M/S Jyoti Tar Products Private Limited And Anr vs. The Deputy Commissioner, State Tax, Shibpur Charges, Wbgst And Ors

As regards the adjudication order passed during pendency of the writ petition which has been impugned by way of a separate application filed in connection of the instant writ petition as aforesaid, it was submitted by Mr. Kanodia that the same was also passed without affording any opportunity of personal hearing to the writ petitioner. Mr. Chakraborty, learned Advocate appearing for the respondents could not offer much resistance to such argument.

Law as regards interference with show cause is well settled. A mere notice to show cause does not give rise to any cause of action since it does not constitute an adverse order affecting the rights of the party and that being so a writ court is loath to interfere with a show cause notice unless an exceptional case of total lack of juri iction to issue such a notice or patent illegality in the such notice is made out (See- Union of India & Another vs. Kunisetty Satyanarayana26; Union of India & Another vs. Vicco

Indeed if the show cause notice has been issued with a closed or predetermined mind-set that would fall within the category of patent illegality and would incur the wrath of a writ court.

The scope of enquiry in the present proceedings would therefore have to be limited to see as to whether the show cause notice impugned suffers from any of the aforesaid two incurable defects absent which this Court would refrain from interfering with the said notice.

Section 74 of the said Act of 2017 vests power with the relevant proper officer to issue notice to show cause if circumstances justifying issuance thereof exist. The first limb of the said Section is relevant for the present purpose. The 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.”

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.

A challenge to a notice to show cause in cases like the one at hand would be required to be examined in the light of the ingredients of the aforequoted provision, keeping in mind that while assessing the worth and validity of such notice the writ Court would only be required to see whether the primary ingredients for issuance of the notice to show cause i.e. the juri ictional facts prima facie exist or not and whether the notice issuing authority has juri iction to issue such notice or not. At that stage the writ Court would not undertake an enquiry into the truth of the charges or allegations levelled. Adopting a divergent course, in the considered opinion of this Court, would force a full-fledged adjudication before the quasi- judicial decision making exercise is even undertaken by the relevant authority. In such regard the observations of the Hon’ble Supreme Court in the case of Krishna Wax Private Limited (supra) cited by Mr. Chakraborty may be noticed:- “13. It must be noted that while issuing a show-cause notice under Section 11-A of the Act, what is entertained by the Department is only a prima facie view, on the basis of which the show-cause notice is issued. The determination comes only after a response or representation is preferred by the person to whom the show-cause notice is addressed. As a part of his response, the person concerned may present his view point on all possible issues and only thereafter the determination or decision is arrived at. In the present case even before the response could be made by the respondent and the determination could be arrived at, the matter was carried in appeal against the said internal order. The appellant was therefore, justified in submitting that the appeal itself was premature.” [Emphasis supplied]

In the instant case, the show cause notice has alleged that the petitioner has claimed to have received inward supply of goods from certain persons whose GST registrations got cancelled under Section 29(2)(e) of the said Act

After having levelled the aforesaid charges in great details, the petitioner has been called upon by the relevant authority to show cause why it should not be held liable to pay tax, interest and penalty as indicated in the said notice to show cause. The show cause notice thus has clearly made out a prima facie case that the petitioner is required to answer.

The petitioner has strongly relied on Section 16(2) of the said Act of 2017 to assert that fulfilment of all the conditions stipulated therein would entitle it to ITC. Such reliance is well founded. However, the petitioner has presumably 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.

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 Act”. The authority has proceeded to do so in the case at hand. If any reply furnished to pre-show cause notice is to be considered, the relevant authority will obviously apply its mind to it and then either return a prima facie finding that the case warrants issuance of a show cause notice or drop the proceeding. Application of mind would be evinced by the reasons supplied in support of the ultimate conclusion reached. In the instant case that is exactly what has been done. The GST authority cannot be subjected to a double whammy or be placed in legal double-bind by the petitioner who initially faulted the authority for not considering the petitioner’s reply to the show cause notice and who has subsequently turned around to assert that the show cause notice is pre- meditated since it details the reasons for not agreeing with the petitioner’s reply to the pre-show cause. To accept such an argument would lead to a classic text-book case of “heads I win tails you lose” effectively penalising the GST authority for its own transparency and diligence.

A meaningful reading of the show cause notice does not lead to the inference that the same has been issued with a premeditated mind. Mr. Kanodia’s specific reference to the observations at page 7 of the notice to show cause

The expression “reasons to believe” is not unknown to tax jurisprudence. Its usage in the notice to show cause only indicates presence of reasons sufficient enough to issue notice calling upon the registered tax payer to pay the taxes which the GST authority believes to be payable by the tax payer. Similarly, the expression “notice is to be issued requiring you to pay tax …” cannot also be read as a definite conclusion reached by the GST authority. The text of the notice must be read in the full context of the factual setting. It cannot 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.

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

It will be for the petitioner to convince the GST authority that the documents submitted or to be submitted by it sufficiently establish the petitioner’s eligibility to ITC. In such context, the observations of the Hon’ble Supreme Private Limited29 deserve notice:- “15. Thus, the provisions of Section 70, quoted hereinabove, in its plain terms clearly stipulate that the burden of proving that ITC claim is correct lies upon the purchasing dealer claiming such ITC. Burden of proof that ITC claim is correct is squarely upon the assessee who has to discharge the said burden. Merely because the dealer claiming such ITC claims that he is a bona fide purchaser is not enough and sufficient. The burden of proving the correctness of ITC remains upon the dealer claiming such ITC. Such a burden of proof cannot get shifted on the Revenue. Mere production of the invoices or the payment made by cheques is not enough and cannot be said to be discharging the burden of proof cast under Section 70 of the KVAT Act, 2003. The dealer claiming ITC has to prove beyond doubt the actual transaction which can be proved by furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgment of taking delivery of goods, tax invoices and payment particulars, etc. The aforesaid information would be in addition to tax invoices, particulars of payment, etc.

In fact, if a dealer claims input tax credit on purchases, such dealer/purchaser shall have to prove and establish the actual physical movement of goods, genuineness

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.

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 & Another30 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 must place his case before the authority concerned by showing cause and the courts should be reluctant to interfere with the notice at that stage unless the notice is shown to have been issued palpably without any authority of law. ‘Th The purpose of issuing show cause notice is to afford opportunity of hearing to the government servant and once cause is shown it is 30 (1987) 2 SCC 179

Similarly, in the case of Special Director and Another vs. Mohd. Ghulam Ghouse and Another31 the Hon’ble Supreme Court once again sounded a note of caution to the High Courts in entertaining writ petitions against show-cause notices in the following manner:- “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 juri iction 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 juri ictional 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 granted.” [Emphasis supplied]

In the case at hand the bonafides 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.

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 bonafide 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 bonafides 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.

In the case of Singhal Iron Traders (supra) to there was no case of collusion made out and the revenue had proceeded only on the basis of the cancellation of the registration of the suppliers. The case at hand is not so.

Taparia Overseas (P) Limited (supra) has no manner of application to the present case. The said case is an authority for the proposition that the effect of fraud is not to render the transaction void ab initio but renders it voidable at the instance of the party defrauded and transaction continues valid until the party defrauded has decided to avoid it and that fraud intended by one man shall overturn a fair and bona fide contract or transaction with others.

Shanti Kiran India (P) Limited (supra) would also not aid the petitioner because that was a case where the Hon’ble Supreme Court had observed that “neither the transactions nor the invoices have been doubted”. In the case at hand the genuineness of the transactions has indeed been doubted.

Suresh Trading Company (supra) is also of no avail to the petitioner since in the said case too it was admitted by the learned Advocate General appearing for the department that the genuineness of the transactions between the registered dealer and the respondents was not in doubt and not disputed. Such is not the case here.

Roshan Sharma (supra) is an interim order where the Hon’ble Supreme Court has issued notice upon recording the submissions made on behalf of the petitioner therein. The same does not help the petitioner at all.

M/s. Shraddha Overseas Private Limited (supra), LGW Industries Limited (supra) and would also not support the petitioners’ case as the same was not one where genuineness of the transactions between the petitioner and its sellers had been questioned by the revenue by seeking to demonstrate collusion.

Cosmic Dye Chemical (supra), Continental Foundation Jt. Venture (supra), Padmini Products (supra), Chemphar Drugs & Liniments (supra), Gopal Zarda Udyog (supra), Lubri -Chem Industreis Ltd. (supra) are all cases that had walked up to the Hon’ble Supreme Court upon full- fledged adjudication process including statutory appeal before the appellate authority. None of these cases (which held that burden of proof lies on the revenue in the context of the Central Excise Act, 1944) was decided at the stage of show cause notice. In such view of the 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.

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.

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.

For all the reasons aforesaid, the challenge to the show cause notice cannot be sustained. The impugned show cause notice is not interfered with.

Insofar as the adjudication order dated November 04, 2025 is concerned, it is evident from the said adjudication order that the same has been passed without affording any opportunity of personal hearing to the petitioner despite the same visiting the petitioner with adverse consequences.

Such order is in clear violation of the provisions of Section 75(4) of the said Act of 2017 as also the principles of natural justice. In such view of the matter the same cannot be sustained. The order impugned dated November 04, 2025 therefore, stands set aside.

The petitioner shall now have clear thirty days from date to reply to the notice to show cause. The proper officer shall consider such reply and pass appropriate order upon affording an opportunity of hearing to the petitioner

WPA 15138 of 2025 as well as CAN 1 of 2025 stand disposed of with the above observations. No costs.

Urgent photostat certified copy of this judgment, if applied for, be supplied to the parties upon compliance of all formalities.