudication process rather than seeking premature judicial intervention - Application disposed off.

Summary

Issues:
Challenge to Show Cause cum Demand Notice under CGST and WBGST Acts for wrongful availment of Input Tax Credit (ITC) based on alleged transactions with unregistered or non-existent suppliers.

Analysis:
The petitioners approached the High Court seeking the quashing of the Show Cause cum Demand Notice (SCN) issued under Section 74 of the CGST Act and the WBGST Act for the financial year 2023-2024. The notice demanded payment of Rs. 36,04,552/- as CGST and WBGST along with penalties, alleging wrongful availment of ITC from suppliers found to be unregistered, non-existent, or not conducting business at their registered places.

The petitioners contended that they met all criteria under Section 16 of the CGST/WBGST Act for availing ITC in good faith, including possessing valid tax invoices, receiving goods, and paying taxes to suppliers. They argued that the retrospective cancellation of suppliers' GST registrations did not invalidate transactions, and they had no prior knowledge of such cancellations.

Moreover, the petitioners emphasized that they had submitted a detailed reply refuting the allegations in the pre-show cause notice but respondent no. 1 did not take recovery action against defaulting suppliers as required by law. They argued that recovery of unpaid tax should primarily be made from defaulting suppliers as per CBIC guidelines.

The petitioners also cited judicial precedents emphasizing that recovery actions must be initiated against defaulting suppliers before seeking ITC reversal from buyers. They argued that the SCN was vague and failed to provide a clear rationale, rendering it unsustainable in law. The petitioners prayed for quashing the SCN and compliance with the legal framework for ITC disputes.

However, the Court dismissed the writ petition, stating that an SCN under Section 74 of the CGST and WBGST Acts initiates an adjudicatory process and does not warrant judicial interference unless issued wholly without jurisdiction or ex-facie perverse. The Court held that the petitioners failed to demonstrate lack of jurisdiction or perversity in the SCN issuance.

The Court emphasized that procedural grievances could be addressed during adjudication under Section 74 (9) and that statutory mechanisms provided sufficient opportunities for taxpayers to raise defenses. It noted that reliance on CBIC guidelines did not absolve buyers of their responsibilities under the Acts and reinforced the need for adherence to the statutory adjudication process rather than premature judicial intervention.