The Delhi High Court, in the case of Ambika Traders v. Additional Commissioner, has upheld the legality of issuing a consolidated Show Cause Notice (SCN) for multiple financial years, particularly in instances of fraudulent Input Tax Credit (ITC) claims. The court dismissed a petition from a metal scrap dealer, Ambika Traders, who was accused of availing over Rs. 83.76 crores in fraudulent ITC. The petitioner argued that a single SCN for multiple years was not permissible under the CGST Act, 2017, and that their right to natural justice was violated because their replies were allegedly not considered, and cross-examination of witnesses was denied. The court held that the language of Sections 74(3) and 74(4) of the CGST Act, which refers to “any period” and “such periods,” permits consolidated SCNs to establish patterns of fraud. The court also determined that the petitioner’s replies were considered, but they lacked substantive defense, and that the right to cross-examination is not absolute in such proceedings. This decision is in alignment with previous rulings by the Delhi and Calcutta High Courts but diverges from rulings by the Karnataka and Kerala High Courts, which have held that consolidated SCNs violate the temporal limits of the act. The court directed the petitioner to pursue an appeal through the proper channels and dismissed the writ petition.
Facts:
Ambika Traders (“the Petitioner”), a sole proprietorship dealing in metal scrap, registered under CGST Act, 2017, was allegedly involved in availing fraudulent ITC amounting to over Rs. 83.76 crores.
Additional Commissioner, Adjudication, DGGSTI, CGST Delhi North (“the Respondent”) issued a consolidated SCN covering financial years 2017-18 to 2021-22 and passed an Order-in-Original dated January 23, 2025, affirming a demand of Rs. 83,76,32,528 with an equivalent penalty and an additional penalty of Rs. 75,000 on the proprietor, Mr. Gaurav Gupta.
The Petitioner contended that the consolidated SCN for multiple years was impermissible under Section 74 of the CGST Act, that their replies dated December 19 and 30, 2024, were not considered, violating principles of natural justice, and that denial of cross-examination of witnesses was unlawful.
Respondent’s Counterargument: The Respondent contended that the consolidated SCN was necessary to establish the pattern of fraudulent ITC availment, that the Petitioner’s replies were duly considered but lacked substantive defense, and that cross-examination is not an unfettered right in such proceedings, as supported by Vallabh Textiles.
The Petitioner approached the Delhi High Court through a writ petition under Articles 226 and 227 of the Constitution of India, challenging the SCN, the Order-in-Original, and the denial of cross-examination, arguing that non-consideration of replies and procedural irregularities warranted judicial intervention.
Issues:
- Whether a consolidated SCN for multiple financial years is permissible under the CGST Act, 2017?
- Whether the Adjudicating Authority’s non-consideration of the Petitioner’s replies and denial of cross-examination violated principles of natural justice?
Held:
The Hon’ble Delhi High Court in W.P.(C) 4853/2025 held as under:
- Observed that, the language of Sections 74(3) and 74(4) of the CGST Act, using “for any period” and “for such periods,” permits a consolidated SCN for multiple years, especially in cases of fraudulent ITC availment, to establish a pattern of transactions.
- Noted that, the Adjudicating Authority’s order, spanning nearly 100 pages, duly considered the Petitioner’s replies, which were primarily technical objections without substantive evidence of genuine business transactions.
- Held that, the right to cross-examination is not unfettered in SCN proceedings, as established in M/s Vallabh Textile Through Its Authorized Representative v. Additional/Joint Commissioner, CGST Delhi East Commiserate & Ors. [P.(C) 13855/2024] by this Court and denial of cross-examination did not prejudice the Petitioner as the statements relied upon were from their own proprietor or suppliers.
- Observed that, the impugned order did not travel beyond the SCN, as it addressed tax, interest, and penalty under relevant provisions, including Section 122 of the CGST Act.
- Directed that, the Petitioner could file an appeal by August 31, 2025, with the requisite pre-deposit, and the Appellate Authority should adjudicate it on merits without dismissing it as time-barred and dismissed the writ petition with costs of Rs. 25,000 to be paid to the Delhi High Court Bar Association, finding no grounds for interference under writ jurisdiction.
Our Comments:
The Delhi High Court’s decision in this case reinforces the permissibility of consolidated Show Cause Notices (SCNs) under the CGST Act for cases involving fraudulent Input Tax Credit (ITC), aligning with the legislative intent to uncover patterns of fraud across multiple financial years. The Court’s reliance on the language of Sections 74(3) and 74(4), which use “for any period” and “for such periods” rather than “financial year,” provides clarity that the CGST Act accommodates such notices when fraud spans multiple years. This interpretation is consistent with the Delhi High Court’s ruling in M/s Vallabh Textile Through Its Authorized Representative v. Additional/Joint Commissioner, CGST Delhi East Commiserate & Ors. [W.P.(C) 13855/2024] ,which held that consolidated SCNs are permissible to establish the illegal modalities of fraudulent transactions, and the Calcutta High Court’s decision in Britannia Industries Limited vs Union of India & Ors [W.P.A 24534 of 2024], which also found no specific bar in the CGST Act against issuing consolidated SCNs for multiple years.
However, this stance diverges from the Karnataka High Court’s ruling in Veremax Technology Services Pvt. Ltd. [W.P. No. 15810 of 2024 (T-RES)], which held that consolidated SCNs for multiple financial years are impermissible under Section 74(10) read with Sections 74(2) and 74(3) of the CGST Act and Rule 142 of the CGST Rules, 2017. The Karnataka High Court reasoned that Section 74(10) mandates orders to be issued within five years from the due date for furnishing the annual return for the specific financial year to which the tax or ITC issue relates, implying a year-by-year assessment. It held that consolidating multiple years into a single SCN contravenes the statutory framework, which emphasizes annual compliance and assessment. Similarly, the Kerala High Court in M/S. Lakshmi Mobile Accessories V. Joint Commissioner (Intelligence & Enforcement) [2025:Ker:30647] also held that consolidation of SCN for multiple years, violates the temporal limits set by Section 74(10) and Rule 142, which governs the issuance of SCNs and demand notices.
Relevant Provisions:
Section 74 of the CGST Act, 2017
“74. Determination of tax pertaining to the period up to Financial Year 2023-24, not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any willful- misstatement or suppression of facts-
(3) Where a notice has been issued for any period under sub-section (1), the proper officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for such periods other than those covered under sub-section (1), on the person chargeable with tax.
(4) The service of statement under sub-section (3) shall be deemed to be service of notice under sub-section (1) of section 73, subject to the condition that the grounds relied upon in the said statement, except the ground of fraud, or any wilful-misstatement or suppression of facts to evade tax, for periods other than those covered under subsection (1) are the same as are mentioned in the earlier notice.”
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