Lack of Receipt of Memo with GST SCN: Delhi HC allows Petitioner to Contest Fake ITC Passing Allegations [Read Order]

The division bench of Justice Vibhu Bakhru and Justice Sachin Datta of the Delhi High Court has permitted the petitioner to contest allegations of passing fake Input Tax Credit ( ITC ), despite the lack of receipt of the memo accompanying the GST Show Cause Notice ( SCN ). The assessee Steelmart India has filed the present petition, inter alia, impugning the show cause notice dated 26.06.2024 , whereby the assessee was called upon to show cause as to why its GST registration number not be cancelled and its GST registration was suspended from the date of the impugned SCN. The Show Cause Notice (SCN) proposed the cancellation of the assessee’s registration based on two primary reasons. Firstly, it cited the returns submitted under Section 39 of the Central Goods and Services Tax Act, 2017. Secondly, it referenced information obtained through Memo No. 762/Ward-4 dated June 12, 2024, from the Deputy Commissioner of State Tax in Jhajjar, indicating that a physical verification revealed the entity to be non-existent or non-functional at its registered principal place of business. In addition, the Proper Officer also made an observation to the effect that bonafides of the assessee (registrant) are not established and it appears that he was engaged in fake transactions. The assessee was also called upon to furnish the reply to the impugned SCN within thirty days from the date of the service of the notice. Further was also directed to appear before the Proper Officer on 26.07.2024 at 12:30PM. The assessee was put to notice that if it fails to furnish the reply within the stipulated time or fails to appear for personal hearing on the appointed date and time, the case would be decided ex parte on the basis of the available records and on merits. Ms. Bhatnagar, representing the respondent fairly stated that although the impugned SCN was founded on the basis of the Memo and the assessee was expected to respond to the same, a copy of the same was not communicated to the assessee. She seeks to rely upon the counter-affidavit, which has since been filed, but is not on the record as it is lying under objection. A copy of the counter affidavit has been handed over in Court. She submitted that the impugned SCN revealed that the investigations reveal that the assessee was involved in the activity of passing fake Input Tax Credit. A Show Cause Notice has been issued to an assessee firm for allegedly facilitating the passing of fake Input Tax Credit (ITC) amounting to Rs. 4,06,28,221 to M/s. Kaiser Industries holding Bahadurgarh Limited (GSTIN: 06AABCK0456GIZV). Preliminary investigations, conducted by the Deputy Excise & Taxation Department of Haryana, revealed that the petitioner firm was found to be non-existent and non-functional during a physical verification inspection. As a result, the department has initiated proceedings to cancel the GST registration of the petitioner firm Suo-Moto, effective from the date of registration, under Section 29(2)(e) of the Central Goods and Services Tax Act, 2017. Officials assert that their actions are fully compliant with the established legal framework, emphasizing the government's commitment to curbing fraudulent tax practices. In the present case, the court noted that the assessee was now duly informed about the allegations on the basis of which his GST registration is proposed to be cancelled. Although, a copy of the Memo, which is referred to in the impugned SCN has not been provided to the petitioner, the counsel for the respondent has, in unambiguous terms, stated that the allegations as noted in the counter-affidavit and as noted , are the only allegations set out in the Memo. Therefore, the assessee was now fully aware of the contents of the Memo. Further, the bench's decision to set aside the impugned show cause notice would serve little purpose, as it would merely require the respondent to undertake the process of issuing a show cause notice once again. The coram of Justice Vibhu Bakhru and Justice Sachin Datta found it appropriate to dispose of the petition by allowing the petitioner to respond to the allegations outlined in the counter-affidavit, as incorporated in the impugned Show Cause Notice (SCN), and granted the assessee the liberty to do so within four working days; the petitioner or his authorized representative is required to appear before the Proper Officer at 12:30 PM on July 26, 2024, who will then consider the assessee’s contentions and make an informed decision. Since the GST registration of the petitioner has been suspended, the bench requested the Proper Officer to take appropriate decisions as expeditiously as possible and preferably within a period of one week from 26.07.2024. The Proper Officer was also at liberty to call for any other material / document as may be considered necessary. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates