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

Held

The Court dismissed the writ petition, holding that a Show Cause Notice (SCN) issued under Section 74 of the CGST and WBGST Acts is 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. The Court relied on the Supreme Court's decision in Special Director and Another vs. Mohd. Ghulam Ghouse, emphasizing that writ petitions should not be entertained against SCNs merely as a routine, and petitioners should be directed to respond to the SCN. The Court found that the Petitioners failed to demonstrate that the SCN lacked jurisdiction or was perverse. Procedural grievances, such as the alleged non-consideration of the reply to Form GST-DRC-01A, could be effectively addressed during the adjudication process under Section 74(9), which provides sufficient opportunity for taxpayers to raise defenses. The Court also noted that the CBIC Press Release dated May 04, 2018, did not absolve buyers of their responsibilities under Section 16 to ensure compliance for availing ITC, and the retrospective cancellation of supplier registrations did not invalidate transactions or absolve the petitioners of verifying their ITC claims. Therefore, the Court found no merit in the allegations of jurisdictional error or procedural impropriety and dismissed the petition.

Facts

The Petitioners, M/s Jyoti Tar Products Private Limited & Anr., filed a writ petition challenging a Show Cause cum Demand Notice (SCN) dated August 08, 2024, issued by the Deputy Commissioner, State Tax, Shibpur, WBGST. The SCN, issued under Section 74 of the CGST and WBGST Acts for the financial year 2023-2024, demanded ₹36,04,552/- (₹18,02,276/- CGST and ₹18,02,276/- WBGST) plus interest and penalties. The demand was based on allegations of wrongful availment of Input Tax Credit (ITC) on supplies from suppliers allegedly unregistered, non-existent, or not conducting business at their registered addresses. The Petitioners argued that they had fulfilled all conditions under Section 16 of the CGST/WBGST Act for availing ITC, had received goods, possessed valid invoices, and the suppliers had filed returns. They also contended that the retrospective cancellation of supplier registrations was without their knowledge and that the respondent failed to take action against defaulting suppliers first, as per CBIC Press Release dated 04.05.2018. The Petitioners had previously submitted a reply to a pre-show cause notice (Form GST DRC-01A) which they claimed was not considered.

Key Issues

1. Whether the writ petition is maintainable against a Show Cause Notice (SCN) issued under Section 74 of the CGST/WBGST Act, or if the Petitioners must exhaust the statutory adjudication process? 2. Whether the SCN is wholly without jurisdiction or ex-facie perverse, warranting judicial interference at this stage? 3. Whether the Petitioners fulfilled the conditions for availing Input Tax Credit (ITC) under Section 16 of the CGST/WBGST Act, considering the alleged status of their suppliers and the retrospective cancellation of supplier registrations? Petitioner's Arguments: The Petitioners argued that the SCN disregarded Section 16 of the CGST Act and the CBIC Press Release dated 04.05.2018, which mandates recovery from defaulting suppliers first. They contended that they acted in good faith, fulfilled all ITC conditions, and had no knowledge of supplier registration cancellations. They also argued that their reply to the pre-show cause notice was not considered, violating natural justice, and cited precedents like Diamond Beverages Private Limited and Suncraft Energy Private Limited. They claimed the SCN was vague and unsustainable. Respondents' Arguments: The Respondents argued that a writ petition is generally not maintainable against an SCN unless it is wholly without jurisdiction or ex-facie perverse, relying on Special Director and Another vs. Mohd. Ghulam Ghouse. They contended that the Petitioners failed to demonstrate such grounds. They asserted that the SCN was not a mere replica of the pre-show cause notice and that the Petitioners' interpretation of Section 74(1) read with Section 74(5) was legally untenable. They further argued that procedural grievances, including non-consideration of the reply to Form GST DRC-01A, could be raised during adjudication under Section 74(9), where an adequate opportunity of hearing is provided. They also stated that the CBIC Press Release did not absolve buyers of their responsibilities under Section 16.