Facts of the Case

Rauhitaang Steels, a proprietorship trading in iron and steel and registered under the CGST and PGST Acts, 2017, availed input tax credit on purchases from certain suppliers. It received a call in March 2023 about an outstanding tax demand linked to purchases from these suppliers, and later learned that a tax demand of Rs. 5,92,238 (with interest and penalty) had been confirmed against it. The show-cause notice dated 09.04.2021 alleged that one Ganga Ram, arrested under Section 132 of the CGST Act, controlled firms (M/s Roli Trading Co and M/s Gautam and Co) that had passed on fraudulent ITC to the petitioner without payment of tax. The demand was confirmed by order dated 18.05.2021, without, the petitioner alleged, an opportunity of hearing.

Issues Involved

  1. Whether the impugned demand order, alleged to have been passed without a hearing, should be interfered with by the writ court.
  2. Whether the petitioner could avoid the appellate remedy on the ground that it should not be liable to pre-deposit 10% of the disputed amount under Section 107(5) of the CGST Act.

Petitioner's Arguments

  • The impugned order was passed without giving an opportunity of hearing.
  • The taxable value/ITC amount attributed to purchases from the two suppliers, per the petitioner's own ledger accounts (for M/s Roli Trading Co and M/s Gautam and Co), was lower than what the show-cause notice and order stated, so the petitioner should not have to make the 10% pre-deposit to file an appeal.

Respondent's Arguments

  • No detailed counter-arguments are recorded beyond the Court's own reasoning that the petitioner had an efficacious alternative remedy of appeal.

Court Order / Findings

  • The Court held that the writ petition deserved to be dismissed since the petitioner had an alternative remedy of filing an appeal against the impugned order.
  • It rejected the petitioner's attempt to bypass the appeal solely on the basis that it should not have to make the 10% pre-deposit under Section 107(5) of the CGST Act; the Court held that this very question — whether the ledger books justified a lower pre-deposit — could and should be examined by the Appellate Authority itself.
  • The writ petition was dismissed, with liberty granted to the petitioner to file an appeal and argue, on the basis of its ledger books, against the requirement of the 10% pre-deposit.

Important Clarification

The Court expressly declined to decide the merits of the ITC fraud allegation or the correct taxable value — it only held that the appellate route, including the pre-deposit dispute itself, was the correct forum. Taxpayers facing similar ITC-fraud demands linked to a supplier's Section 132 arrest should be prepared to litigate both the substantive ITC issue and any pre-deposit relief before the GST Appellate Authority, not the writ court.

Sections Involved

  • Section 107(5), Central Goods and Services Tax Act, 2017 — mandatory pre-deposit for filing an appeal.
  • Section 132, Central Goods and Services Tax Act, 2017 — punishment for certain offences (fraudulent ITC).
  • Punjab Goods and Services Tax Act, 2017 — corresponding State GST registration.

Decision – In Favour of

Decided against the petitioner on maintainability; the writ petition was dismissed, in effect leaving the field to the Revenue for now, with liberty to the petitioner to pursue both the ITC merits and the pre-deposit question before the Appellate Authority.

Case Details

  • Court: High Court of Punjab and Haryana at Chandigarh
  • Case No.: CWP-19193-2023
  • Neutral Citation: 2023:PHHC:124982-DB
  • Coram: Hon'ble Ms. Justice Ritu Bahri and Hon'ble Mrs. Justice Manisha Batra
  • Date of Decision: 1 September 2023

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