Court upholds settled law on Section 16(2)(c), holds disputed questions about goods receipt, tax payment, natural justice and parallel proceedings must be decided by appellate authority.
The Delhi High Court has declined to interfere in a writ petition filed by M/s Jain Cement Udyog challenging a show cause notice and order-in-original under the GST law that denied input tax credit (ITC) on purchases made from suppliers whose registrations were later cancelled. The Court held that the petitioner’s grievances involved disputed questions of fact and law, which should be examined in a statutory appeal under Section 107 of the Central Goods and Services Tax Act, 2017.
A Division Bench of Justice Anil Kshetarpal and Justice Shail Jain was hearing the petition in which the assessee also challenged the constitutional validity of Section 16(2)(c) of the CGST Act. The petitioner argued that it was a bona fide purchaser and could not be denied ITC merely because the supplier allegedly failed to deposit tax with the government.
Rejecting this contention, the Court noted that the constitutional validity of Section 16(2)(c) is no longer open to debate, as the Supreme Court has already upheld the provision in Bhandari Scrap Traders v. Union of India. The Bench observed that the provision is neither arbitrary nor disproportionate and requires the recipient to establish through cogent material that the tax charged has actually been deposited by the supplier.
The petitioner had also alleged violation of natural justice, claiming that no effective personal hearing was granted and that its reply was not properly considered. However, the Court found from the record that a hearing had in fact been afforded and the reply had been considered, though not accepted. Whether the order suffered from inadequate reasoning or non-application of mind, the Court said, would require scrutiny of the underlying record and was not a matter for first-time determination in writ jurisdiction.
The Court further dealt with the petitioner’s argument that the impugned proceedings were barred by Section 6(2)(b) of the CGST Act because the Directorate General of GST Intelligence had already initiated earlier proceedings relating to the same transactions. The Bench noted that the earlier proceedings related to penalties under Section 122 for fraudulent availment and passing on of ITC through non-existent firms, whereas the present proceedings under Section 73 concerned wrongful availment of ITC from suppliers whose registrations were subsequently cancelled. Whether both proceedings covered the same subject matter, the Court held, was a mixed question of fact and law best left to the appellate forum.
On the factual matrix, the Court observed that the impugned notice was based on the petitioner’s own GST returns, e-way bills and related records. Questions such as whether the petitioner actually received the goods, whether payment was made, and whether tax was truly deposited by suppliers would require examination of transport records, delivery challans and payment trails. Such issues, the Court held, are more suitably decided by the Appellate Authority.
Accordingly, the High Court declined to exercise its writ jurisdiction and relegated the petitioner to the alternative remedy of appeal under Section 107 of the CGST Act. At the same time, it granted liberty to the petitioner to seek exclusion of the period spent in writ proceedings under Section 14 of the Limitation Act, 1963, and directed that such an application be considered in accordance with law.
The Court clarified that its observations were confined only to the maintainability of the writ petition and would not affect the merits of the case, which remain open for independent consideration by the appellate authority.
Bottom Line :
GST - Challenge to show cause notice and order denying Input Tax Credit on ground that suppliers had not deposited tax / registrations stood cancelled - Constitutional validity of Section 16(2)(c) of CGST Act already upheld by Supreme Court - Disputed issues relating to bona fide purchase, receipt of goods, payment trail, natural justice, bar under Section 6(2)(b) and alleged duplication of proceedings involve mixed questions of fact and law - Writ petition not maintainable when efficacious alternative remedy of appeal under Section 107 is available.
Statutory provision(s): Section 16(2)(c), Section 73, Section 107, Section 6(2)(b), Section 122 of the Central Goods and Services Tax Act, 2017, Article 226 of the Constitution of India, 1950, Section 14 of the Limitation Act, 1963
M/s Jain Cement Udyog v. Union of India, (Delhi)(DB) : Law Finder Doc id # 2984474
