M/s Jyoti Tar Products Private Limited & Anr. vs The Deputy Commissioner, State Tax, Shibpur Charge, WBGST & Ors.

Reserved on : 02.12.2024 Pronounced on: 13.12.2024

M/s Jyoti Tar Products Private Limited & Anr. ...Petitioners

-Vs-

The Deputy Commissioner, State Tax, Shibpur, WBGST & Ors.

...Respondents

Present:-

Mr. Ankit Kanodia Mr. Megha Agarwal Mr. Piyush Khaitan ... ... for the petitioner Mr. A. Roy Mr. Md. T.M. Siddiqui Mr. Nilotpal Chatterjee Mr. T. Chakraborty Mr. S. Sanyal ... ... for the State

Rajarshi Bharadwaj, J:

1. The Petitioners in the present writ petition have approached this Hon'ble

Court under Article 226 of the Constitution of India, 1950, seeking the

quashing and setting aside of the Show Cause cum Demand Notice bearing

reference No. ZD190824018001Q dated August 08, 2024 (hereinafter referred

to as the "Impugned SCN"). The notice was issued under Section 74 of the

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Central Goods and Services Tax Act, 2017 (hereinafter referred to as "CGST

Act") and the West Bengal Goods and Services Tax Act, 2017 (hereinafter

referred to as "WBGST Act") for the financial year 2023-2024 by the Learned

Deputy Commissioner, State Tax, Shibpur Charge, Howrah Commissionerate

herein respondent no.1.

2. The Impugned SCN demands payment of ₹36,04,552/-, comprising

₹18,02,276/- as CGST and an equivalent amount as WBGST, along with

applicable interest and penalties. The notice alleges 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.

3. The Impugned SCN blatantly disregards Section 16 of the CGST Act,

2017, which lays down the criteria for availing ITC. Further, it ignores the

Central Board of Indirect Taxes and Customs (CBIC) Press Release dated

04.05.2018, which clarifies that ITC reversal from buyers is not automatic and

recovery of unpaid tax should be made from defaulting suppliers unless

exceptional circumstances exist (e.g., missing dealer or closure of business).

4. The Petitioners assert that all necessary criteria under Section 16 of the

CGST/WBGST Act for availing ITC were met, including holding valid tax

invoices and receiving goods from the suppliers. The alleged suppliers had also

filed requisite returns, and their registrations were later cancelled

retrospectively without the Petitioners having prior knowledge of such

cancellations.

5. The Petitioners highlight that they had submitted a detailed reply to the

pre-show cause notice issued in Form GST DRC-01A, refuting the allegations.

However, Respondent No. 1 did not take any recovery action against the

defaulting suppliers, which is a statutory prerequisite for demanding disputed

ITC from the recipient and also failed to consider the submissions and issued

the Impugned SCN without applying its mind, making the entire adjudication

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process a mere formality thereby leading to the preference of the present

petition.

6. The Learned Counsel appearing on behalf of the petitioner submits that

Section 16 of the CGST/WBGST Act provides specific conditions for availing

ITC, including possession of valid tax invoices, receipt of goods, and payment

of taxes to the suppliers. The Petitioners contend that they have fulfilled all

these conditions in good faith and availed ITC based on self-assessment of

their books of accounts.

7. The Petitioners emphasize that they, as buyers, have no mechanism to

verify whether the suppliers have deposited the collected taxes with the

government. Once the payment, including tax, is made to the suppliers, the

Petitioners' obligations are deemed fulfilled under the law.

8. The Petitioners argue that the retrospective cancellation of GST

registrations of the suppliers does not render the transactions invalid. The

suppliers had filed all relevant returns for the period in question, and the

Petitioners had no prior knowledge of the eventual cancellations.

9. The Petitioners assert that they had filed a comprehensive reply to the

pre-show cause notice, substantiating their claims with judicial precedents

and legal provisions. However, Respondent No. 1 issued the Impugned SCN

without addressing their submissions, violating the principles of natural

justice.

10. The Petitioners rely on the CBIC Press Release dated 04.05.2018, which

explicitly states that recovery of unpaid tax should primarily be made from

defaulting suppliers. Reversal of ITC from buyers is permissible only in

exceptional circumstances, none of which exist in the present case.

11. The Petitioners cite several judicial precedents, including the judgments

in Diamond Beverages Private Limited v. Assistant Commissioner (MAT

1948 of 2023 of Hon'ble Calcutta Hight Court) and Suncraft Energy

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Private Limited v. Assistant Commissioner reported in 2023 SCC OnLine

Cal 2226, where the Hon'ble Courts held that recovery actions must first be

initiated against defaulting suppliers before seeking ITC reversal from buyers.

The Petitioners argue that Respondent No. 1 acted arbitrarily and in violation

of these principles.

12. The Petitioners state that the Impugned SCN is vague and fails to

provide a clear rationale for disregarding their submissions. Such an approach

renders the SCN unsustainable in law.

13. In light of the above, the Petitioners pray for the quashing of the

Impugned SCN, as it is arbitrary, unreasonable, and in violation of statutory

provisions and judicial pronouncements. They also request this Hon'ble Court

to direct the Respondents to comply with the established legal framework for

ITC disputes, including taking appropriate action against the defaulting

suppliers.

14. Submissions of the Learned Counsel appearing for the respondent

authorities is that it is a well-settled law that a writ petition is ordinarily not

maintainable against a Show Cause Notice unless it is wholly without

jurisdiction or ex-facie perverse. The petitioners have failed to demonstrate

that the issuing authority acted beyond jurisdiction or that the Show Cause

Notice is without jurisdiction or perverse. Reliance is placed on by the

respondent authority in Special Director and Another vs. Mohd. Ghulam

Ghouse and Another reported in (2004) 3 SCC 440.

15. The petitioners allege that the impugned Show Cause Notice is an exact

replica of the notice issued in FORM GST-DRC-01A dated 10th July 2024 i.e.,

the intimation before Show Cause Notice. They further contend that their reply

to FORM GST-DRC-01A was not considered by the proper officer, who

proceeded to issue the Show Cause Notice, stating that the reply was

unsatisfactory. It is submitted by the respondent authority that such

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contentions are baseless. The petitioners cannot rely solely on the first two

lines of the Show Cause Notice but must consider the notice in its entirety,

which reflects that the petitioners wrongfully availed Input Tax Credit (ITC)

based on the purported supplies from non-existent registered tax persons

(RTP).

16. The petitioners' argument that the Show Cause Notice must adjudicate

upon the reply to FORM GST-DRC-01A is misplaced and contrary to the

provisions of Section 74(1) read with Section 74(5) of the GST Act. Under these

provisions, an intimation under FORM GST-DRC-01A is merely to inform the

taxpayer of the amount payable. If the taxpayer fails to pay such amount, the

proper officer is obligated to issue a Show Cause Notice under Section 74(1).

The petitioners' interpretation of these provisions is legally untenable.

17. It has been further submitted that by the respondent authority that

even if it is considered that the reply to FORM GST-DRC-01A was not taken

into account properly, the petitioner still cannot maintain this writ petition. All

grounds can be raised before the proper officer during adjudication under

Section 74(9), where an adequate opportunity of hearing is provided.

Therefore, the judgments cited by the petitioner's counsel are inapplicable to

the present case and should be disregarded.

18. 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.

19. 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

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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

and Another (supra) 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:

"5. This Court in a large number of cases has deprecated the practice of the High Courts entertaining writ petitions questioning legality of the show-cause notices stalling enquiries as proposed and retarding investigative process to find actual facts with the participation and in the presence of the parties. Unless the High Court is satisfied that the show-cause notice was totally non est in the eye of the law for absolute want of jurisdiction of the authority to even investigate into facts, writ petitions should not be entertained for the mere asking and as a matter of routine, and the writ petitioner should invariably be directed to respond to the show-cause notice and take all stands highlighted in the writ petition. 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."

20. 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.

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21. Further, this Court noted that the Petitioners' reliance on the CBIC

Press Release dated May 04, 2018 does not absolve buyers of their

responsibilities under Section 16 of the CGST/WBGST Act to ensure

compliance with statutory conditions for availing Input Tax Credit (ITC). The

retrospective cancellation of the suppliers' GST registrations did not invalidate

the transactions, nor did it absolve the petitioners of the need to verify the

authenticity of their claims for ITC.

22. For the foregoing reasons, 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.

25. All pending applications are accordingly disposed of.

26. There shall be no order as to costs.

27. Urgent Photostat certified copies of this judgment, if applied for, be

supplied to the parties upon fulfilment of requisite formalities.

(RAJARSHI BHARADWAJ, J)

Kolkata 13.12.2024 PA (BS)