SC Grants Interim Protection Against Coercive GST Recovery in Sumetco Alloys Case

By CA Sandeep Kanoi Goods and Services Tax Judiciary October 11, 2026

TaxGuru Citation: 2026 taxguru.in 15421
Case Name: Sumetco Alloys Private Limited Vs Union of India & Ors. (Supreme Court of India)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Courts: Supreme Court of India

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Sumetco Alloys Private Limited Vs Union of India & Ors. (Supreme Court of India)

Summary : The Supreme Court issued notice, returnable in four weeks, permitted dasti service in addition, and directed that no coercive steps be taken against Sumetco Alloys Private Limited in the meantime. The supplied Supreme Court order contains no substantive reasoning or final determination of the constitutional or input tax credit issues. The related High Court material records rejection of the company’s challenge to Section 16(2)(c) of the Central Goods and Services Tax Act, 2017, the show cause notice dated 26 September 2025 and the adjudication order dated 10 April 2026 raising a demand of ₹56,44,08,265 for financial years 2020-21 to 2023-24. The High Court treated the statutory conditions for input tax credit as cumulative, rejected the jurisdictional and natural justice objections, and relegated the company to an appeal under Section 107. It preserved the company’s contentions on the merits, granted protection concerning limitation for an appeal filed within the stipulated period, and directed adjustment of its ₹50 lakh DRC-03 deposit towards the statutory pre-deposit.

Background and Petitioner’s Contentions

The company manufactures pure lead and lead ingots and procures raw materials domestically and through imports. Following an inspection on 20 March 2024, the authorities questioned purchases from suppliers whose registrations were subsequently cancelled. The company asserted that its suppliers were registered when the transactions occurred and furnished invoices, ledgers, bank statements, e-way bills, transport documents, payment proofs and weighment slips. It deposited ₹50 lakh through Form GST DRC-03, stated to be under protest and without admitting liability.

The company challenged Section 16(2)(c) as arbitrary and violative of Article 14. It argued that a bona fide purchaser should not lose credit because of a supplier’s default. It also disputed invocation of Section 74, non-issuance of Form GST DRC-01A, investigation and adjudication by the same officer, and the treatment of its reply. The respondents invoked the statutory appellate remedies and disputed the grounds for bypassing them.

High Court’s Reasoning on ITC and Constitutional Validity

The High Court held that Section 16 confers a conditional statutory entitlement and that the requirements of Section 16(2) are cumulative. Possession of invoices, receipt of goods and compliance with other conditions do not dispense with actual payment of tax to the Government under clause (c). Section 41 provides for reversal where the supplier has not paid and re-availment once payment is made, while Section 155 places the burden of proving eligibility on the claimant.

The High Court relied on State of Karnataka v. Ecom Gill Coffee Trading Private Limited³ for the requirement to establish actual movement of goods and genuine transactions. It considered Maruti Enterprise v. Union of India and relied on the reasoned Supreme Court order in Bhandari Scrap Traders v. Union of India⁴, which affirmed the Gujarat High Court’s refusal to invalidate or read down the provision.

The petitioner relied on Sahil Enterprises v. Union of India¹, Instakart Services Private Limited v. Union of India² and National Plasto Moulding v. State of Assam⁵. The High Court declined to apply their reading-down approach in light of Bhandari Scrap Traders. It additionally held that bona fides involved disputed facts: the allegations here concerned fake invoices, bogus supplies and layered paper transactions without movement of goods. Whether those allegations were established remained for determination through the statutory remedy.

Section 74, Natural Justice and Appellate Remedy

The High Court found that the 33-page show cause notice contained specific allegations capable, if proved, of satisfying Section 74. Although invocation of that provision could not rest on unsupported statutory expressions, the present objections concerned the adequacy and appreciation of evidence rather than an absence of jurisdiction.

It held that pre-notice intimation under Rule 142(1A) was discretionary after “shall” was replaced by “may”, and its omission did not invalidate the proceedings. Investigation and adjudication by the same proper officer did not establish bias without additional material showing personal interest, animus or a closed mind. Notice, an opportunity to reply and a hearing had been afforded, and a reasoned order had been passed. Allegedly inadequate consideration of the reply could be examined in appeal.

High Court Directions and Supreme Court Interim Order

The High Court granted liberty to appeal under Section 107. If filed within four weeks from uploading of its order, the period spent prosecuting the writ petition was to be excluded when computing limitation, and the appeal was to be decided on merits without a limitation objection. The ₹50 lakh DRC-03 deposit was to be credited towards the Section 107(6) pre-deposit, without prejudice to the parties’ positions concerning its character. All merits contentions, including the genuineness of the transactions, remained open.

The Supreme Court’s supplied order subsequently issued notice and granted interim protection against coercive steps. It does not record the parties’ submissions, decide the constitutional challenge, determine ITC eligibility or expressly stay or set aside the High Court judgment or adjudication order.

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