2026-VIL-1036-ALH
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SGST High Court Cases

GST – Denial of Input Tax Credit - Show Cause Notice under Section 74A - Applicability of Section 61 scrutiny requirement - Petitioner engaged in works-contract services and sub-contracted works to registered sub-contractors. Department issued Notice alleging sub-contractors were bogus and non-existent and petitioner wrongfully availed Input Tax Credit - Petitioner contended SCN should have been preceded by Section 61 of the CGST Act, 2017 scrutiny and invocation of Section 74A(5)(ii) lacked jurisdictional foundation - Whether Section 61 scrutiny of returns is mandatory prerequisite before issuing Show Cause Notice under Section 74A and whether Section 74A(5)(ii) requires proof of fraud, wilful misstatement or suppression of facts - HELD - Section 61 is not invariable jurisdictional precondition to issuance of every Section 74A notice. Section 61 provides pre-adjudicatory verificatory mechanism for scrutiny of returns already filed. Section 73 and 74A operate independently and are attracted whenever tax has not been paid or is short-paid or Input Tax Credit wrongly availed which Department may determine through several mechanisms including scrutiny under Section 61 or audit or inspection or independent verification - The provisions of Rule 99 or the mandatory word of ‘shall’ occurring in Rule 99(1) comes into play only when Section 61 has already been invoked, which is not the present case herein - Proper officer under Section 74A has unfettered power indicated by words where it appears and is not tethered to any one source of information. Where proper officer possesses only return-based discrepancy material and no independent source Section 61 and Rule 99 may be mandatory procedural safeguard but not invariable condition - Allegation that entire sub-contract chain and invoices were engineered around fictitious entities is allegation of fraudulent claim of ITC squarely capable of attracting Section 74A(5)(ii). Show Cause Notice sufficiently alleges foundational facts under Section 74A(5)(ii) and its correctness is matter for adjudication not amenable to summary writ jurisdiction - All objections available to petitioner are available to be urged before adjudicating authority - Petitioner directed to file reply raising all factual and legal contentions with all rights and contentions kept open - Writ petition dismissed - Whether the impugned notice suffers from a jurisdictional error inasmuch as it invokes Section 74A(5)(ii), which is for invoking Section 74 was raised – HELD - It is one thing to say that the Show Cause Notice does not contain any of the ingredients as mentioned under Section 74A(5)(ii) and an absolutely different thing to say that the allegations mentioned are disputed or erroneous, because the former being an issue of jurisdiction error can always be raised in a writ petition, however, for the later an adjudication of the Show Cause Notice necessarily has to follow as per law - The impugned Show Cause Notice discloses the foundational facts to attract Section 74A(5)(ii), and its correctness is a matter for adjudication and cannot be a cause for pre-emptive foreclosure by the Court.
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