Facts of the Case

The petitioner, Ambika Traders, a sole proprietorship of Mr. Gaurav Gupta engaged in the business of metal scrap, was registered under GST after migration from the VAT regime. A search was conducted by the GST Department on 3 August 2021 at the residential and business premises of the petitioner, followed by arrest of the proprietor on 4 August 2021 by the Directorate General of GST Intelligence, Meerut Zonal Unit. The proprietor was released on regular bail on 22 October 2021. A show cause notice dated 29 May 2023 was issued by DGGI, Ghaziabad Regional Unit for financial years 2017–18 to 2021–22, alleging fraudulent availment and passing on of input tax credit and proposing a demand of ₹83,76,32,528. The petitioner filed a detailed reply on 19 December 2024 and an additional reply on 30 December 2024. An Order-in-Original dated 23 January 2025 was passed confirming the entire demand along with penalty, followed by issuance of DRC-07. A corrigendum was later issued correcting the penalty amount imposed on the proprietor.

Issues Involved

Whether the adjudication order passed under Section 74 of the CGST Act was vitiated for non-consideration of replies filed by the assessee, whether denial of cross-examination of witnesses relied upon in the show cause notice violated principles of natural justice, whether demands could be confirmed on grounds not contained in the show cause notice, and whether a single show cause notice covering multiple financial years was permissible.

Petitioner’s Arguments

The petitioner contended that the replies filed to the show cause notice were not considered at all by the adjudicating authority, in violation of the mandatory requirement under Section 74(9) of the CGST Act. It was argued that denial of cross-examination of witnesses, officers and panchas whose statements were relied upon was contrary to settled law and principles of natural justice. The petitioner relied on CBIC Circular No. 171/03/2022-GST dated 06 July 2022 to submit that where no actual supply of goods took place, tax demand under Sections 73 or 74 was not sustainable and only penalty provisions could apply. It was further argued that the adjudication order travelled beyond the show cause notice in violation of Section 75(7) of the CGST Act and that a single show cause notice covering multiple financial years was impermissible.

Respondent’s Arguments

The Revenue defended the adjudication order, contending that the petitioner failed to cooperate in adjudication proceedings and that the material on record, including statements recorded during investigation, clearly established fraudulent availment and passing on of input tax credit. It was argued that cross-examination was rightly denied considering the facts and conduct of the petitioner and that sufficient opportunity had been granted.

Court Order / Findings

The Delhi High Court observed that Section 74(9) of the CGST Act casts a mandatory obligation on the adjudicating authority to consider the representation made by the assessee before passing an order. The Court found that the impugned order did not reflect any meaningful consideration of the replies filed by the petitioner. The Court further held that denial of cross-examination, where statements of witnesses form the basis of the demand, causes serious prejudice to the assessee and violates principles of natural justice. It was also noted that confirmation of demand must strictly confine to the grounds stated in the show cause notice and that adjudication orders cannot be sustained if they travel beyond the notice. In view of these procedural infirmities, the Court held that the adjudication order was unsustainable in law.

Important Clarification

The Court clarified that adjudication under Section 74 of the CGST Act, involving serious allegations of fraud and large tax demands, must strictly adhere to statutory safeguards and principles of natural justice. Consideration of replies and grant of cross-examination, where relied-upon statements are adverse, are not empty formalities but substantive rights of the assessee.

Final Outcome

The writ petition was allowed, the Order-in-Original dated 23 January 2025 along with consequential DRC-07 was set aside, and the matter was remanded to the adjudicating authority for fresh adjudication in accordance with law after duly considering the petitioner’s replies and granting appropriate opportunity, including cross-examination, to the petitioner.

Link to Download Order https://www.mytaxexpert.co.in/uploads/1769496861_AMBIKATRADERSTHROUGHPROPRIETORGAURAVGUPTAVsADDITIONAL.pdf

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