Facts of the Case

Vidhata Metal, a proprietorship, challenged a show cause notice dated 02.02.2023 issued by the Additional/Deputy Commissioner, CGST & Excise, Thane Rural, alleging demand and penalty in connection with transactions involving fake invoices. The petitioner had earlier received an intimation in Form GST DRC-01A on 16.01.2023, followed by a report dated 08.05.2023 and the formal show cause notice (with Form GST DRC-01) dated 10.05.2023, issued under Section 73 of the CGST Act, 2017. The petitioner sought a declaration that the notice violated Article 14 of the Constitution, Rule 142(1A) of the CGST Rules and CBIC Circular No. 171/03/2022-GST, a quashing of the notice, a reading down of certain notification/circular provisions relating to Notification No. 2/2017-CT, and a waiver of the mandatory pre-deposit under Section 107(6)(b) of the CGST Act for any future appeal.

Issues Involved

  1. Whether the show cause notice dated 02.02.2023 was liable to be quashed at the threshold on the grounds of an allegedly backdated DRC-01A, non-compliance with CBIC Circular No. 171/03/2022-GST, lack of pecuniary jurisdiction, or Rule 142(1A) of the CGST Rules.

Petitioner's Arguments

  • The report dated 08.01.2023/12.01.2023 underlying the DRC-01A was backdated and was informed to the department on 08.03.2023, so the show cause notice ought to be dropped on that ground alone.
  • The notice was contrary to CBIC Circular No. 171/03/2022-GST, which clarifies demand and penalty provisions for fake-invoice transactions, and if applied correctly the notice could not stand.
  • Input tax credit availed before the completion certificate for the building being promoted did not require reversal, relying on the Gujarat High Court's ruling in Principal Commissioner v. Alembic Ltd.
  • The officer who issued the notice lacked pecuniary jurisdiction, referring to CBIC Circular No. 31/05/2018-GST.

Respondent's Arguments

  • All the issues raised by the petitioner, including jurisdiction and the circular-based arguments, could and should be examined by the adjudicating officer while deciding the show cause notice itself.

Court Order / Findings

  • The Court examined the timeline and found that the report dated 08.05.2023 had, in fact, been forwarded to the petitioner along with Form GST DRC-01A on 20.04.2023 — well before the formal show cause notice — and that the petitioner itself, in a representation dated 04.05.2023 acknowledging the Section 73(5) intimation, had asked to be allowed to respond if a show cause notice was issued.
  • The Court held that the show cause notice, issued along with the GST DRC-01 form and the underlying report, was neither vague nor lacking in particulars.
  • It was for the petitioner to raise all its contentions — including pecuniary jurisdiction and the applicability of the fake-invoice circular — in its reply to the adjudicating officer, rather than at the writ stage.
  • The Court directed that if the petitioner filed a reply within four weeks, the adjudicating officer should decide the show cause notice after granting a personal hearing within eight weeks of the reply, keeping all contentions of both parties expressly open.
  • The petition was disposed of on these terms.

Important Clarification

The Court did not rule on whether the transactions actually involved fake invoices, whether Rule 142(1A) or the CBIC circular applied, or whether pre-deposit should be waived — every one of those questions was left open for the departmental adjudication process. This is a common pattern in GST writ litigation: courts generally decline to short-circuit adjudication of a show cause notice unless it is ex facie without jurisdiction or wholly unintelligible.

Sections Involved

  • Central Goods and Services Tax Act, 2017 — Section 73 (demand for tax not paid), Section 107(6)(b) (pre-deposit for appeal)
  • Central Goods and Services Tax Rules, 2017 — Rule 142(1A) (intimation of ascertained tax) and Form GST DRC-01/DRC-01A
  • CBIC Circular No. 171/03/2022-GST — clarification on fake invoices
  • CBIC Circular No. 31/05/2018-GST — pecuniary jurisdiction of GST officers

Decision – In Favour of

Disposed of without any decision on merits; the taxpayer must now respond to the show cause notice and raise all its objections before the adjudicating officer.

Case Details

Court: High Court of Judicature at Bombay  |  Case No.: Writ Petition No. 10329 of 2023  |  Coram: Hon'ble Mr. Justice G.S. Kulkarni and Hon'ble Mr. Justice Jitendra Jain  |  Date: 4 September 2023

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