Case Law Details
ISC Processors Private Limited Vs Superintendent (Calcutta High Court)
The Calcutta High Court disposed of a writ petition challenging a show cause notice dated 10.03.2026 issued under the Central Goods and Services Tax Act, 2017. The principal issue before the Court was whether the show cause notice should be quashed at the threshold on the ground that the proposed demand was based solely on the allegation that the supplier was non-existent, without appreciating the scope of the statutory provisions or conducting a proper enquiry.
The petitioner challenged the legality, validity, and sustainability of the show cause notice. It contended that the only basis for raising the demand was the allegation that the supplier from whom inward supplies were received was non-existent. The petitioner argued that the CGST authority had issued the notice without properly appreciating the scope of Section 74A(5)(ii) of the CGST Act and that the notice suffered from an inherent lack of jurisdiction. It was further submitted that the petitioner was a bona fide purchaser who had made payment to the supplier through banking channels along with the applicable GST. According to the petitioner, input tax credit (ITC) could not be denied solely because of the supplier’s default or alleged non-existence unless proceedings had first been taken against the supplier and fraud, collusion, or wilful misstatement on the part of the petitioner had been established. The petitioner therefore urged that the notice was ex facie without jurisdiction and constituted an abuse of the process of law warranting interference under Article 226 of the Constitution despite the availability of an alternative remedy.
The respondents opposed the writ petition and raised a preliminary objection regarding its maintainability. They submitted that the challenge was premature because only a show cause notice had been issued and no final adverse order had yet been passed. It was argued that the petitioner had an effective statutory remedy of filing a reply to the notice and participating in adjudication proceedings under Section 75 of the CGST Act. The respondents further submitted that the show cause notice had been issued on the basis of intelligence and investigation indicating that the petitioner had transacted with a non-existent entity that was allegedly engaged only in issuing invoices without any actual supply of goods. They contended that under Section 16(2)(c) of the CGST Act, ITC is available only if the tax charged has actually been paid to the Government and, since the supplier was non-existent, no tax had been deposited, disentitling the petitioner from claiming ITC.
After considering the submissions and the materials on record, the High Court observed that a writ petition challenging only a show cause notice is ordinarily not maintainable. The Court held that jurisdiction under Article 226 can be exercised only in exceptional circumstances, such as where the notice is issued without jurisdiction, violates the principles of natural justice, or amounts to an abuse of the process of law.
The Court noted that adjudication proceedings had not yet commenced and that the petitioner had merely been called upon to explain why the proposed demand should not be confirmed. It observed that the petitioner had an adequate opportunity to file a reply and place all contentions and supporting documents before the adjudicating authority.
The High Court clarified that it had not expressed any opinion on the merits of the rival contentions and that all issues remained open to be decided by the adjudicating authority. The writ petition was accordingly disposed of without examining the merits of the case.
FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT
1. Affidavit of Service filed in court today is taken on record.
2. The issue involved in the instant Writ petition is whether a Show Cause Notice dated 10.03.2026 issued under the Central Goods Services Tax Act 2017 is liable to be quashed at the threshold on the ground that the demand has been raised solely on the basis of the alleged non-existence of the supplier without appreciating the scope of the statutory provision and without conducting proper enquiry.
3. The petitioner in the instant case challenges, inter alia, the legality, validity and sustainability of issuance of the show cause notice dated 10.03.2026.
4. It is submitted by the petitioner that the sole ground for imposing demand upon the petitioner is that the concerned supplier from whom the petitioner had availed inward supplies and consequently input tax credit based on such inward supplies, is non existent. It is further submitted that the respondent CGST authority has issued the show cause notice without appreciating the scope of inspection 74A (5) (ii) the CGST Act, 2017. The impugned notice suffers from inherent lack of jurisdiction.
5. It is contended that the petitioner is a bonafide purchaser who has discharged its liability by making payment to the supplier through banking channels along with the applicable GST.
6. It is argued the input tax credit cannot be denied to the recipient solely on the ground of default or non-existence of the supplier without first proceeding against the supplier and without establishing any fraud, collision, or wilful misstatement on the part of the petitioner.
7. The petitioner submits that the show cause notice is ex facie without jurisdiction and amounts to an abuse of process of law, thereby warranting interference by this court under Article 226 of the Constitution of India, notwithstanding the existence of an alternative remedy.
8. The respondent vehemently opposes the Writ Petition and raises a preliminary objection as to its maintainability.
9. It is submitted that the challenge is premature in nature as only a show cause notice has been issued. The issue involved herein has not attained its finality and no adverse order has yet been passed against the petitioner.
10. The learned counsel for the respondents further submits that the petitioner has an efficacious alternative statutory remedy to file a reply to the show cause notice and participate in adjudication proceedings under Section 75 of the CGST Act, 2017.
11. The show cause notice has been issued based on intelligence and investigation which revealed that the petitioner has transacted with a non-existent entity which had no business existence at all and was only involved in issuing invoices without any actual supplying of underlying goods. The respondents contends that under section 16(2)(c) of the CGST Act, 2017, no input tax credit shall be available unless the tax charged in respect of such supply has been actually paid to the government. Since the supplier is non-existent, no tax has been deposited with the government exchequer and hence the petitioner is not entitled to avail ITC.
12. Having heard the parties and upon perusing the materials on available records this Court is of the view that a Writ Petition challenging a mere show cause notice is ordinarily not entertained by a Writ Court but the jurisdiction under Article 226 of the Constitution of India can be invoked only in exceptional circumstances namely where the show cause notice is issued without jurisdiction or is in violation of the principles of natural justice or is an abuse of process of law.
13. In the instant case the adjudication proceeding has yet not been commenced. The petitioner has been called upon to show cause as to why the proposed demand should not be confirmed and the petitioner has adequate opportunity to file a reply and place all its contention and documents before the adjudicating authority.
14. However, in order to balance the equities and to ensure that the adjudication is conducted in a fair and time bound manner, this court is of the view that for the ends of justice, the petitioner shall file a comprehensive and detailed reply to the show cause notice dated 10.03.2026 within a period of three weeks from the date of communication of this order to refute the allegations made in the show cause notice and the same shall be considered by the concerned adjudicating authority by passing a reasoned order in accordance with law upon affording an opportunity of hearing to the parties namely the petitioner and the supplier to demonstrate their bonafides and decision shall be accordingly communicated within a week thereafter. The entire exercise of adjudication shall be peremptorily completed within a period of four months from the date of receipt of reply with the above observation and directions the Writ petition being No. WPA 10744 of 2026 is accordingly disposed of without going into the merits of the case.
15. It is made clear that since this Court has not expressed any opinion on the merits of the rival contentions, all points are kept open to be agitated before the adjudicating authority.
16. There will be no order as to costs.
17. All parties shall act on the server copy of the order duly downloaded from the official website of this Court.
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