Facts of the Case

The petitioners, M/s Chetak Motors Pvt. Ltd. and others, filed a writ petition under Article 226 of the Constitution challenging a Show Cause Notice dated 24.06.2025 issued under Section 74 of the CGST Act, 2017 for the tax period 2021–22. The notice alleged wrongful availment and non-reversal of Input Tax Credit attributable to exempt supplies, in violation of Section 17(2) of the CGST Act read with Rules 42 and 43 of the CGST Rules.

The petitioners contended that their accounts had already been audited up to FY 2020–21 and an audit report in Form GST ADT-02 dated 21.09.2022 had been issued. Despite this, anti-evasion proceedings were initiated, alleging wilful suppression and intent to evade tax.

Issues Involved

Whether invocation of Section 74 CGST Act could be interfered with at the show cause notice stage, whether allegations of pre-conceived bias by the adjudicating authority were sustainable, and whether non-supply of relied upon documents violated principles of natural justice.

Petitioner’s Arguments

The petitioners argued that Section 74 could not be invoked as there was no fraud, wilful misstatement or suppression of facts. It was contended that the proceedings were initiated with a pre-conceived notion of guilt and that Relied Upon Documents (RUDs) forming the basis of the SCN had not been supplied, rendering the proceedings unfair.

Respondent’s Arguments

The Revenue submitted that the SCN itself clearly recorded detailed reasons justifying invocation of Section 74, including detection of ineligible ITC during investigation which was not ascertainable from GST returns. It was argued that the adjudication process was yet to be completed and that all issues could be raised by the petitioners in their reply.

Court Order / Findings

The Delhi High Court examined paragraph 5 of the Show Cause Notice and held that specific and detailed reasons had been recorded explaining why Section 74 of the CGST Act was being invoked, including allegations of wilful suppression, non-disclosure in returns, and admission of liability during investigation under Section 70 of the CGST Act.

The Court held that at the SCN stage, it was not inclined to interfere with the invocation of Section 74. Allegations of a pre-conceived notion were rejected, with the Court observing that adjudicating authorities are expected to act fairly and such allegations cannot be presumed in advance.

However, on the issue of non-supply of Relied Upon Documents, the Court found merit in the petitioner’s grievance and directed the Department to supply the RUDs to enable an effective response.

Important Clarification

The High Court clarified that challenges to invocation of Section 74 CGST Act ordinarily cannot be entertained at the show cause notice stage where the notice discloses reasons and allegations requiring adjudication. At the same time, supply of Relied Upon Documents and grant of personal hearing are mandatory to ensure fairness in adjudication.

Final Outcome

The writ petition was disposed of. The Court declined to quash the Show Cause Notice or interfere with invocation of Section 74 of the CGST Act. The Respondents were directed to supply all Relied Upon Documents by 30.09.2025. The petitioners were permitted to file their reply by 15.10.2025, followed by grant of personal hearing. The adjudicating authority was directed to pass a reasoned order in accordance with law, with all rights and contentions of the parties kept open.

Source Link- https://delhihighcourt.nic.in/app/showFileJudgment/75412092025CW141272025_155526.pdf


Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.