A.G. Enterprises v. Union of India & Anr.

What happened

The petitioner, a proprietorship trading in machines, screws, scaffolding, shuttering and propping equipment, was one of 618 recipients named in a Central GST investigation of a Delhi dealer that the department said had availed fake credit of ₹11,95,83,886 on supplies from non-existent suppliers and passed on inadmissible credit of ₹12,08,75,617 by issuing invoices without supply of goods, of which 228 recipients in the jurisdiction of CGST Delhi North were said to have availed ₹10,30,79,845. The petitioner's credit from that dealer was put at ₹47,93,104, and it deposited ₹5,00,000 by Form DRC-03 on 20 October 2022. A Demand-cum-Show Cause Notice (No. 22/2024-25) was issued on 6 June 2024, with its summary uploaded on 2 August 2024, under section 74 with interest under section 50 and penalty, and the Order-in-Original of 12 February 2025 confirmed the demand and appropriated the amounts deposited. The State GST authorities had separately proceeded under section 73 against the petitioner on credit from the same dealer: for 2017-18 a notice of 23 September 2023 ended in an order of 13 December 2023 dropping the demand, for 2018-19 a notice of 20 December 2023 led to an order of 29 April 2024 confirming it (challenged and pending), for 2019-20 a notice of 29 May 2024 led to an order of 29 August 2024, and for 2020-21 a notice of 22 November 2024 led to an order of 27 February 2025.

The petitioner argued that the Central proceedings were without jurisdiction because of section 6(2)(b), relying on Amit Gupta v. Union of India, that the order confirmed the demand on a ground different from the notice, which alleged non-receipt of goods under section 16(2)(b), by relying on the supplier's non-payment of tax under section 16(2)(c), that it had asked for a personal hearing and time and had not been heard effectively, that its reply to the pre-notice intimation of 28 May 2024 was not considered, and that clubbing several financial years in one proceeding defeated the scheme of limitation and adjudication.

Questions before the court

• Should the High Court interfere under article 226 with a section 74 order confirming an input tax credit demand because State proceedings involving the same supplier allegedly bar it under section 6(2)(b), because of an alleged denial of hearing, or because it travels beyond the show cause notice, or should the taxpayer use the statutory appeal?

Why the court ruled this way

The Court said that a statutory appeal lies against an adjudication order of this kind and that describing an objection as one of jurisdiction or natural justice does not by itself require it to exercise writ jurisdiction, as it must look at the substance of the objection (paragraphs 29–31). The expression same subject matter in section 6(2)(b) is central: the bar does not apply to every later proceeding against an assessee who has been proceeded against by another authority, and the question cannot be answered by identifying a common supplier or the fact that both concern credit, but needs examination of the tax period, transactions, invoices, credit, allegations and liability in each notice, as the Supreme Court indicated in Armour Security (India) Ltd. v. Commissioner, CGST Delhi East (paragraphs 32–36). The State proceedings related to separate years and were begun at different times, the relevant question is whether on the date the Central proceedings began the same liability was already the subject of State proceedings, and that is a factual exercise, while the difference between sections 73 and 74 is relevant but not conclusive (paragraphs 37–43). The challenge was also not confined to jurisdiction, as the petitioner sought a decision on the findings on receipt of goods, admissibility of credit, section 74 and the evidence, which the appellate authority can examine on the full record (paragraphs 44–45). The order did not travel beyond the notice, because paragraph 12 of the order records, with reference to section 16(2)(b), an independent finding that the recipients had received goods-less invoices and the section 74 finding rests on that (paragraphs 46–50 and 74–75). The order records that opportunities of personal hearing were granted and that some noticees appeared and others did not, and an apparent chronological inconsistency in paragraph 8.1, which mentions a hearing date of 23 December 2025 although the order is dated 12 February 2025, calls for verification of the record but does not show that no hearing was given (paragraphs 51–56 and 77). The order also records that replies were considered, the clubbing of years raises questions of limitation that can be examined in appeal, the State orders must be considered in the light of the precise liabilities, and the State proceedings for 2020-21 began and ended after the Central notice and order and cannot invalidate them (paragraphs 57–70). Writ jurisdiction is not meant to replace the appellate examination of the merits (paragraphs 60 and 79–81).

Controlling point

A common supplier in earlier State proceedings does not by itself establish that the Central section 74 proceedings concern the same subject matter and are barred by section 6(2)(b), and where the objections need examination of the record the High Court will not bypass the statutory appeal under article 226.

Order and next steps

The Court dismissed the writ petition, held that the challenge to the demand-cum-show cause notice could not survive independently once a reasoned order-in-original had been passed, gave the petitioner liberty to avail the statutory remedy against the order-in-original, left all contentions open for the competent authority, including those on section 6(2)(b), the earlier State proceedings, limitation, natural justice, variance between the notice and the order, admissibility of credit, interest and penalty, and closed the pending application.

Practical implications

A taxpayer relying on section 6(2)(b) should be ready to show, tax period by tax period, that the State and Central notices concern the same transactions, invoices and credit and not just a common supplier, and should put that evidence before the appellate authority.

Limits of this ruling

• The Court did not decide the correctness of the demand, whether any particular period or transaction is barred by section 6(2)(b), or the questions of admissibility of credit, receipt of goods, sections 16(2)(b) and 16(2)(c), section 74, limitation, interest or penalty, and its observations are confined to whether writ jurisdiction should be exercised.