Diamond Beverages Private Limited And Anr vs. The Assistant Commissioner Of CGST And Cx, Taratala Division Ii Kolkata South Comm. And Ors

Held

The Court held that the show cause notice dated August 16, 2023, was issued without due application of mind. While the notice appeared to consider the appellants' reply, a closer scrutiny revealed that the authority had merely extracted the reply without dealing with the contentions raised therein. The Court found that the authority had failed to conduct any inquiry or investigation at the supplier's end, despite the appellants' specific requests and the nature of the allegations. This failure meant that the true facts could not emerge. The Court was satisfied that the case fell within exceptional circumstances warranting interference with a show cause notice. Therefore, the appeal and the writ petition were allowed, the show cause notice was set aside, and the matter was remanded back to the adjudicating authority to the stage of the pre-show cause notice dated March 31, 2023. The authority was directed to first investigate from the supplier's end, collect necessary information, afford the appellants an opportunity to make further submissions, and then proceed to decide whether to issue a show cause notice.

Facts

Diamond Beverages Private Limited & Anr. (the appellants) filed an intra-Court appeal against an order of the learned Single Bench that directed them to reply to a show cause notice dated August 16, 2023, issued under Section 73(1) of the CGST Act, 2017. The show cause notice alleged that the appellants had availed/utilised input tax credit (ITC) for FY 2018-19 on supplies whose registration was retrospectively cancelled, and also claimed ITC arising from debit notes by suppliers who had not filed GSTR3B returns for the same period. The appellants had previously submitted detailed replies to earlier notices intimating discrepancies and a pre-show cause notice, requesting investigation at the supplier's end. The authority issued the impugned show cause notice without conducting such an investigation.

Key Issues

1. Whether the show cause notice dated August 16, 2023, issued under Section 73(1) of the CGST Act, 2017, is liable to be set aside for having been issued without due application of mind and without properly considering the appellants' reply to the pre-show cause notice. Petitioner's Arguments: The appellants argued that the show cause notice was issued without due application of mind, as their detailed reply to the pre-show cause notice, which requested investigation at the supplier's end, was not properly considered. They contended that the authority failed to conduct the necessary inquiry or investigation into the suppliers' actions, rendering the show cause notice a fait accompli. They relied on the decision in Suncraft Energy Private Limited & Anr. vs. The Assistant Commissioner, State Tax, Ballygunge Charge & Ors., where a similar show cause notice was set aside. Revenue's Arguments: The respondent pointed out that the show cause notice considered the appellants' reply to the pre-show cause notice and was a detailed notice issued under Section 73(1) of the Act.