Facts of the Case

M/s Pawan Int. Udyog challenged an order dated 25.04.2024 raising a cumulative demand of Rs.92,51,744 in Form GST DRC-07, arising from a show-cause notice issued in Form DRC-01 — a form the petitioner contended is meant solely for unregistered persons, rendering the SCN procedurally improper as clarified in Radha Krishan Industries v. State of Himachal Pradesh (2021). The underlying dispute concerned the petitioner's consumption of coal in manufacturing bricks, with the department alleging manipulation of invoices and e-way bills based on the coal purchased versus the bricks produced.

Issues Involved

  1. Whether a demand premised on alleged coal-to-brick production discrepancies can be sustained where the department applies no established technical yardstick to establish the alleged manipulation.

Petitioner's Arguments

  • The show-cause notice was issued in the wrong form (DRC-01, meant for unregistered entities), making the entire proceeding procedurally unsustainable.
  • Sought directions for strict adherence to statutory and natural justice safeguards, and for the respondents to review the assessment afresh considering all material evidence.

Respondent's Arguments

  • The State, referring to a coordinate Bench ruling in Rounak Int Udyog v. State of Bihar (CWJC No. 7580 of 2025) involving an identical coal-brick manipulation allegation, had no objection to the matter being remanded on the same terms.

Court Order / Findings

  • The Court relied on Rounak Int Udyog, which held that before levying tax, interest or penalty on an allegation of coal-brick production manipulation, the department must apply an established technical yardstick — for example, that producing one tonne of bricks typically requires 100 to 250 kg of coal — and correlate production and purchase figures against that yardstick; no such exercise had been undertaken.
  • Given the State's concession in light of Rounak Int Udyog, the impugned order dated 25.04.2024 was quashed.
  • The respondents were directed to undertake fresh steps strictly per the Bihar GST Act, providing adequate hearing, to be completed within six months, failing the petitioner's cooperation with which the department could proceed ex parte.

Important Clarification

  • In manufacturing-input-mismatch allegations (such as coal consumed versus bricks produced), the department must apply a scientifically established consumption/production yardstick before treating a quantity mismatch as evidence of invoice or e-way-bill manipulation — an unsubstantiated inference is not sufficient to sustain a GST demand.

Sections Involved

  • Section 73/74 of the BGST Act, 2017 — determination of tax not paid/short paid or involving fraud.
  • Form GST DRC-01 (SCN for registered persons) vs. Form GST DRC-07 (summary of demand) — procedural propriety of the notice form used.

Decision – In Favour of

In favour of the Assessee — the demand order was quashed and the matter remanded for a fresh, evidence-based assessment within six months.

Case Details

Court: High Court of Judicature at Patna — Case No.: Civil Writ Jurisdiction Case No. 7565 of 2025 — Coram: Hon'ble Justices Mohit Kumar Shah and Arun Kumar Jha — Date of Order: 8 April 2026.

Link to Download the Order

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