Facts of the Case

Sanjay Chamaria, engaged in a trading business dealing in gifts, novelties, toys and household plastic articles from Bagri Market, Kolkata, was issued a show-cause notice dated 3rd August 2024 under Section 74 of the WBGST/CGST Act, 2017, alleging availment of bogus and ineligible Input Tax Credit of Rs.1,67,79,887 for tax periods 2017-18 to 2019-20 from non-existent suppliers. A search on 23rd January 2024 found his business premises shuttered with no records, and he admitted during interrogation that he had no documents evidencing actual receipt of goods. An adjudication order dated 5th February 2025 under Section 74(9) confirmed the demand through three DRC-07 notices, following which he filed a writ before the Calcutta High Court challenging the order solely on the ground of denial of opportunity to cross-examine seven truck drivers whose statements were relied upon.

Issues Involved

  1. Whether denial of an opportunity to cross-examine transporters whose statements formed part of the show-cause notice vitiates the Section 74 adjudication order for breach of natural justice.
  2. Whether a taxpayer who has not retracted his own admissions or produced corroborating evidence can insist on cross-examination of departmental witnesses as of right.

Petitioner's Arguments

  • The statements of the truck drivers, though supplied to him, were never produced for cross-examination despite a specific request in his reply.
  • The drivers' statements confirming their vehicles were never used for the alleged transport were, according to the petitioner, recorded under duress.
  • This denial amounted to violation of the principles of natural justice, entitling him to invoke writ jurisdiction under Article 226 despite not exhausting the appellate remedy.

Respondent's Arguments

  • The show-cause notice was based on detailed investigation showing the purchases were entirely fake, corroborated by the petitioner's own interrogation admissions and his failure to produce any e-way bills or documents evidencing genuine receipt of goods.
  • Since the petitioner never disclosed material supporting his claim of duress or the genuineness of the transactions, no occasion for cross-examining the transporters arose.

Court Order / Findings

  • The Court noted that the petitioner had, in his own unretracted statements, admitted availing ITC from entities on the department's alert list and conceded he had no documents proving receipt of goods; none of the seven truck drivers had retracted their statements either.
  • ITC eligibility under Section 16(2)(b) turns on actual receipt of goods and bears no relation to a taxpayer's outward sales, so the petitioner's attempt to correlate the two was rejected as factually erroneous.
  • Cross-examination tests the veracity of testimony; since the petitioner neither retracted his own admissions nor produced any document supporting the duress claim, the onus lay on him to first lay such a foundation before seeking cross-examination.
  • Finding no violation of natural justice, the Court dismissed the writ petition without costs, upholding the Section 74 demand.

Important Clarification

  • An assessee's own unretracted admission of availing ITC from non-existent suppliers, coupled with a failure to produce corroborating documents, defeats a later claim that denial of cross-examination of departmental witnesses breached natural justice.
  • The burden lies on the assessee to first establish a foundation — such as retraction of his own statement or countervailing evidence — before cross-examination can be demanded as of right.
  • Genuine receipt of goods, not correlation with a taxpayer's outward sales, remains the touchstone for ITC eligibility under Section 16(2)(b).

Sections Involved

  • Section 74, CGST/WBGST Act, 2017 — determination of tax not paid by reason of fraud or wilful misstatement, under which the show-cause notice and order were issued.
  • Section 16(2)(b), CGST Act, 2017 — conditions for availing Input Tax Credit, requiring actual receipt of goods or services.
  • Article 226, Constitution of India — writ jurisdiction invoked despite the alternate appellate remedy under the Act not being availed.

Decision – In Favour of

The decision is in favour of the Department/Revenue. The writ petition was dismissed and the Section 74 demand confirming bogus ITC of Rs.1.67 crore was upheld.

Case Details

Court: High Court at Calcutta
Case No.: WPA 10125 of 2025
Coram: Hon'ble Justice Raja Basu Chowdhury
Date of Order: 30th July 2025

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