Section 16(2)(c) GST ITC: Punjab & Haryana HC Bars Mechanical Reversal for Supplier Default

Summary: Punjab and Haryana High Court in Shaurya Alloys Pvt. Ltd. v. State of Punjab and another examined 424 writ petitions concerning denial or reversal of input tax credit under Section 16(2)(c) of the CGST Act, 2017 where suppliers had failed to deposit tax or their registrations were subsequently cancelled. The High Court upheld the constitutional validity of Section 16(2)(c) read with Section 155 but ruled that Section 16(2)(c) cannot be treated as a standalone provision or invoked routinely and mechanically. It must operate harmoniously with Sections 41, 73, 74, 75(12), 76, 79 and 155 and Rules 36, 37A and 88C. The Court emphasised the statutory remedies available against defaulting suppliers, the absence of a re-availment mechanism before Rule 37A, and the necessity of distinguishing fraud attributable to the supplier from fraud attributable to the purchasing dealer. It prescribed fourteen guidelines for pending and future proceedings, requiring disclosure of relied-upon material, examination of recovery proceedings against suppliers, opportunity of hearing, consideration of evidence establishing genuine purchases and specific findings concerning fraud and ITC eligibility. Existing proceedings were directed to be reconsidered in accordance with these safeguards, and no fresh coercive recovery action was permitted until fresh decisions were taken.

The position after Shaurya Alloys Pvt. Ltd. v. State of Punjab and another, CWP No. 34296 of 2024 (O&M), and how its head note strengthens the protection of a bona fide purchaser against the default of a habitual offending supplier in GST litigation.

Precedent Note

Section 16(2)(c) of the CGST Act, 2017

Shaurya Alloys Pvt. Ltd. v. State of Punjab and another, CWP No. 34296 of 2024 (O&M) and 423 connected writ petitions

High Court of Punjab and Haryana at Chandigarh

Coram: Hon’ble Ashwani Kumar Mishra, Chief Justice

and Hon’ble Rohit Kapoor, J.

Reserved on 21.08.2026; pronounced and uploaded on 01.10.2026

Mode of citation. Until a reporter citation is available, cite as: Shaurya Alloys Pvt. Ltd. v. State of Punjab and another, CWP No. 34296 of 2024 (O&M) and connected matters, decided on 01.10.2026 (Punjab and Haryana High Court, Division Bench). Paragraph numbers refer to the judgment. Page numbers are those of the certified copy (104 pages) at which the paragraph begins. Portions in bold and underlined inside the extracts are the operative sentences marked for quotation; the emphasis is supplied and should be stated as such when quoted.

Part A: Head Note

The writ petitions (424 in number) arose from show cause notices and orders denying or reversing input tax credit to purchasing dealers under Section 16(2)(c) of the CGST Act, 2017, mainly because the registration of the selling dealer had been cancelled (often with retrospective effect) or because the selling dealer had not deposited the tax collected. The petitioners questioned the vires of Section 16(2)(c) read with Section 155 on the maxim lex non cogit ad impossibilia and Articles 14, 19(1)(g), 21, 265 and 300A, and in the alternative sought a reading down confined to fraud, collusion and non-existent suppliers.

Held: (1) Section 16(2)(c) is constitutionally valid; the Court declined to read it down on the lines of Gheru Lal Bal Chand and On Quest, in deference to Maruti Enterprises (Gujarat) as affirmed in Bhandari Scrap Traders (Supreme Court). (2) The provision is nonetheless not a standalone provision; it must be construed and applied in harmony with Sections 41, 73, 74, 75(12), 76, 79 and 155 and Rules 36, 37A and 88C, and cannot be invoked in a routine or mechanical manner. (3) The remedy under Section 76 against the defaulting supplier cannot be rendered otiose. (4) Prior to Rule 37A (26.12.2022) there was no mechanism for re-availment, and this must be borne in mind. (5) Where Section 74 is invoked against a purchaser, the foundational facts of fraud must emanate from the notice itself; the fraud of the seller is not the fraud of the purchaser. (6) Fourteen binding guidelines were laid down in para 103 for the Central and State officers of Punjab, Haryana and U.T. Chandigarh, applicable to pending and future proceedings. (7) Matters were sent back for fresh decision; no coercive action meanwhile; deposits to abide the result.

Part B: Ratio With Verbatim Extracts

1. The Question Framed

Para 1 (page 22):

“This bunch of 424 writ petitions revolves around the scope of Section 16(2)(c) of the Goods and Services Tax Act, 2017 (for short, the ‘Act of 2017’). The question that falls for consideration before us is, what exactly is the obligation cast upon a purchasing dealer who has already paid tax to the supplier, to ensure deposit of such tax by the supplier with the Government, notwithstanding the fact that the purchasing dealer has no means to access or ascertain that the supplier has deposited the tax collected from it with the Government, under the Act of 2017?”

2. Non-Implementation of Matching Scheme Made Section 16(2)(c) Compliance Questionable

Para 29 (page 37):

“Verifying whether the return submitted by the selling dealer is correct or not is otherwise neither contemplated in the statutory scheme nor does it seem possible for the purchasing dealer to ascertain it in the absence of an automated process of verification/matching. Thus, the requirement on part of purchasing dealer to satisfy the condition in Section 16(2)(c) of the Act of 2017, by ensuring deposit of tax by the selling dealer in Government Treasury, had become questionable due to non-implementation of the initial GST scheme conceived of in the Act of 2017.”

Para 72 (page 70):

“However, the provisions contained in the Act of 2017 were not implemented in its entirety and only part of it was pressed into service for various reasons, which are not of significance. The technical glitches or the initial reluctance of business to adapt to new provisions can be construed as teething troubles in the implementation of a new scheme. Nevertheless, it is the non-implementation of GST scheme in its entirety which has led to complications in executing Section 16(2)(c) of the Act of 2017.”

3. Section 16(2)(c) Is Not a Standalone Provision; Lex Non Cogit Ad Impossibilia

Para 74 (page 71):

“Section 16(2)(c) was actually a part of the GST scheme contained in the Act of 2017, with provisions incorporated therein containing a mechanism of verification and matching etc., such that Section 16(2)(c) of the Act of 2017 was capable of being given effect to. It, i.e., Section 16(2)(c) of the Act of 2017, cannot be construed as a standalone provision bereft of other provisions which contained the mechanism for its implementation.”

Para 75 (page 71):

“If it is treated to be a standalone provision without any mechanism put in place in the statute to ascertain whether the selling dealer has deposited tax or to secure its deposit with the Government, then the maxim lex non cogit ad impossibilia, meaning that the law cannot impose an impossible obligation, would clearly get attracted, exposing the provision to a possible challenge on the ground of violating Articles 14 and 19 of the Constitution of India.”

Para 77 (page 76):

“We find force in the contention of the petitioners that, where the substantive provisions contained in the Act of 2017 providing for matching and verification of returns were not implemented, to nevertheless enforce the liability under Section 16(2)(c), without the corresponding mechanism contemplated under the statute having been implemented, would be rendering the statute vulnerable to challenge as being ultra vires.”

4. Liability Dependent on Seller’s Act: Bhawani Cotton Mills Constitution Bench Principle

Para 78 (page 76):

“The aforesaid principle assumes significance where the statutory scheme requires the purchasing dealer to bear a liability dependent upon an event occurring at the hands of the selling dealer, while the former has no statutory means of ascertaining whether such event has occurred. In a somewhat similar situation, a Constitution Bench of the Supreme Court in Bhawani Cotton Mills Ltd v. State of Punjab and another, 1967 SCC OnLine SC 39 had an occasion to examine the scenario where liability to pay tax was imposed on the person not liable to pay it and the provision was sought to be justified on the ground that such tax paid could later be recovered.”

Extract of Bhawani Cotton Mills Ltd. v. State of Punjab, 1967 SCC OnLine SC 39 as reproduced in para 78 (pages 77 to 79):

“…There is no machinery by which a dealer can ascertain whether his vendor of the declared goods has paid the tax already. … If the Central Act makes it mandatory that the tax can be collected only at one stage, in our opinion, it is not enough for the State to say that a person, who is not liable to pay tax, must, nevertheless, pay it in the first instance, and then claim refund at a later stage.…”

5. Section 76 Remedy Against Supplier Cannot Be Rendered Otiose

Para 81 (page 81):

“GST scheme therefore contains elaborate provision to deal with instances of non-deposit of tax collected by the selling dealer from the purchasing dealer. Where the supplier has collected tax from the purchasing dealer but has failed to deposit the same, the liability of the supplier is specifically recognised and provision is made for determination and recovery of such amount under Section 76 of the Act of 2017.”

Para 82 (page 81):

“Section 76 of the Act of 2017 cannot be rendered otiose in the GST scheme on account of indiscriminate invocation of Section 16(2)(c) of the Act of 2017. This would lead to an anomalous situation, wherein the person liable to pay tax is spared and obligation to pay tax is imposed on the purchasing dealer even though it has already paid tax on the transaction. The statutory intent will be frustrated in such an eventuality. Section 16(2)(c) would have to be construed in harmony with the statutory mechanism, rather than in a manner which, without regard to the statutory mechanism applicable to the relevant period, places the entire consequence of the selling dealer’s default upon the purchasing dealer.”

6. No Re-Availment Before Rule 37A; Buyers Cannot Be Held Endlessly Liable

Para 83 (page 82):

“Moreover, prior to introduction of Rule 37A of the CGST Rules, there existed no statutory provision for the purchasing dealer to re-avail the reversed ITC even if the selling dealer subsequently deposited the tax payable by it. In such exigency, the purchasing dealer could, in substance, end up bearing a further tax burden in respect of the same transaction, while the selling dealer continues to remain liable in terms of the statutory provisions, notwithstanding the remedy available by virtue of Section 76 of the Act of 2017. Moreover, reversing ITC in most of the cases years after the transaction is bound to adversely impact smooth business transaction and would certainly not contribute to ease of doing business. The buyers cannot be held endlessly liable to trace out the whereabouts of suppliers from whom purchases were made years ago.”

Para 97 (page 90):

“It is worth noticing that prior to the introduction of Rule 37A of the CGST Rules, there existed no statutory mechanism for re-availment of reversed credit which had been reversed on account of non-payment of tax by the selling dealer, even if the selling dealer deposited the unpaid tax later along with interest. Therefore, in respect of matters governed by the statutory framework prior to the amendment of Rule 37 w.e.f. 01.10.2022 and the introduction of Rule 37A of the CGST Rules w.e.f. 26.12.2022, the purchasing dealer did not have the benefit of the specific re-availment mechanism subsequently incorporated in Rule 37A. This assumes significance in cases where reversal is sought, on account of a subsequent default by the selling dealer, despite the purchasing dealer having paid the tax component to the selling dealer, possessed the requisite tax invoice and actually received the goods or services. The purchasing dealer also had no corresponding statutory mechanism under the ITC framework for immediate re-availment of the reversed credit upon subsequent payment by the selling dealer.”

7. Rule 37A Is No General Justification for Retrospective ITC Denial

Para 84 (page 82):

“Even under Rule 37A of the CGST Rules, the purchasing dealer is required to reverse the input tax credit where the selling dealer has not furnished the corresponding return, within the period prescribed under the said Rule. The purchasing dealer, thereafter, has to await the furnishing of the corresponding return by the selling dealer, whereupon the credit so reversed can be re-availed in the subsequent return. Thus, even after the introduction of Rule 37A, the consequence of the default of the selling dealer is required to be borne, in the first instance, by the purchasing dealer by way of reversal of the credit, with the benefit of such credit being available for re-availment only upon the subsequent compliance of the selling dealer. It is, therefore, not a case of refund of the tax paid by the purchasing dealer, but one where the credit availed by the purchasing dealer is required to be reversed and can thereafter be re-availed in the manner prescribed.”

Para 89 (page 86):

“In a large number of cases, the Department has not even issued notices under Section 74 of the Act of 2017 to the purchasing dealer, while its registration is retrospectively cancelled relying upon the fact that ITC is availed on purchases made from seller whose registration is subsequently cancelled. The mere availability of the mechanism contemplated under Rule 37A of the CGST Rules cannot, by itself, justify such action. Rule 37A operates within the circumstances and for the period contemplated by the Rule, and provides for reversal and subsequent re-availment of ITC upon the supplier furnishing the corresponding return. It cannot be invoked as a general justification for retrospectively denying ITC merely because the registration of the selling dealer has subsequently been cancelled.”

8. Incidence of Tax: No Second Levy on Purchaser Who Already Paid Tax

Para 86 (page 85):

“The issue needs to be examined from another angle of incidence of tax. Imposition of tax is a compulsory levy under a statute. The liability to pay tax can be imposed upon a person who is liable to pay tax. In the GST regime, the ultimate incidence of tax is on the ultimate purchaser and the tax collected in the process, at different stages, is made available as ITC, subject to the conditions prescribed under the Act. The incidence of tax must therefore remain on the taxable person and ought not to be imposed on a person not liable to pay tax i.e., the purchasing dealer where it has already paid tax to the selling dealer. Where ITC is reversed in case of purchasing dealer, despite the tax having already been paid by such dealer to the selling dealer, then the purchasing dealer is exposed to a further tax burden in respect of the same transaction. This consequence, cannot be viewed in isolation of the statutory scheme contemplated, and it is to be examined in terms of the statutory mechanism governing reversal and subsequent re-availment of ITC, and the liability of the selling dealer.”

9. Routine and Mechanical Invocation Deprecated; Application of Mind Mandatory

Para 88 (page 85):

“In this bunch of matters, however, we have come across large number of cases where 16(2)(c) of the Act of 2017 has been invoked in a routine and mechanical manner only because the registration of selling dealer has been cancelled without probing further of the causes which led to such cancellation. There is apparently a lack of clarity on part of the GST officials of the true import of Section 16(2)(c) of the Act of 2017 which is why it is being regularly invoked.”

Para 90 (page 86):

“The provisions as discussed hereinabove, will, therefore, have to be kept in mind by the proper officer when it proposes to take shelter of Section 16(2)(c) of the Act of 2017. Proper application of mind on part of the proper officer is required, particularly in instances where the purchasing dealer is able to satisfy other conditions specified in Section 16(2) of the Act of 2017 by producing tax invoice, actual movement of goods/services and other relevant material. In such cases, the mere fact that the selling dealer has subsequently failed to deposit the tax with the Government cannot, by itself and without examination of the surrounding circumstances, result in mechanical reversal of the ITC. The aforesaid requirement would, however, have to be applied with reference to the statutory mechanism applicable to the period in question and the material available before the proper officer.”

10. Burden Under Section 155 Was Premised on Matching Mechanism

Para 95 (page 88):

“Burden of proof under Section 155 was saddled upon the person claiming ITC in view of the mechanism contemplated in the Act of 2017 permitting the purchasing dealer to know whether the selling dealer had deposited the tax or not.”

11. Different Position in Fraud, Collusion, Non-Existent Supplier or Non-Receipt Cases

This portion will be relied upon by the Revenue and must be met on facts.

Para 87 (page 85):

“The position however would stand on a different footing, in cases where the material on record indicates collusion, fraud, non-existent selling dealer, where the goods or services have not in fact been received, or where other circumstances are established which otherwise render the claim to ITC inadmissible. In such circumstances, the issue is not only one of the subsequent non-payment of tax by the selling dealer, but of the underlying entitlement of the purchasing dealer to the ITC itself.”

12. Constitutional Validity Upheld; Reading Down Declined

Para 98 (page 91):

“Having elaborately examined the GST scheme, we are of the view that Section 16(2)(c) of the Act of 2017 does not suffer from any constitutional infirmity warranting its invalidation, though, as we shall presently indicate, it cannot be construed and applied as a standalone provision. The condition that the tax charged in respect of a supply must have been actually paid to the Government is not a condition extraneous to the concept of ITC, it constitutes its very foundation. The Statement of Objects and Reasons of the Act of 2017 itself contemplates the availability of ITC in respect of taxes paid, and the credit of input tax, being a statutory concession, is available only upon fulfilment of the conditions subject to which it is conferred. The competence of Parliament to prescribe such a condition is not in question, nor have the petitioners seriously contended that such a condition, in the abstract, falls outside the wide latitude which the legislature enjoys in matters of fiscal policy. As already noticed in paragraph 91 hereinabove, the challenge to the vires is, at best, feeble, and the real grievance of the petitioners is directed against the manner in which the provision is being invoked. The vice complained of, namely, that the purchasing dealer is called upon to perform an impossible act, does not inhere in the text of Section 16(2)(c). It arises when the provision is torn out of the statutory scheme of which it is an integral part and is applied in a routine and mechanical manner, as noticed in paragraphs 88 and 89 hereinabove. The possibility of a provision being applied improperly or arbitrarily in individual cases is not a ground to invalidate the provision itself. The remedy lies in ensuring that the power is exercised in the manner, and subject to the safeguards, which the statute contemplates. We are also conscious that the Gujarat High Court in Maruti Enterprises (supra) has upheld the constitutional validity of Section 16(2)(c) of the Act of 2017, and the Special Leave Petition against the said judgment has been dismissed by the Supreme Court in Bhandari Scrap Traders (supra), with the observation that no parity can be drawn between the provisions of the Delhi Value Added Tax Act, 2004 and the Act of 2017 so as to treat a purchasing dealer under the latter on par with a bona fide purchasing dealer under the former. Judicial discipline, therefore, also counsels us against reading down the provision on the lines of Gheru Lal Bal Chand (supra) and On Quest (supra), so as to confine its operation only to cases of fraud, collusion or non-existent transactions. The challenge to the vires of Section 16(2)(c), read with Section 155 of the Act of 2017, is accordingly repelled.”

13. Harmonious Construction: Supplier-Recovery Mechanism Must Remain Effective

Para 99 (page 92):

“Upholding the validity of the provision, however, does not conclude the matter. Section 16(2)(c) read with Section 155 of the Act of 2017 cannot be construed as a standalone provision, so as to mechanically saddle liability on the purchasing dealer to reverse ITC on the failure of the selling dealer to deposit tax with the Government, without the proper officer first examining, after affording due opportunity of hearing to the purchasing dealer, the circumstances in which the selling dealer has failed to deposit the tax, the genuineness of the transaction, and the statutory mechanism available for recovery of such tax in the relevant period. The existence of the remedy against the selling dealer, including under Section 76 of the Act of 2017, is a relevant part of the statutory scheme which cannot be rendered toothless. At the same time, where the transaction itself is found to involve collusion or fraud, or where there has been no actual receipt of goods or services, or where the purchasing dealer otherwise fails to establish its entitlement to ITC, the consequences contemplated in Section 16(2)(c) would follow in accordance with law. Section 16(2)(c) opens with the words “subject to the provisions of section 41” and operates within a scheme which, as it has evolved, also comprises clauses (aa) and (ba) of Section 16(2), the substituted Section 41 and the proviso to sub-section (2) thereof, Sections 73, 74, 75(12), 76 and 79, Section 155, and Rules 36, 37A and 88C of the CGST Rules. A provision forming part of an integrated statutory scheme has to be construed and applied in harmony with the other parts of that scheme, so that each is given effect and none is rendered otiose. The Gujarat High Court in Maruti Enterprises (supra) itself sustained the provision on the premise that the purchasing dealer is not left remediless, inasmuch as the revenue is empowered to proceed against the defaulting supplier and the credit stands restored upon payment of tax by the supplier, and it expressed the expectation that the Government would address the issue of genuine purchasers at the earliest. That premise can hold good only if Section 16(2)(c) is invoked with due regard to that mechanism. Likewise, it is the revenue’s own case, as noticed in paragraph 56 hereinabove, that the burden under Section 155 is placed upon the claimant once the Department, upon verification of returns, invoices, e-way bills, vehicle movement records, banking transactions and statements recorded during investigation, forms a prima facie opinion of fraudulent or ineligible availment of ITC. The cases before us, however, demonstrate that the provision is being invoked de hors these safeguards. It is, therefore, necessary to lay down guidelines governing the invocation of Section 16(2)(c) by the proper officers of the Central Government, the States of Punjab and Haryana, and the Union Territory of Chandigarh. These guidelines do not dilute or add to the conditions contained in Section 16(2). They only ensure that the conditions are enforced in the manner the statute itself contemplates.”

14. Section 74 Against Purchaser: Seller’s Fraud Is Not Buyer’s Fraud

Para 102 (page 96):

“The principle that emerges is that where the Department seeks to invoke Section 74 of the Act of 2017 against a purchasing dealer, the foundational facts leading to the inference of fraud, willful misstatement or suppression of facts on the part of the noticee must emanate from the notice itself, and the deficiency cannot be made good subsequently by way of an affidavit before the Court. The fraud of the selling dealer does not, by itself, become the fraud of the purchasing dealer, unless the notice discloses the facts connecting the purchasing dealer with such fraud.”

Extract of G.R. Infra Projects Limited v. State of Madhya Pradesh as reproduced in para 100 (pages 94 to 95):

“10. A bare reading of the notice would indicate that but for a bland statement of ‘fraud or concealment of facts’ nothing is stated as to how fraud was inferred or concealment of facts were detected. In fact, the ‘or’ employed indicates that even the assessing officer was not sure that the assessment was proceeded by reason of fraud or on the ground of concealment of facts. What is required for the extended time to be applied are the allegations, which lead to the inference of a fraud or the concealment as attempted by the assessee resulting in suppression of facts, should emanate from the notice itself. It cannot be a mechanical use of the words ‘fraud, willful misstatement or suppression of facts’ without listing out the aspects which persuades the assessing officer to conclude that there has been employed either of these surreptitious devices by the assessee.”

Extract of Tata Steel Limited v. Union of India, 2026 INSC 920 (decided 25.08.2026) as reproduced in para 101 (pages 95 to 96):

“11. At the outset we have to notice that the proceedings under Section 73/74 can be initiated only on the satisfaction of the Assessing Officer. Even if observations/objections are made on audit, the Assessing Officer should enter his satisfaction before a notice is issued. Insofar as a notice under Section 74, the satisfaction should be not only of mismatch of ITC and short payment of tax having occurred, as is alleged in this case, the Officer should be satisfied that either fraud/willful misrepresentation/suppression had led to such mismatch or short payment of tax. ***** 14. It is not mere lip service to the provisions that is intended when an extended limitation period is provided for recovering an excess benefit availed, short payment or excess refund, from the assessee, especially when the allegation is of fraud/willful misrepresentation/suppression. The foundational facts which led to the inference arrived at of fraud/willful misrepresentation/suppression should be evident from the notice itself. The mere employment of such words will not indicate an application of mind, upon which alone the satisfaction can be arrived at. The words are not to be mechanically recited in the notice to enable recovery outside the normal limitation provided under the statute”

Part C: Fourteen Guidelines for Invoking Section 16(2)(c)

Para 103 (pages 96 to 100):

“In the light of the aforesaid discussion, we hold that Section 16(2)(c) of the Act of 2017 shall be read and invoked in consonance with the statutory scheme, in accordance with the following guidelines:”

(i) Section 16(2)(c) shall not be invoked against a purchasing dealer in a routine or mechanical manner. The subsequent cancellation, including retrospective cancellation, of the registration of the selling dealer; the reflection of ‘nil’ or short tax liability in the return of the selling dealer; or the receipt of an alert or intimation from some source or complaint etc., may furnish a legitimate starting point for an inquiry, but shall not, by themselves, constitute the basis for denial or reversal of ITC availed by the purchasing dealer.

(ii) Before issuing a show cause notice to a purchasing dealer founded upon Section 16(2)(c), the proper officer shall apply his mind to the material available and record his satisfaction as to factors such as: (a) the particulars of the selling dealer, the invoices, the tax periods and the amount of ITC involved; (b) the precise nature of the default, i.e., whether the tax charged has not been paid at all, has been short paid, or has been discharged through utilisation of ITC which is itself inadmissible; (c) the circumstances in which the selling dealer has failed to deposit the tax; and (d) the proceedings, if any, initiated against the selling dealer for recovery of such tax, including under Sections 73, 74, 75(12) read with Section 79, or Section 76 of the Act of 2017, and the status thereof.

(iii) Investigation leading to issuance of Show Cause Notice should be carried out in order to establish some direct link of the petitioner with the suppliers in order to satisfy the violation of conditions mentioned in Section 16(2).

(iv) The show cause notice shall disclose the aforesaid particulars, the material on which the proposed denial or reversal of ITC is founded, the details of the supplier(s) from whom ITC is alleged to have been wrongly availed, and the manner in which it is alleged to have been wrongly availed. The documents relied upon, such as alert notices, inspection reports, panchnamas, statements recorded during investigation, and e-way bill, vehicle registration, toll and banking data, shall be supplied to the noticee, subject to any privilege lawfully claimed.

(v) Where Section 74 of the Act of 2017 (or, for the period to which it applies, Section 74A on the ground of fraud, wilful misstatement or suppression of facts) is invoked, the notice shall itself contain the foundational facts from which the inference of fraud, wilful misstatement or suppression of facts on the part of the noticee is drawn, in terms of G.R. Infra Projects (supra) and Tata Steel (supra). A bald or mechanical recital of these expressions shall not suffice, and the deficiency cannot be supplied by a counter affidavit or by subsequent explanation. The fraud of the selling dealer shall not be attributed to the purchasing dealer unless the notice discloses the facts connecting the purchasing dealer with such fraud.

(vi) The burden under Section 155 of the Act of 2017 lies upon the purchasing dealer to establish its eligibility to ITC. The purchasing dealer may discharge the burden by producing material such as the tax invoice; proof of receipt of goods or services, including e-way bills, transport receipts, weighbridge slips and stock and consumption records etc. The proper officer shall consider such material and deal with it in the order.

(vii) Where the denial of ITC is premised upon the retrospective cancellation of the registration of the selling dealer, the proper officer shall examine the grounds on which, and the date from which, the registration has been cancelled, and whether such grounds have any bearing on the genuineness of the particular supply made to the purchasing dealer.

(viii) The existence of the statutory remedy against the selling dealer is a relevant consideration which cannot be rendered toothless. The proper officer shall ascertain and record the status of the proceedings against the selling dealer and, where the selling dealer falls within the jurisdiction of another authority, whether Central or State, shall communicate with the jurisdictional officer concerned. Where tax in respect of the same supply has been recovered from, or deposited by, the selling dealer, that fact shall be taken into account so that the same tax is not realised twice, and the purchasing dealer shall be entitled to avail or re-avail the credit to the extent permissible under the proviso to Section 41(2) of the Act of 2017 and Rule 37A of the CGST Rules, subject to Section 17(5)(i) of the Act of 2017, the applicability of which shall be examined on the facts of each case.

(ix) The proper officer shall apply the statutory framework as it stood during the tax period in question, bearing in mind the distinct phases of the scheme, namely, (a) the period prior to 01.10.2022, when the original Section 41 was in force and Sections 42 and 43, though on the statute book, were never operationalised, and when no mechanism for re-availment of reversed credit existed; (b) the period from 01.10.2022, when Section 41 was substituted, Sections 42 and 43 were omitted and clause (ba) was inserted in Section 16(2); and (c) the period from 26.12.2022, when Rule 37A was inserted in the CGST Rules. A condition or mechanism introduced by a later amendment, including clause (aa) of Section 16(2) with effect from 01.01.2022, shall not be applied to a period prior to its coming into force. In respect of the period prior to 26.12.2022, the absence of a re-availment mechanism shall be borne in mind while determining the consequence of the default of the selling dealer.

(x) The registration of a purchasing dealer shall not be cancelled, much less with retrospective effect, merely because ITC has been availed on purchases made from a selling dealer whose registration has subsequently been cancelled, without independent satisfaction as to the existence of a ground under Section 29(2) of the Act of 2017 and compliance with the procedure prescribed therefor.

(xi) An opportunity of personal hearing shall be afforded in terms of Section 75(4) of the Act of 2017. Where the statements of third persons are relied upon and the noticee seeks their cross-examination, the request shall be considered and decided by a reasoned order, having regard to whether such statements form the basis of the proposed action.

(xii) The order shall set out the relevant facts and the basis of the decision, as mandated by Section 75(6) of the Act of 2017, deal with the reply and the documents produced by the noticee, and record a specific finding on each of the conditions of Section 16(2) which is in dispute. Where Section 74 has been invoked, the order shall also record a specific finding as to the fraud, willful misstatement or suppression of facts attributable to the noticee.

(xiii) The fact that the purchasing dealer has deposited an amount during the course of investigation, whether through Form GST DRC-03 or otherwise, shall not, by itself, dispense with the requirement of the show cause notice disclosing the foundational facts. The character of such deposit and its effect shall be determined by the proper officer on the facts of each case.

(xiv) The aforesaid guidelines shall govern all proceedings pending before the proper officers as well as proceedings initiated hereafter.

Part D: Operative Directions for Pending Notices and Orders

Para 105 (pages 102 to 104):

“Coming to the individual cases, we have, as noticed in paragraph 4 hereinabove, refrained from examining the facts of each case. The impugned show cause notices and orders have been issued or passed without the benefit of the guidelines laid down hereinabove, and many of them appear to have been founded solely upon the default or the retrospective cancellation of the registration of the selling dealer. At the same time, the revenue has asserted that in several cases the transactions are not genuine, and that assertion cannot be rejected without an examination of the facts, which is best undertaken by the proper officer. Balancing these considerations, we deem it appropriate to dispose of the writ petitions with the following directions:”

(i) Where the proceedings are at the stage of show cause notice, the Petitioners shall be at liberty to file a reply or supplementary reply, along with supporting materials, within a period of eight weeks. The proper officer shall thereafter decide the matter by passing a reasoned and speaking order, after granting an opportunity of hearing, keeping in view the guidelines laid down hereinabove.

(ii) Where the show cause notice does not disclose the particulars or the material contemplated by the aforementioned guidelines, the proper officer shall supply the same to the noticee.

(iii) Where any supplementary notice or corrigendum is issued introducing a new ground or provision other than the one originally invoked, the noticee shall be at liberty to raise any objection in that regard, which shall be decided in the fresh order.

(iv) In cases where orders have been passed by the adjudicating authority, the proper officer shall re-visit the matter in the light of the guidelines set out in this judgment, after affording an opportunity of personal hearing, and shall pass a fresh reasoned order in accordance with law. While undertaking such an exercise, the proper officer may issue a supplementary notice or corrigendum along with the particulars or the material contemplated by the aforementioned guidelines and shall provide a proper opportunity to the petitioner(s) to file their Reply.

(v) It is clarified that the orders impugned in the present petitions are not being interfered with. However, they shall abide by the fresh orders that shall be passed in pursuance to this judgment.

(vi) Any amount deposited by or recovered from the petitioners, including by way of reversal of ITC or debit to the electronic credit or cash ledger, shall also abide by the fresh decision of the proper officer and shall be adjusted or refunded, along with interest as admissible, in accordance with law, wherever warranted.

(vii) No fresh coercive action regarding recovery etc., shall be taken against the petitioners pursuant to the impugned show cause notices or orders till the decision of the proper officer, in light of the above observations.

(viii) All pleas on merits, including those on fact and law are left open.

(ix) We make it clear that nothing in this judgment shall preclude the Department from proceeding against the defaulting selling dealers, in accordance with law.

Policy Suggestions for GST Council and Government

Para 104 (page 101):

“We are also of the view that a number of suggestions placed before us, merit consideration at the appropriate level. These include the display of an immediate alert on the common portal upon initiation of proceedings for cancellation of the registration of a supplier; a technology-driven mechanism enabling real-time verification by the recipient of the payment of tax by the supplier against specific invoices; alerts to the recipients where a supplier defaults in complying with Rule 86B of the CGST Rules; random physical verification of registrations at the threshold, coupled with biometric and PAN/Aadhaar based authentication; and the notification of supplies such as scrap from the unorganised sector under the reverse charge mechanism. These are matters of policy within the domain of the Government and the GST Council, and we refrain from issuing any mandamus in that regard. We, however, commend them for consideration, echoing the expectation expressed by the Gujarat High Court in paragraph 89 of Maruti Enterprises (supra) that the Government would address the issue of genuine purchasers at the earliest.”

Part E: Authorities Noticed With Extracts Reproduced in the Judgment

The extracts below are as reproduced in Shaurya Alloys. Verify each against the original report before quoting it independently.

Gheru Lal Bal Chand v. State of Haryana, 2011 SCC OnLine P&H 13205

Para 31 (pages 38 to 39):

“34. To conclude, no liability can be fastened on the purchasing registered dealer on account of non-payment of tax by the selling registered dealer in the treasury unless it is fraudulent, or collusion or connivance with the registered selling dealer or its predecessors with the purchasing registered dealer is established.”

On Quest Merchandising India (P) Ltd. v. Government of NCT of Delhi

2017 SCC OnLine Del 11286 : (2018) 56 GSTR 177 (Del)

Para 32 (pages 39 to 42):

“39. Applying the law explained in the above decisions, it can be safely concluded in the present case that there is a singular failure by the Legislature to make a distinction between purchasing dealers who have bona fide transacted with the selling dealer by taking all precautions as required by the DVAT Act and those that have not. Therefore, there was need to restrict the denial of ITC only to the selling dealers who had failed to deposit the tax collected by them and not punish bona fide purchasing dealers. The latter cannot be expected to do the impossible. It is trite that a law that is not capable of honest compliance will fail in achieving its objective. If it seeks to visit disobedience with disproportionate consequences to a bona fide purchasing dealer, it will become vulnerable to invalidation on the touchstone of article 14 of the Constitution.”

“54. The result of such reading down would be that the Department is precluded from invoking section 9(2)(g) of the DVAT to deny ITC to a purchasing dealer who has bona fide entered into a purchase transaction with a registered selling dealer who has issued a tax invoice reflecting the TIN number. In the event that the selling dealer has failed to deposit the tax collected by him from the purchasing dealer, the remedy for the Department would be to proceed against the defaulting selling dealer to recover such tax and not deny the purchasing dealer the ITC. Where, however, the Department is able to come across material to show that the purchasing dealer and the selling dealer acted in collusion then the Department can proceed under section 40A of the DVAT Act.”

SLP dismissed in Commissioner of Trade and Tax, Delhi v. Arise India Ltd., 2018 SCC OnLine SC 3859 (para 33), with liberty to the Revenue in cases where the purchase transactions are not bona fide.

Shanti Kiran India (P) Ltd. v. CTT Dept.

2013 SCC OnLine Del 50; affirmed in Commissioner Trade and Tax Delhi v. Shanti Kiran India (P) Ltd., 2025 SCC OnLine SC 2389

Delhi High Court, para 16, as reproduced in para 34 (page 45):

“16. This court is of the opinion that in the absence of any mechanism enabling a purchasing dealer to verify if the selling dealer deposited tax, for the period in question, and in the absence of notification in a manner that can be ascertained by men in business that a dealer’s registration is cancelled (as has happened in this case) the benefit of input-tax credit, under section 9(1) cannot be denied. Furthermore, this court notices that the cancellation of both selling dealers’ registration occurred after the transactions with the appellant. The VAT authorities observed that the scanty amounts deposited by the selling dealers was incommensurate with the transactions recorded, and straightaway proceeded to hold that they colluded with the appellant. Such a priori conclusions are based on no material, or without inquiry, and accordingly unworthy of acceptance.”

Supreme Court, para 7, as reproduced in para 35 (page 48):

“7. In light thereof, as we find that there is no dispute regarding the selling dealer being registered on the date of transaction and neither the transactions nor invoices in questions have been doubted, based on any inquiry into their veracity, we do not find a good reason to interfere with the order of the High Court directing for grant of ITC benefit after due verification. The appeals lack merit and are, accordingly, dismissed.”

State of Maharashtra v. Suresh Trading Company, (1997) 11 SCC 378, noticed in para 49: whatever the effect of a retrospective cancellation upon the selling dealer, it can have no impact on a person who acted on the strength of a registration certificate when the registration was current; reaffirmed in Shanti Kiran (2025).

GST Decisions Reading Down Section 16(2)(c)

National Plasto Moulding v. State of Assam (Gauhati; the year of the SCC OnLine citation is not stated in the judgment), Sahil Enterprises v. Union of India, 2026 SCC OnLine Tri   and M/s Instakart Services Pvt. Ltd. v. Union of India, 2026 SCC OnLine Kar 2469.

Tripura High Court, para 7, as reproduced (page 50):

“Having gone through the above referred judgments, we are of the view that the controversy raised in this batch of writ petitions is squarely covered by the decision of the Delhi High Court in the case of On Quest Merchandising India Pvt. Ltd. [On Quest Merchandising India Pvt. Ltd. v. Government of NCT of Delhi, (2018) 56 GSTR 177 (Delhi); 2017 SCC OnLine Del 11286.]. Hence, the show-cause notices impugned in the present writ petitions and the consequential orders are set aside. However, the Department is free to act in those cases, where the purchase transactions are not bona fide, in accordance with law.”

Maruti Enterprises v. Union of India, 2026 SCC OnLine Guj 4013

Para 37 (pages 51 to 52):

“62. The scheme of ITC under the GST framework does not envisage a situation where the purchasing dealer is left remediless. The Revenue is empowered to initiate recovery proceedings against the supplier under Sections 73 and 74 of the CGST Act for failure to discharge tax liability in respect of the original transaction. Further, in terms of Rule 37A of the CGST Rules, 2017 once the supplier discharges such tax liability, the purchasing dealer becomes entitled to re-avail the credit in the immediately succeeding month. Thus, the statutory mechanism does not permanently deprive the purchasing dealer of ITC; rather, the credit is restored upon payment of tax into the Government treasury. Mere delay or hardship in availing ITC, therefore, cannot constitute a valid ground for reading down Section 16(2)(c) of the CGST Act.”

“89. Since we are not inclined to read down Section 16(2)(c) of the CGST Act, the question of declaring it ultra vires Part III of the Constitution of India, including Article 14 of the Constitution of India, does not arise. However, we expect the Government to address the issue of genuine purchasers at the earliest.”

Bhandari Scrap Traders v. Union of India, 2026 SCC OnLine SC 1570

Order dated 24.07.2026.

Para 38 (pages 53 to 54):

“1. Though we are informed that a special leave petition has been entertained in relation to the decision of the Tripura High Court in Sahil Enterprises v. Union of India, we find from the judgment passed by the High Court of Tripura that the exercise undertaken by the High Court of Gujarat in the judgment, presently under challenge, was not undertaken by it.”

“4. In that view of the matter, the High Court was fully justified in holding that no grounds were made out to declare Section 16(2)(c) of the CGST Act as unconstitutional or read down the provisions thereof. We find ourselves in complete and respectful agreement with the views expressed by the High Court of Gujarat and affirm and uphold the impugned judgment.”

Commissioner, Central Excise and Customs v. Larsen & Toubro Ltd., (2016) 1 SCC 170

Para 76 (page 76), extract of para 21 of Heinz India as quoted in Larsen & Toubro:

“21. There is no gainsaying that a total absence of machinery provisions for assessment/recovery of the tax levied under an enactment, which has the effect of making the entire process of assessment and recovery of tax and adjudication of disputes relating thereto administrative in character, is open to challenge before a writ court in appropriate proceedings. Whether or not the enactment levying the tax makes a machinery provision either by itself or in terms of the Rules that may be framed under it is, however, a matter that would have to be examined in each case.”

Maintainability of Writ Petitions at Show Cause Notice Stage

The Revenue relied on Aman Kumar Rathaur v. State of Punjab (P&H, order dated 08.12.2023), State of Punjab v. M/s Shiv Enterprises, 2023 (96) GST 120 (SC) and Roshan Sharma v. Deputy Commissioner of Revenue, State Tax, (2025) 112 GST 43 (Cal), affirmed in SLP (C) No. 31296 of 2025 on 09.03.2026. The Court nonetheless entertained the petitions, including those at the SCN stage, and issued guidelines; this is useful to answer an objection of prematurity where an SCN is founded only on the cancellation of the supplier.

Part F: Model Grounds

To be adapted to the facts; letters to be renumbered in the petition.

• Because the impugned notice/order denies input tax credit solely on the ground that the registration of the supplier has subsequently been cancelled, which, as held by the Hon’ble Punjab and Haryana High Court in Shaurya Alloys Pvt. Ltd. v. State of Punjab and another, CWP No. 34296 of 2024 (O&M) and connected matters, decided on 01.10.2026 (Punjab and Haryana High Court, Division Bench) (para 103(i)), may furnish a starting point for inquiry but cannot by itself constitute the basis for denial or reversal of input tax credit.
• Because Section 16(2)(c) cannot be construed as a standalone provision bereft of the mechanism for its implementation, and its mechanical enforcement attracts the maxim lex non cogit ad impossibilia, as held in Shaurya Alloys (supra) (paras 74, 75, 77 and 99).
• Because the respondent has neither recorded nor disclosed the status of any proceedings against the supplier under Sections 73, 74, 75(12) read with 79 or 76, though the remedy against the supplier cannot be rendered otiose and the same tax cannot be realised twice (Shaurya Alloys (supra), paras 81, 82 and 103(ii), (viii)).
• Because the impugned action places the incidence of tax a second time on the petitioner who has already paid the tax to the supplier through banking channels, contrary to the principle in Shaurya Alloys (supra) (para 86) and Bhawani Cotton Mills Ltd. v. State of Punjab, 1967 SCC OnLine SC 39 (Constitution Bench).
• Because no investigation has been made to establish any direct link between the petitioner and the alleged default of the supplier, which is a precondition for issuing the notice (Shaurya Alloys (supra), para 103(iii)).
• Because the notice invokes Section 74 by a bare recital of fraud, wilful misstatement or suppression without stating the foundational facts, and the fraud of the selling dealer does not by itself become the fraud of the purchasing dealer (Shaurya Alloys (supra), paras 102 and 103(v); Tata Steel Limited v. Union of India, 2026 INSC 920).
• Because the petitioner discharged the burden under Section 155 by producing the tax invoices, e-way bills, transport receipts, weighbridge slips, stock records and bank statements, which the proper officer was bound to consider and deal with in the order (Shaurya Alloys (supra), para 103(vi)).
• Because the respondent has not examined the grounds on which, and the date from which, the registration of the supplier was cancelled, nor whether those grounds have any bearing on the genuineness of the particular supply to the petitioner (Shaurya Alloys (supra), para 103(vii)).
• Because the tax period in question precedes 26.12.2022, when no mechanism for re-availment of reversed credit existed, and the buyers cannot be held endlessly liable to trace suppliers from whom purchases were made years ago (Shaurya Alloys (supra), paras 83, 97 and 103(ix)).
• Because clause (aa) of Section 16(2), inserted with effect from 01.01.2022, has been applied to a period prior to its coming into force, which is impermissible (Shaurya Alloys (supra), para 103(ix)).
• Because the request for cross-examination of the persons whose statements form the basis of the proposed action has not been decided by a reasoned order (Shaurya Alloys (supra), para 103(xi)).
• Because the impugned order records no specific finding on each disputed condition of Section 16(2), nor any finding of fraud attributable to the petitioner, in breach of Section 75(6) (Shaurya Alloys (supra), para 103(xii)).
• Because the amount deposited through DRC-03 during investigation does not dispense with a proper show cause notice disclosing the foundational facts (Shaurya Alloys (supra), para 103(xiii)).
• Because the transactions are genuine, the supplier was registered on the date of the transaction, and neither the invoices nor the transactions have been doubted on any inquiry, so the petitioner is entitled to input tax credit in terms of Commissioner Trade and Tax Delhi v. Shanti Kiran India (P) Ltd., 2025 SCC OnLine SC 2389 and State of Maharashtra v. Suresh Trading Company, (1997) 11 SCC 378.

Questions of Law

• Whether input tax credit can be denied to a purchasing dealer under Section 16(2)(c) of the CGST Act, 2017 solely on account of the subsequent or retrospective cancellation of the registration of the supplier, without any inquiry establishing a direct link of the purchaser with the default?
• Whether Section 16(2)(c) can be invoked against a purchaser without the proper officer first recording the status of recovery proceedings against the defaulting supplier under Sections 73, 74, 75(12) read with 79 or 76 of the Act?
• Whether the extended period under Section 74 can be invoked against a purchaser by attributing to him the fraud of the supplier, without the notice disclosing the foundational facts connecting him with such fraud?
• Whether, for tax periods prior to 26.12.2022, when no mechanism for re-availment existed, reversal of input tax credit already paid to the supplier results in double levy on the same transaction?

Cases Discussed

• Tata Steel Limited v. Union of India, 2026 INSC 920 (Supreme Court), decided on 25.08.2026 – Relied upon for the requirement that foundational facts supporting fraud, wilful misstatement or suppression under Section 74 must be evident from the notice itself.
• G.R. Infra Projects Limited v. State of Madhya Pradesh (Supreme Court) – Relied upon for the principle that mechanical use of expressions such as fraud or suppression without foundational particulars cannot sustain invocation of Section 74.
• Bhandari Scrap Traders v. Union of India, 2026 SCC OnLine SC 1570 (Supreme Court), order dated 24.07.2026 – Affirmed the Gujarat High Court’s refusal to declare Section 16(2)(c) unconstitutional or read it down; followed by Shaurya Alloys on the validity issue.
• Maruti Enterprises v. Union of India, 2026 SCC OnLine Guj 4013 (Gujarat High Court) – Upheld Section 16(2)(c) on the premise that statutory recovery and re-availment mechanisms leave the purchaser with remedies; followed on validity, with Shaurya Alloys emphasising that this premise requires those mechanisms to be meaningfully considered.
• M/s Instakart Services Pvt. Ltd. v. Union of India, 2026 SCC OnLine Kar 2469 (Karnataka High Court) – Noticed as a GST decision adopting a purchaser-protective reading of Section 16(2)(c); Shaurya Alloys declined to adopt that reading-down approach.
• Sahil Enterprises v. Union of India, 2026 SCC OnLine Tri 4 (Tripura High Court) – Read down Section 16(2)(c) in favour of bona fide transactions; Shaurya Alloys declined to follow that approach on reading down.
• Roshan Sharma v. Deputy Commissioner of Revenue, State Tax, SLP (C) No. 31296 of 2025, order dated 09.03.2026 (Supreme Court) – Relied upon by the Revenue on availability of the statutory appellate remedy; Shaurya Alloys nevertheless entertained the batch and laid down guidelines.
• Commissioner Trade and Tax Delhi v. Shanti Kiran India (P) Ltd., 2025 SCC OnLine SC 2389 (Supreme Court) – Affirmed ITC protection where the seller was registered on the transaction date and the transactions and invoices were not doubted.
• Roshan Sharma v. Deputy Commissioner of Revenue, State Tax, (2025) 112 GST 43 (Calcutta High Court) – Relied upon by the Revenue for the proposition that disputed factual issues concerning ITC should ordinarily be pursued through the statutory appellate remedy.
• National Plasto Moulding v. State of Assam (Gauhati High Court) – Applied the On Quest approach to Section 16(2)(c) and protected bona fide purchasers from ITC denial solely for supplier default; Shaurya Alloys declined to adopt that reading-down approach.
• State of Punjab v. M/s Shiv Enterprises, 2023 (96) GST 120 (Supreme Court) – Relied upon by the Revenue against writ interference at the show cause notice stage; Shaurya Alloys nevertheless entertained the matters and prescribed guidelines.
• Commissioner of Trade and Tax, Delhi v. Arise India Ltd., 2018 SCC OnLine SC 3859 (Supreme Court) – The Supreme Court declined to interfere with the Delhi High Court’s purchaser-protective VAT ruling while preserving Revenue’s remedies in non-bona fide transactions.
• On Quest Merchandising India (P) Ltd. v. Government of NCT of Delhi, 2017 SCC OnLine Del 11286 : (2018) 56 GSTR 177 (Delhi High Court) – Read down the corresponding DVAT provision to protect bona fide purchasers; Shaurya Alloys declined to read down Section 16(2)(c) on the same basis.
• Commissioner, Central Excise and Customs v. Larsen & Toubro Ltd., (2016) 1 SCC 170 (Supreme Court) – Relied upon in examining the importance of machinery provisions for implementation, assessment and recovery under a taxing statute.
• Shanti Kiran India (P) Ltd. v. CTT Dept., 2013 SCC OnLine Del 50 (Delhi High Court) – Held that ITC could not be denied merely because of subsequent supplier-registration cancellation where the purchaser lacked a mechanism to verify supplier tax payment; subsequently affirmed by the Supreme Court.
• Gheru Lal Bal Chand v. State of Haryana, 2011 SCC OnLine P&H 13205 (Punjab and Haryana High Court) – Protected a purchasing dealer from seller-side tax default absent fraud, collusion or connivance; its reading-down approach was not adopted for Section 16(2)(c).
• State of Maharashtra v. Suresh Trading Company, (1997) 11 SCC 378 (Supreme Court) – Noticed for the principle that retrospective cancellation of a seller’s registration should not prejudice a purchaser who acted while the registration was current.
• Bhawani Cotton Mills Ltd. v. State of Punjab and another, 1967 SCC OnLine SC 39 (Supreme Court, Constitution Bench) – Relied upon for the principle that a purchaser cannot be made to bear tax liability dependent upon a supplier-side event which the purchaser has no statutory means of verifying.

Conclusion

The significance of Shaurya Alloys lies in the distinction between the validity of Section 16(2)(c) and the legality of the manner in which it is enforced. The Punjab and Haryana High Court did not hold that a bona fide purchaser automatically becomes entitled to ITC whenever the supplier defaults. Nor did it confine Section 16(2)(c) only to fraudulent transactions. Instead, it upheld the statutory condition while making clear that the provision forms part of an integrated GST mechanism and cannot be mechanically applied merely because the supplier subsequently defaults, reports inadequate liability or suffers retrospective cancellation of registration.

For pending and future cases, the practical focus therefore shifts to the quality of the Department’s investigation, the material disclosed in the show cause notice, the genuineness of the underlying transaction, the purchaser’s evidence under Section 155, proceedings taken against the defaulting supplier, the statutory framework applicable to the relevant tax period, and—where Section 74 or Section 74A is invoked—the existence of specific foundational facts connecting the purchasing dealer with fraud, wilful misstatement or suppression.

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RAVINDRA KUMAR RASTOGI | Advocate, Chamber No. 5, High Court, Allahabad