Facts of the Case

Accolades Media and Communications, represented by its Managing Partner, filed a writ petition before the High Court of Kerala at Ernakulam against the State Tax Officer, Second Circle, and other respondents. The petitioner sought quashing of a show cause notice, Exhibit P1 dated 28.12.2021, and a reminder notice, Exhibit P2 dated 15.05.2023, and also sought declarations that Sections 16(2)(c) and 16(2)(aa) of the GST Acts read with Rule 36(4) of the GST Rules are ultra vires Articles 14, 19(1)(g) and 300A of the Constitution. The petitioner further sought a declaration that, on detecting a mismatch between GSTR-2A and GSTR-3B, the department must cross-verify whether the default lies with the assessee or the supplier before denying input tax credit. The petitioner admittedly had not filed a reply to the show cause notice despite the reminder, and instead approached the Court directly. The matter was heard and decided on 20.10.2023.

Issues Involved

  1. Whether a writ petition is maintainable against a show cause notice without the petitioner first filing a reply to it.
  2. Whether Sections 16(2)(c) and 16(2)(aa) of the CGST Act read with Rule 36(4) of the CGST Rules are ultra vires the Constitution.
  3. Whether the department is obliged to cross-verify a GSTR-2A/3B mismatch before denying input tax credit to the purchasing assessee.

Petitioner's Arguments

  • Exhibits P1 and P2 notices should be called for and quashed.
  • Sections 16(2)(c) and 16(2)(aa) read with Rule 36(4) are ultra vires and violate Articles 14, 19(1)(g) and 300A.
  • On detecting a GSTR-2A/3B mismatch, the department must cross-verify whether the assessee or the supplier failed to properly upload transaction details.
  • Once a purchasing assessee is shown to hold a valid, tax-suffered invoice, the department should proceed against the defaulting supplier to recover unpaid tax, rather than deny the purchaser's eligible input tax credit.

Respondent's Arguments

  • The show cause notice was issued within jurisdiction and after a reminder; the petitioner had not availed the opportunity to file a reply before rushing to the writ court.
  • A writ petition against a mere show cause notice is not ordinarily maintainable absent a jurisdictional infirmity.

Court Order/Findings

  • The Court reiterated the settled position that a writ petition against a show cause notice is not maintainable except on limited, settled grounds.
  • Finding that the show cause notice had not been issued without jurisdiction, the Court declined to quash Exhibits P1 and P2, and instead disposed of the petition with liberty to the petitioner to file a reply within fifteen days.
  • If the reply is filed, the authority will proceed to finalise the matter and pass orders; if not, the authority may pass an ex parte order.
  • Any interim order granted earlier was directed to stand vacated.

Important Clarification

  • Constitutional challenges to Sections 16(2)(c)/16(2)(aa) and Rule 36(4) are not entertained at the show-cause-notice stage where the notice itself is within jurisdiction; the assessee must first exhaust the reply and adjudication process.
  • A taxpayer who bypasses the opportunity to reply to a show cause notice and approaches the writ court directly risks the notice being left undisturbed, with only a limited window restored to respond before an ex parte order can follow.

Sections Involved

  • Section 16(2)(c), CGST Act, 2017 — condition for ITC linked to actual payment of tax by the supplier to the Government.
  • Section 16(2)(aa), CGST Act, 2017 — condition for ITC linked to the invoice details being furnished by the supplier and communicated to the recipient.
  • Rule 36(4), CGST Rules, 2017 — restricts ITC claims by reference to details reflected in the supplier's statement.

Decision – In Favour of

The petition was disposed of with directions rather than on a clean merits finding for either side: the constitutional and factual challenges were left undecided, the show cause notice was left standing, and the petitioner was given a fresh but time-bound opportunity to respond. On balance this favours the Department procedurally, since the notice survives and the petitioner must now answer it.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court of Kerala at Ernakulam
  • Case No.: WP(C) No. 18516 of 2023
  • CNR: Not available
  • Coram: Hon'ble Mr Justice Dinesh Kumar Singh
  • Decision Date: 20 October 2023
  • Disposal Nature: Disposed of with liberty to file reply to show-cause notice within 15 days

Link to Download the Order

Download the full judgment (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.