Jyoti Petro Chem Industries Vs State of Rajasthan (Rajasthan High Court)
Summary: The Rajasthan High Court dismissed two writ petitions filed by Jyoti Petro Chem Industries challenging show cause notices dated 11 January 2024 under Section 74 of the CGST/RGST Act, 2017, read with Section 20 of the IGST Act, 2017. The notices concerned alleged wrongful availment of input tax credit for FY 2022–23 and the period from 1 April to 12 July 2023 in FY 2023–24. The Court held that the challenges were premature because the notices disclosed specific allegations, the issuing authorities did not patently lack jurisdiction, and no mala fides warranting writ interference had been demonstrated. The merits of the ITC and interest disputes remained open for determination by the adjudicating authority.
The petitioner traded in and refined used fuel oil and lubricant oil and claimed ITC on purchases supported by invoices and GST-return entries. Following an authorisation in Form INS-01 dated 11 July 2023, officers inspected its factory on 12 July 2023. The petitioner subsequently sought the panchnama, summons, authorisation and other inspection documents. The notices referred to reversal of ITC relating to purchases from Takaxian Trading in the July 2023 GSTR-3B, alleged non-payment of corresponding interest under Section 50, and alleged breaches of Section 16(2)(a), (b) and (c) because certain suppliers’ registrations had been cancelled ab initio. The petitioner submitted a detailed reply dated 29 February 2024, which remained pending adjudication.
The petitioner argued that the material did not establish fraud, wilful misstatement or suppression necessary to invoke Section 74. It complained that non-supply of inspection documents deprived it of a fair opportunity to respond. According to the petitioner, the ITC reversal had been made voluntarily on the authorities’ advice, with a view to reclaiming credit when the suppliers’ returns reflected the transactions; non-payment of compensatory interest alone could not justify proceedings under Section 74. It also asserted that the suppliers were active on the GST portal when purchases were made and that subsequent retrospective cancellation could not invalidate bona fide completed transactions or penalise a purchasing dealer for matters beyond its control.
The Revenue maintained that the invoices came from non-existent suppliers whose registrations had been cancelled ab initio. It alleged that the petitioner reversed ITC relating to only one supplier while withholding reversal for two others, indicating suppression of the full extent of ineligible credit. It also referred to non-appearance despite summons and to pre-notice intimations in Form DRC-01A issued on 13 and 29 December 2023. The Revenue contended that a proper officer had issued specific notices on the available material and that the petitioner should contest them through adjudication, followed, if necessary, by an appeal under Section 107.
The Court applied the principle concerning limited interference with show cause notices stated in Techno Prints v. Chhattisgarh Textbook Corporation and the statutory-remedy principle in Commissioner of Income Tax v. Chhabil Dass Agarwal. It also referred to Power and Instrumentation (Guj) Ltd. v. Additional Commissioner of CGST and CE, which treated a challenge to invocation of Section 74 at the notice stage as premature where the question of suppression required factual adjudication. The Court held that the sustainability of the allegations, retrospective supplier cancellation, bona fide availment of ITC and non-supply of documents were matters for the proper officer. It dismissed both petitions and disposed of pending applications, expressly preserving all factual and legal pleas. The adjudicating authority was directed to decide the reply and contentions strictly according to law, uninfluenced by observations in the judgment.
Cases Discussed
- Techno Prints v. Chhattisgarh Textbook Corporation & Anr. — 2025 INSC 236; arising out of SLP (C) No. 10042 of 2023, decided on 12 February 2025 (Supreme Court). Relied upon for the ordinary rule against challenging show cause notices through writ petitions unless jurisdiction is absent or mala fides are established.
- Power and Instrumentation (Guj) Ltd. v. Additional Commissioner of CGST and CE, CGST Commissionerate — D.B. Civil Writ Petition No. 7766/2024, decided on 8 July 2024 (Rajasthan High Court). Relied upon to leave the factual dispute concerning suppression and invocation of Section 74 to the adjudicating authority at the notice stage.
- Commissioner of Income Tax & Ors. v. Chhabil Dass Agarwal — (2013) 357 ITR 357 (SC); Civil Appeal No. 6704/2013 (Supreme Court). Cited by the Revenue and relied upon by the Court for the principle that a complete statutory adjudication and relief mechanism should not ordinarily be bypassed through writ proceedings.
FULL TEXT OF THE JUDGMENT/ORDER OF RAJASTHAN HIGH COURT
1. The instant writ petitions under Article 226 of the Constitution of India have been preferred claiming the following reliefs:
D.B. Civil Writ Petition No. 5695/2024
“It is, therefore, in these circumstances humbly prayed that the Hon’ble Court may kindly be pleased to:
(i) The present Writ Petition preferred by the humble petitioner may kindly be allowed by this Hon’ble Court.
(ii) The show cause notice under section 74 dated 11.01.2024 (Ann.3) may please be declared as without jurisdiction and without satisfying the conditions of issuance of such notice and held to be illegal and contrary to legal provisions
(iii) The show cause notice dated 11.01.2024 (Ann.3) and the proposed actions in the said notice may please be declared as illegal, arbitrary and any proceedings or steps taken after the filing of this petition also be declared as illegal and without force. (iv) The ITC in respect of purchases from Takaxian Trading Pvt. Ltd. Wrongly recovered kindly be directed to be allowed.
(v) Any other appropriate order or directions which are deemed just and proper by this Hon’ble Court may also be passed in favour of the humble petitioner and in the interest of justice.”
D.B. Civil Writ Petition No. 5718/2024
“It is, therefore, in these circumstances humbly prayed that the Hon’ble Court may kindly be pleased to:
(i) The present Writ Petition preferred by the humble petitioner may kindly be allowed by this Hon’ble Court.
(ii) The show cause notice under section 74 dated 11.01.2024(ann.3) may please be declared as without jurisdiction and without satisfying the conditions of issuance of such notice and held to be illegal and contrary to legal provisions.
(iii) The show cause notice dated 11.01.2024 (Ann.3) and the proposed actions in the said notice may please be declared as illegal, arbitrary and any proceedings or steps taken after the filing of this petition also be declared as illegal and without force. (iv) The ITC in respect of purchases from Takaxion Trading Pvt. Ltd. Wrongly recovered kindly be directed to be allowed
(v) Any other appropriate order or directions which are deemed just and proper by this Hon’ble Court may also be passed in favour of the humble petitioner and in the interest of justice.”
2. Brief facts of the case were that the petitioner is engaged in the business of trading and refining of used fuel oil and lubricant oil in the name and style of Jyoti Petro Chem Industries, which is duly registered under the provisions of the Goods and Services Tax Act, 2017. In the ordinary course of its business, the petitioner availed Input Tax Credit (ITC) on purchases made from Suppliers on the basis of tax invoices and corresponding entries duly reflected in the GST returns.
2.1. An authorization in Form INS-01 was issued on 11.07.2023 by the Additional Commissioner. In compliance thereof, the Assistant Commissioner, along with other team members, conducted an inspection at the factory premises of the petitioner on 12.07.2023, during which business records and documents were examined. On 23.08.2023, the petitioner addressed a letter to the respondent authorities seeking copies of the panchnama, the summons, the INS-01 authorization, as well as other relevant documents pertaining to the inspection.
2.2. Subsequently, on 11.01.2024, show cause notices were issued to the petitioner under Section 74 of the RGST Act, 2017/CGST Act, 2017, read with Section 20 of IGST Act 2017 for the tax periods 01.04.2022 to 31.03.2023 (F.Y. 2022-23) and 01.04.2023 to 12.07.2023 (F.Y. 2023-24) (Annexure-3). The notices stated that on perusal of the petitioner’s GSTR-3B return for the month of July, 2023, the reversal of Input Tax Credit was found to be duly reflected, thereby substantiating the allegation of ineligible ITC availed earlier. However, it was alleged that the petitioner failed to discharge the corresponding liability towards interest under Section 50 of the CGST/RGST Act, 2017.
2.3. The notices stated that on 19.07.2023, summons were issued to the petitioner directing production of outbound and inbound invoices, consignment notes, and bank account statements. In response thereto, on 30.06.2023, the petitioner furnished certain details; however, the same pertained only to the Financial Year 2021-22. Along with the said documents, a written reply was also furnished wherein the petitioner himself accepted that ineligible Input Tax Credit availed in respect of purchases from Takaxian Trading Company had been reversed.
2.3.1. The notices further stated that on perusal of the petitioner’s GSTR-3B return for July 2023, the reversal of ITC was found duly reflected, thereby establishing the fact of earlier wrongful availment. However, the corresponding liability towards interest under Section 50 of the CGST/RGST Act, 2017, had not been discharged.
2.4. The notices also recorded that despite issuance of summons on 11.09.2023, no authorized person appeared on behalf of the petitioner.
2.5. The notices further stated that upon examination of material available on record, as well as details uploaded on the GST portal and other documents, it was revealed that certain suppliers from whom the petitioner claimed ITC were in fact cancelled ab initio. Notwithstanding such cancellation, invoices were raised and ITC was availed by the petitioner, which, according to the respondents, amounted to contravention of the conditions stipulated under Section 16(2)(a), 16(2)(b), and 16(2)(c) of the CGST/RGST Act, 2017.
2.6. In response, the petitioner submitted a detailed reply dated 29.02.2024 to the show cause notices dated 11.01.2024. In the said reply, the petitioner categorically denied the allegations made by the respondents.
3. Mr. Anil Bhansali, learned counsel on behalf of the petitioner submitted that the impugned show cause notices dated 11.01.2024 are without jurisdiction, as the preconditions for invoking Section 74 of the CGST/RGST Act, 2017 have not been satisfied. It was urged that Section 74 can only be invoked in cases of fraud, wilful misstatement, or suppression of facts, whereas in the present case, there is no such allegation substantiated by any material.
3.1. Learned counsel further submitted that the inspection conducted on 12.07.2023 pursuant to INS-01 was arbitrary and in violation of the petitioner’s statutory rights, as copies of the panchnama, summons, and other relevant documents were never supplied despite repeated requests, including the letter dated 23.08.2023. Hence, the petitioner was denied a fair and reasonable opportunity to respond.
3.2. Learned counsel contended that the reversal of Input Tax Credit in respect of Takaxian Trading Pvt. Ltd. had already been voluntarily made by the petitioner in GSTR-3B for July 2023 owing to the fact that petitioner was advised by the respondent authories to claim it in the forecoming period when the suppliers return would reflect the same, which is duly reflected in the electronic records. Therefore, initiation of proceedings under Section 74 for the same transaction is unsustainable in law.
3.3. Learned counsel submitted that non-payment of interest under Section 50 cannot, by itself, justify invocation of Section 74. It was urged that interest liability is automatic and compensatory, but it is not penal in nature, and therefore, the proceedings under Section 74 are wholly misconceived.
3.4. Learned counsel further submitted that the suppliers’ GST registrations were “ab initio cancelled” retrospectively, much after the supplies in question were made. At the time of the purchases, the suppliers were reflected as active on the GST portal, and tax invoices were issued in due compliance with law. It was urged that the petitioner, being a bona fide purchaser, cannot be penalised for subsequent retrospective cancellation of the suppliers’ registration, an event wholly beyond the petitioner’s control. The petitioner further submitted that retrospective cancellation of registration cannot nullify bona fide transactions already executed. Denial of Input Tax Credit on this basis would amount to punishing the purchasing dealer for no fault of his.
3.5. Learned counsel on behalf of the petitioner lastly submitted that the detailed reply dated 29.02.2024 furnished by the petitioner has not been duly considered, and the proceedings initiated by the impugned notices are therefore liable to be quashed as being without jurisdiction, arbitrary, and in violation of principles of natural justice.
4. Per contra, Mr. Mahaveer Bishnoi, learned Additional Advocate General, appearing on behalf of the respondents submitted that the show cause notices dated 11.01.2024 have been validly issued under Section 74 of the CGST/RGST Act, 2017, as the petitioner wrongfully availed Input Tax Credit on the strength of invoices issued by suppliers who were found to be non-existent and cancelled ab initio. Such wrongful availment of ITC clearly amounts to wilful misstatement and contravention of Section 16(2).
4.1. It was submitted that the inspection carried out pursuant to the authorization in Form INS-01 and subsequent examination of documents available revealed that the petitioner had availed ITC on the strength of invoices issued by suppliers whose GST registrations were cancelled ab initio. Such cancellation, though retrospective, was done because the suppliers were non-genuine entities, and thus, the ITC availed on their invoices was clearly ineligible.
4.2. It was also submitted that the petitioner selectively reversed ITC pertaining to one supplier while withholding reversal with respect to the other two. This conduct evidences a conscious attempt to suppress the full extent of ineligible ITC availed in contravention of Section 16(2)(a), (b), and (c) of the RGST/CGST Act, 2017.
4.3. It was further submitted that despite issuance of multiple summons on 19.07.2023 and notice dated 11.09.2023, the petitioner failed to appear before the authorities, thus the show cause notices dated 11.01.2024 have been issued by a proper officer having jurisdiction as per law. It was submitted that prior to issuance of the show cause notices dated 11.01.2024, the petitioner was also duly intimated regarding discrepancies in availment of Input Tax Credit. Intimations in Form DRC-01A were issued on 13.12.2023 and 29.12.2023.
4.4. It was also submitted that the show cause notices dated 11.01.2024 have been issued in strict compliance with Section 74 of the CGST/RGST Act, 2017, after considering the material available on record, the GSTR filings, and the reply filed by the petitioner. The notices are neither vague nor mechanical but is founded upon specific allegations of contravention of Sections 13, 16, 50, and 74(5) of the Act.
4.5. It was further submitted that the present writ petition is liable to be dismissed on the ground of alternative remedy. It was argued that the Act provides a complete adjudicatory framework under which the petitioner can contest the show cause notices before the adjudicating authority, and if aggrieved by the final order, the petitioner has a statutory right of appeal under Section 107 of the CGST/RGST Act, 2017. It was further submitted that the Hon’ble Apex Court in CIT v. Chhabil Dass Agarwal 357 ITR 357 (SC)/(Civil Appeal No.6704/2013, decided on 08.11.2013) has categorically held that where the statute provides a complete machinery for assessment, reassessment, imposition of penalty, and obtaining relief with respect to any improper order passed, such machinery cannot be abandoned by the assessee to directly invoke the extraordinary jurisdiction of the High Court under Article 226 of the Constitution of India.
4.6. Learned Additional Advocate General contended that interference at the stage of show cause notice is premature and not warranted in exercise of writ jurisdiction under Article 226 of the Constitution of India. The writ petition, without exhausting the statutory remedy, is therefore not maintainable and deserves to be dismissed in limine.
5. Heard learned counsel for the petitioner and learned Additional Advocate General for the respondents and perused the material available on record.
6. This Court finds that the controversy raised in the instant writ petitions essentially pertains to the validity of the show cause notices dated 11.01.2024 issued under Section 74 of the CGST/RGST Act, 2017 read with Section 20 of the IGST Act, 2017. The allegations levelled therein relate to wrongful availment of Input Tax Credit, non-discharge of interest liability under Section 50, and contravention of Section 16(2)(a), (b) and (c) of the Act. The petitioner has already submitted a detailed reply dated 29.02.2024 to the said notice, which is presently pending adjudication.
7. It is well-settled that a writ petition under Article 226 of the Constitution of India, challenging a mere show cause notice, is ordinarily not maintainable unless the case involves a patent lack of jurisdiction or mala fides. The Hon’ble Supreme Court in Techno Prints v. Chhattisgarh Textbook Corporation [Civil Appeal arising out of SLP (C) No.10042 of 2023, dated 12.02.2025] has reiterated this settled principle in the in the following words:
“ordinarily, a Writ Court should not entertain any petition seeking to challenge a show cause notice unless the Court is convinced that the same has been issued by an authority having no jurisdiction, or the same is tainted with mala fides.”
8. This Court further observes that the impugned show cause notices cannot be said to suffer from any patent lack of jurisdiction. The respondents were well within their authority under Section 74 of the CGST/RGST Act, 2017 to issue the said notices upon noticing alleged wrongful availment of Input Tax Credit. The question as to whether the allegations are factually or legally sustainable is a matter falling within the domain of the adjudicating authority, and cannot be pre-emptively gone into by this Court in its writ jurisdiction. Furthermore, this Court also observes that no mala fide by the petitioner has been demonstrated so as to warrant interference under Article 226 of the Constitution.
9. The Hon’ble Supreme Court in Commissioner of Income Tax (supra) has categorically held that when a statute provides a complete machinery for assessment, reassessment, imposition of penalty and for obtaining relief against improper orders, such mechanism cannot be bypassed to directly invoke the writ jurisdiction.
10. This Court also notes that a Division Bench of this Court in Power and Instrumentation (Guj) Ltd. v. Additional Commissioner of CGST and CE, CGST Commissionerate (Rajasthan)/(D.B. Civil Writ Petition No. 7766/2024, decided on 08.07.2024) has reiterated the principle that a writ petition at the stage of a show cause notice under the GST regime is premature, since it is for the adjudicating authority to first determine whether the case falls under Section 73 or Section 74, after due consideration of the reply furnished by the taxpayer. The relevant portion of the said judgement reads as follows: –
“8. The second ground which has been raised by learned counsel for the petitioner, in our opinion, is premature at this stage. The contents of notice dated 30.04.2024 show that the respondents have invoked power under Section 74 of the Act on prima facie consideration of it being a case of suppression. Though, learned counsel for the petitioner disputes this aspect, we do not see any reason why writ court should interdict at this stage when the petitioner is only asked to show cause against proposed action. The authority, undoubtedly has jurisdiction to issue notice under Section 74. Whether or not present is a case of suppression of fact, warranting invocation of jurisdiction under Section 74 of the Act, is an issue of fact and not of law.”
11. In the present case, the show cause notices impugned contains specific allegations, supported by reference to statutory provisions, and the petitioner has been afforded an opportunity to file reply, which it has in fact availed. The contention of the petitioner regarding retrospective cancellation of suppliers’ registration, the plea of bona fide availment of ITC, and the grievance regarding non-supply of documents, are all issues which necessarily fall for adjudication before the proper officer in the course of proceedings under Section 74. In the peculiar factual matrix of the present case, no interference of this Court is warranted.
12. In view of the foregoing discussion, this Court is of the considered opinion that the writ petitions are premature and not maintainable at this stage. Moreover, the petitioner has an efficacious alternative statutory remedy under Section 107 of the CGST/RGST Act, 2017.
13. Accordingly, the present writ petitions stand dismissed. All pending applications stand disposed of.
14. It is, however, clarified that the petitioner shall be at liberty to raise all such pleas, both factual and legal, as are available to it in law before the adjudicating authority. Needless to say, the adjudicating authority shall consider and decide the petitioner’s reply and contentions strictly in accordance with law, being uninfluenced by any observations made in the present judgment.
