Facts of the Case

Petitioner, Prodair Air Products India Private Limited, a wholly-owned subsidiary of Air Products and Chemicals Inc. USA engaged in the manufacture and sale of industrial gases, was awarded a contract by Bharat Petroleum Corporation Ltd (BPCL) to build, own and operate a Hydrogen and Nitrogen production plant at BPCL's Kochi Refinery. Registered earlier under the KVAT Act and migrated to GST, the Petitioner claimed transitional input tax credit of Rs.12,93,53,675 under Section 140(1) of the KSGST Act via Form GST TRAN-1, and separately claimed Rs.69,80,009 in respect of capital goods under Section 140(2), through applications dated 12.04.2017 and 19.06.2017 that had not been reflected in its returns as on 30.06.2017. The Petitioner also claimed input tax credit on natural gas used as a raw material for manufacturing industrial gases. The Assistant Commissioner (SGST) issued a show cause notice dated 12.10.2020 under Section 73(1) of the KSGST Act, 2017, proposing to recover Rs.22,16,72,997 by disallowing the transitional credit and treating the ITC on natural gas as inadmissible and outside the purview of GST. The Petitioner challenged this notice by writ petition, also seeking adjustment of the proposed demand against pending refund claims.

Issues Involved

  1. Whether a show cause notice under Section 73(1) of the KSGST Act, 2017 disallowing transitional ITC and ITC on natural gas could be quashed in writ jurisdiction.
  2. Whether the disputed questions of fact regarding entitlement to transitional credit and ITC on natural gas should instead be adjudicated by the assessing authority.
  3. Whether the Petitioner's earlier litigation history before the High Court on similar ITC disallowances for prior assessment years barred entertaining the present challenge.

Petitioner's Arguments

  • The show cause notice under Section 73(1) of the KSGST Act sought to reopen and disallow transitional credit and ITC on natural gas that had already been legitimately availed and reflected in revised returns filed pursuant to an earlier High Court direction.
  • The proposed demand ought to be adjusted or set off against the amounts refundable to the Petitioner pursuant to its pending refund applications.
  • The levy of interest and penalty ought to be set aside.

Respondent's Arguments

  • The show cause notice was neither a nullity nor without jurisdiction; it merely commenced proceedings alleging ineligible availment of input tax credit.
  • Disputed questions of fact were involved, which could not be adjudicated in writ jurisdiction; the Petitioner ought to be relegated to filing a reply and contesting the notice before the assessing authority.
  • In earlier writ appeals concerning the Petitioner's ITC disallowance for Assessment Years 2015-16 to 2017-18, the Division Bench had already declined to interfere with the assessment orders, leaving the Petitioner to pursue statutory appellate remedies.

Court Order/Findings

  • Relying on the Supreme Court's ruling in State of Punjab v. M/s Shiv Enterprises (Order dated 16.01.2023 in C.A. No.359/2023), the Court held that it would not be proper for a writ court to render an opinion on alleged tax evasion or ineligible ITC availment; that determination is to be made by the competent authority in appropriate proceedings.
  • The impugned show cause notice was neither a nullity nor without jurisdiction, and merely initiating proceedings under Section 73(1) does not violate the Petitioner's fundamental rights.
  • Following its own Division Bench ruling in W.A. No.374/2021 declining to interfere with similar ITC disallowances for earlier years, the Court dismissed the writ petition without going into the merits of the show cause notice.
  • The Petitioner was granted liberty to file a reply to the show cause notice by 20.11.2023, and the Assessing Authority was directed to proceed with adjudication expeditiously and in accordance with law.

Important Clarification

  • A show cause notice under Section 73(1) of the CGST/SGST Act is merely the commencement of proceedings and, absent a jurisdictional defect, cannot ordinarily be quashed in writ jurisdiction merely because the taxpayer disputes the underlying facts of ITC eligibility.
  • Input tax credit — whether transitional credit under Section 140 or credit on inputs like natural gas — can only be availed where the tax on the underlying supply has actually been paid to the Government; eligibility disputes involving disputed facts are for the assessing/appellate authority, not the writ court, to determine.

Sections Involved

  • Section 73(1) of the Kerala State Goods and Services Tax Act, 2017 — governs recovery of tax not paid or input tax credit wrongly availed for reasons other than fraud.
  • Section 140 of the Central/Kerala State Goods and Services Tax Act, 2017 — governs transitional arrangements for carrying forward Cenvat credit/input tax credit into the GST regime via Form GST TRAN-1.
  • Article 226 of the Constitution of India, 1950 — invoked for the writ remedy.

Decision – In Favour of

In favour of the Department. The writ petition challenging the show cause notice was dismissed, though the Petitioner retains liberty to contest the demand on merits before the Assessing Authority.

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.26219 of 2020
  • CNR: Not available
  • Coram: Justice Dinesh Kumar Singh
  • Decision Date: 13-10-2023
  • Disposal Nature: Dismissed (writ petition against the show cause notice dismissed; liberty to reply to the notice)

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