GST Authorities Must Provide Evidence Before Recovering Input Tax Credit

Eeya Metals And Alloys Vs Assistant Commissioner ST (Andhra Pradesh High Court)

The Andhra Pradesh High Court delivered its judgment in the writ petition filed by Eeya Metals and Alloys against the Assistant Commissioner (State Tax) and others. The petitioner, a registered dealer under the Goods and Services Tax (GST) regime, challenged the notice dated 14 August 2025 issued by the first respondent, demanding payment of ₹1,79,50,000. The amount was sought to be recovered on the grounds that the petitioner had claimed input tax credit (ITC) on purchases from respondents 3 to 5, who were alleged to be non-existent entities. Following the issuance of the notice, the first respondent also froze the petitioner’s input tax credit ledger pending recovery of the amount.

After receiving the notice, the petitioner made a representation to the first respondent, requesting details and supporting material forming the basis of the notice. However, the request was denied. The first respondent maintained that the information had been obtained from tax authorities of other States under a special drive, was confidential in nature, and could not be disclosed.

Aggrieved by the notice, the freezing of the ITC ledger, and the refusal to share the underlying material, the petitioner approached the High Court seeking relief.

During the hearing, the learned Government Pleader for Commercial Tax submitted that the information regarding the petitioner’s transactions and suppliers was shared by other State tax authorities as part of a special enforcement initiative. It was contended that revealing such information could compromise the confidentiality of the drive and the sources of data, and hence, the material could not be furnished to the petitioner.

The High Court rejected this argument, observing that the respondents’ stand was untenable. The Court stated that any person adversely affected by an order or proceeding of a tax authority is entitled to challenge it effectively, and for that purpose, the affected person must be supplied with all material relied upon by the authority. Without such disclosure and the opportunity to rebut the evidence, the proceedings would violate the principles of natural justice.

The Court held that the petitioner must be given access to the information forming the basis of the proposed recovery of ₹1.79 crore. However, it declined to interfere with the show-cause notice dated 14 August 2025, noting that the notice itself was only an initial step and that the petitioner would still have an opportunity to respond during the adjudication process.

The petitioner also argued that the freezing of the credit ledger had caused the business to come to a standstill, preventing the filing of returns and compliance with other statutory requirements, which could lead to penalties, interest, and late fees. While the Court noted that this contention merited consideration, it observed that the allegations against respondents 3 to 5 were serious and involved a substantial amount. Therefore, the Court directed that the matter be resolved expeditiously.

Disposing of the writ petition, the Court issued detailed directions to ensure fairness and prompt resolution:

• The first respondent must furnish to the petitioner all material relied upon to support the proposed recovery of ₹1,79,50,000.
• The information is to be provided within one week from the date of the order.
• Upon receipt of the information, the petitioner shall be granted one week to submit a reply to the show-cause notice dated 14 August 2025.
• Thereafter, the first respondent shall afford the petitioner a personal hearing and pass a reasoned order after considering the objections and material submitted by the petitioner.
• The entire process is to be completed within three weeks from the date of the order.
• If the process is not completed within the stipulated period, the attachment of the petitioner’s ITC ledger shall stand automatically lifted, allowing the petitioner to utilize the available input tax credit.
• The Court further clarified that the material furnished to the petitioner shall remain confidential, and the petitioner shall not share or disclose it to any other person.
• The writ petition was accordingly disposed of with these directions. There was no order as to costs, and any pending miscellaneous applications were declared closed.

Through this order, the High Court emphasized the necessity of procedural fairness and transparency in tax adjudication, particularly when significant demands and asset restrictions are imposed based on undisclosed materials.

FULL TEXT OF THE JUDGMENT/ORDER OF ANDHRA PRADESH HIGH COURT

The petitioner is a registered person under the GST regime. The petitioner received a notice, dated 14.08.2025, from the 1^st respondent demanding payment of Rs.1,79,50,000/-, on the ground that the petitioner had claimed the aforesaid amount as input tax on goods obtained from respondents 3 to 5 and that the respondents are non-existent. It appears that the 1^st respondent had also frozen the input tax credit ledger of the petitioner, pending recovery of the aforesaid amounts. The petitioner, upon receipt of this notice, is said to have made a representation to the 1^st respondent to set out the facts and details, on the basis of which notice had been issued. However, the 1^st respondent had declined to give any such information on the ground that such information is confidential and has been obtained from the Tax Authorities of other States.

2. Aggrieved by the said notice, dated 14.08.2025; freezing of the input tax credit ledger of the petitioner; and the refusal of the 1^strespondent to furnish the material to the petitioner, the present Writ Petition has been filed.

3. The learned Government Pleader for Commercial Tax, on instructions, submits that the 1^strespondent had been supplied with certain additional information by the Tax Authorities of other States, and such information cannot be divulged inasmuch as this information was obtained under a special drive and the source of information and the contents of the said information cannot be given out.

4. The stand of the respondents cannot be accepted by this Court, on the simple ground that a person who is adversely affected by any order or proceedings of the Authority, is entitled to agitate against such an order and for that purpose, the affected person is entitled to be served with all the material which is used against him. In the absence of such service of material and opportunity of rebutting the contentions of the authorities, there would be a clear violation of principles of natural justice.

5. In the circumstances, it would only be appropriate that the petitioner is furnished with the material on the basis of which the sum of Rs.1,79,50,000/-, is sought to be recovered from him.

6. As far as the challenge to the notice, dated 14.08.2025 is concerned, this Court does not deem it appropriate to interfere with the said notice as the said notice is only a show-cause notice and the petitioner would be given an opportunity of rebutting the allegations in the show-cause notice.

7. The learned counsel for the petitioner would also contend that the business of the petitioner had come to a standstill and the petitioner is unable to comply with all the statutory requirements of filing returns, etc. and that violation of such requirements entail adverse consequences on the petitioner, including levy of penalty, interest and late fee.

8. Though the said contention merits consideration, the fact remains that severe allegations are being made in relation to the activities of respondents 3 to 5, on the basis of which the petitioner is said to be mulcted for recovery of large sum of money. In such circumstances, it would only be appropriate to direct an early closure of the entire issue, for the aforesaid reasons.

9. Accordingly, this Writ Petition is disposed of, with the following directions:

1) The 1^strespondent shall furnish the material on the basis of which the sum of Rs.1,79,50,000/- is sought to be recovered from the petitioner.

2) This information shall be furnished to the petitioner, within a period of one (01) week from today.

3) Upon receipt of such information, the petitioner shall have an opportunity of one (01) week to file his response to the show-cause notice, dated 14.08.2025.

4) The 1^strespondent shall thereupon give an opportunity of personal hearing to the petitioner and pass orders after considering the objections raised by the petitioner and the material placed by the petitioner before the 1^st

5) This entire exercise is to be completed within a period of three (03) weeks from today. Failure to complete the said process would automatically result in the attachment of the credit ledger of the petitioner being raised and the petitioner would be entitled to utilize the credit available in the credit ledger.

6) It is further made clear that the material furnished to the petitioner shall be kept confidential and the petitioner shall not divulge or disclose any of the said material to any other person.

There shall be no order as to costs.

As a sequel, pending miscellaneous applications, if any, shall stand closed.