M/S Delhi Tools vs. The Commissioner CGST & Anr.

Held

The Court disposed of the writ petition by granting liberty to the Petitioner to file a reply to the Show Cause Notice (SCN) within one week. The Court noted the submission of the Respondent that an SCN dated 22.09.2026 had been issued to the Petitioner, and that the Petitioner could file its reply, after which the Adjudicating Authority would proceed to decide the matter. The Court directed that if the reply is filed within the granted time, it can be considered by the Adjudicating Authority before passing an order. The Court did not decide on the merits of the Petitioner's claims regarding the validity of ITC denial or the invocation of Section 74.

Facts

The Petitioner, M/s Delhi Tools, filed a writ petition before the Delhi High Court challenging an intimation in Form GST DRC-01A dated 02.07.2026, issued by the Respondent under Section 74(5) of the CGST Act, 2017. This intimation proposed the recovery of Input Tax Credit (ITC) amounting to ₹1,37,97,000/- for the financial years 2021–22, 2022–23, and 2023–24. The Petitioner sought to quash this intimation and related proceedings. They also prayed for a declaration that retrospective cancellation of suppliers' GST registrations, by itself, cannot be a ground for denying ITC without independent determination of statutory conditions under Section 16 of the CGST Act, and that invoking Section 74 without specific allegations of fraud or wilful misstatement is illegal. The Respondent stated that a Show Cause Notice (SCN) dated 22.09.2026 was issued, which was not annexed to the petition.

Key Issues

1. Whether the retrospective cancellation of GST registrations of suppliers, by itself, can be a valid ground for denial or recovery of ITC availed by the Petitioner, without an independent determination of the statutory conditions prescribed under Section 16 of the CGST Act, 2017? The Petitioner argued that the retrospective cancellation of suppliers' registrations should not automatically lead to the denial of ITC. They contended that the revenue must independently verify that the statutory conditions for availing ITC, as laid down in Section 16 of the CGST Act, were not met by the Petitioner. 2. Whether the invocation of Section 74 of the CGST Act, 2017, in the absence of specific allegations and supporting material establishing fraud, wilful misstatement, or suppression of facts with intent to evade tax, is illegal and unsustainable in law? The Petitioner argued that Section 74, which deals with cases of fraud or wilful misstatement, requires specific allegations and supporting evidence, and its invocation without such grounds is improper.