M/s Neelkanth Entrepreneurs Private Limited v. State of U.P. & Anr.

                                                       A.F.R.



                               Reserved On : - August 13, 2026



                            Delivered On : - September 09, 2026







      HIGH COURT OF JUDICATURE AT ALLAHABAD



                     LUCKNOW







             WRIT TAX No. - 1024 of 2026



M/S Neelkanth Entrepreneurs



Private Limited Thru. Its Director



                                                 …..Petitioner(s)



                            Versus







State Of U.P. Thru. Prin. Secy.



Deptt. Of State Tax U.P. Lko. And Another



                                               …..Respondent(s)











Counsel for Petitioner(s)    : Manish Misra, Abhinav      Kumar



                               Mathur, Dileep Pandey



Counsel for Respondent(s)    : C.S.C.











Court No. - 3







           HON'BLE SHEKHAR B. SARAF, J.



           HON'BLE ABDHESH KUMAR CHAUDHARY, J.











ABDHESH KUMAR CHAUDHARY, J.: Heard Shri Manish



Misra, learned counsel assisted by Shri Dileep Pandey and



Shri Abhinav Kumar Mathur, learned Counsel for the



petitioner and Shri Sanjay Sarin, learned Additional Chief



Standing Counsel appearing for the respondent(s).











2.   The present writ petition substantially seeks two fold



relief(s), the first being quashing of the impugned Show



Cause Notice dated 09.07.2026 issued by the Deputy



Commissioner, State Tax, Jurisdiction Lucknow and the



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                                                      WTAX No. - 1024 of 2026











second being a declaration to the effect that Section



16(2)(c) of the Central Goods and Services Tax Act, 2017



and the corresponding Section 16(2)(c) of the Uttar



Pradesh Goods and Services Tax Act, 2017 are ultra



vires     to      Articles    14,     19(1)(g)        and      300A     of   the



Constitution of India, or in the alternative, to read down



the aforesaid provision, so as to hold that the denial of



Input Tax Credit thereunder shall not apply to a bona fide



recipient who has otherwise satisfied the conditions of



Section 16(2)(a), (b) and (d) and has paid the tax to the



supplier, in the facts and circumstances of the case.











3.      Briefly     stating     the     petitioner,         M/s      Neelkanth



Entrepreneurs         Private       Limited,     is     a    private    limited



company, registered under the Goods and Services Tax



Act, with GSTIN No. 09AADCN8452H1Z6 and engaged in



the supply of works-contract services under SAC No.



9954. (i.e General construction, building work, civil



engineering,         specialized      trades     (plumbing,           electrical



installation),      and      completion     or        repair    services     for



residential, commercial, and industrial properties etc.)











4.      The petitioner claims to be engaged in the execution



of large-scale sub-contract works for NCC Limited (a



public infrastructure company) across the States of Bihar,



Jharkhand, Uttar Pradesh and Maharashtra. The works



inter     alia     include     excavation         and        diaphragm-wall



construction for the Old Anicut (barrage) irrigation project



at Dehri, Bihar; development of distribution infrastructure



under      the      Revamped          Distribution          Sector     Scheme



(R.D.S.S.) at various locations in Jharkhand and Uttar



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                                          WTAX No. - 1024 of 2026











Pradesh;        installation     of     Advanced       Metering



Infrastructure/smart prepaid meters for North Bihar



Power Distribution Company Limited and for MSEDCL in



Maharashtra; and rural civil and water-supply works



under the State Water and Sanitation Mission in Uttar



Pradesh. The relevant work orders issued by NCC Limited



in     favour     of    the      petitioner,   together     with



completion/experience certificates issued by NCC Limited



certifying satisfactory execution of the works (with



individual contract values ranging approximately from



₹1.24 crore to ₹8.43 crore), form part of the record.











5.    According to the petitioner, for the Financial Year



2025-26, they sub-contracted certain portions of the



aforesaid works on a back-to-back basis to eighteen



registered sub-contractors, which were duly registered



with the GST department. These firms can be depicted in



a tabular chart as herein below:











 M/s MVN Infracon Private Limited      (GSTIN 10AANCM9887B1Z9)











     M/s KV Projects and Logistics     (GSTIN 09AAHCK9740K1ZX)



             Private Ltd











         M/s Vijay Kumar Jha            (GSTIN 10ALZPJ9029N1ZF)











         M/s Himalay Pratap            (GSTIN 07FQCPP5982F1ZF)











       M/s Parab Infra Limited         (GSTIN 09AAECM9066B1ZE)











            M/s Ekta Devi              (GSTIN 10CLTPD8837L1ZN)











          M/s Pragya Tiwari            (GSTIN 07BCKPT8795E1ZT)



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                                               WTAX No. - 1024 of 2026















         M/s Stalin Kumar Das            (GSTIN 07HPEPD0153K1Z1)











               M/s Gaurav                (GSTIN 07DYTPG1137G1ZC)











           M/s Sanjay Kumar              (GSTIN 07NIPPK1513N1ZN)











     M/s Manoj Dhaneshbhai Thakar         (GSTIN 27AAJPT0190P1Z1



                                                   and











                                          GSTIN 27AAJPT0190P3ZZ)











      M/s Rajdhani Private Limited       (GSTIN 27AAKCR0773L1ZW)











      M/s Ajit International Private     (GSTIN 07AAPCA1800Q1ZE)



                 Limited











           M/s Vineet Shukla             (GSTIN 07MZUPS9441L1ZY)











      M/s Chandrajeet Kumar Singh        (GSTIN 07EWAPS8762K1ZS)











           M/s Krishna Kumar             (GSTIN 07GOWPK0776M1ZY)











          M/s Sandeep Kumar              (GSTIN 07KXMPK5161F1Z4)















6.     The petitioner claims that the work orders issued by



them      to these aforesaid sub-contractors, including the



tax      invoices     raised     by     these       sub-contractors,



measurement         sheets/work-completion           records,   bank



statements evidencing payments made through banking



channels,       GSTR-2A/B2B          invoice     summaries,      GST



registration status documents of the sub-contractors



(showing them as active at the time of the transactions),



and       signed     undertakings       from       the    authorized



signatories/proprietors of the sub-contractors confirming



execution of the works, amounts billed, GST charged,



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                                      WTAX No. - 1024 of 2026











receipt of consideration, and filing of GSTR-1 and



GSTR-3B returns with discharge of GST liability forms the



part of the record and the figures mentioned in several of



these undertakings correspond to the amounts reflected



in the impugned show-cause notice.











7.   The petitioner has placed on record its own outward



tax invoices raised upon NCC Limited under HSN/SAC



995421, 995422 and 995461 (together with a credit



note), alleging that the works/services received from the



sub-contractors were utilized in the execution of its



contractual   obligations   towards   NCC    Limited.   The



petitioner has also carried on a separate trade in medical



consumables with government departments.











8.   It is the case of the petitioner that, although they



are GST complaint, however, the respondents vide the



impugned Show Cause Notice dated 9.07.2026, issued



under Section 74A (1) of the Central Goods and Services



Tax Act, 2017 has proposed to deny the Input Tax Credit



availed by the petitioner, together with levy of tax,



interest and penalty. The principal allegation in the said



notice being that the works, which were sub-contracted



to the above-named firms appeared to be bogus and



non-existent, and as such the petitioner had wrongfully



availed the Input Tax Credit.











9.   No reply has been filed by the petitioner to the



aforesaid Impugned Show Cause Notice and instead they



have rushed to this Court invoking the extra-ordinary



Writ Jurisdiction of this Court by alleging that the



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                                        WTAX No. - 1024 of 2026











aforesaid sub-contractors were duly registered and active



at the time of the transactions; and those transactions



were duly reflected in the returns filed by both parties



and auto-populated in GSTR-2A. Furthermore, according



to the petitioner, the payments were made through



banking channels and the works were actually executed



and   utilized   in   outward   supplies.   Also    no   physical



verification of the premises of the sub-contractors was



conducted    nor      any   survey   report    or    third-party



information confronted to the petitioner before issuance



of the impugned notice. The petitioner further contends



that the reliance placed in the notice on the decision of



the Hon’ble Supreme Court in the case of State of



Karnataka v. M/s Ecom Gill Coffee Trading Private



Limited (a case under the Karnataka Value Added Tax



Act, 2003 relating to movement of goods) is inapposite,



inasmuch as the present transactions involve works-



contract services and not purchase or movement of



goods.











10. Therefore, the writ petitioner has interdicted the



very issuance of the aforesaid impugned show-cause



notice dated 09.07.2026 on various grounds and also



seeks declaration of Section 16(2)(c) of the CGST Act,



2017 and the corresponding provision of the UPGST Act,



2017 as ultra vires to the Articles 14 and 300A of the



Constitution of India.











11. At the very outset, Shri Manish Mishra, learned



Counsel for the petitioner has very fairly submitted that



as far as the second relief sought in the present writ



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                                        WTAX No. - 1024 of 2026











petition, relating to declaration of Section 16(2)(c) of the



CGST Act, 2017 to be ultra vires, the same stands settled



by the Hon’ble Supreme Court, wherein the Special Leave



Petition filed in Bhandari Scrap Traders v. Union of



India & Ors. reported in 2026 SCC OnLine SC 1570;



was dismissed by the Apex Court vide order dated 24



July 2026, thereby affirming the Gujarat High Court’s



judgment in Maruti Enterprises v. Union of India & Ors.



This Court finds that the aforesaid decision confirms the



Constitutional validity of Section 16(2)(c) of the CGST



Act, 2017, holding that Input Tax Credit (I.T.C.) is



available only if the supplier has actually paid the



corresponding GST to the Government and the Court



declined to dilute or read down this statutory condition,



reiterating that I.T.C. is a conditional statutory benefit



rather than an absolute or vested right. Thus, Shri Mishra



in view of the said subsequent development, wishes not



to press for the second relief(s).











12. As far as the first relief concerning the challenge to



the impugned show cause notice dated 09.07.2026 is



concerned, Shri Mishra has attacked the same with great



vigour   on   its   four   corners.   According   to   him,   a



jurisdictional error has crept in the issuance of the said



show cause notice denting the very validating of the



same. He has submitted that the entire Tax Component



relates to genuine Input Tax Credit arising from actual



inward supplies received from registered selling dealers,



who were all registered at the relevant point of time and



have reported the tax pertaining to the supplies in their



GST returns, which stood reflected in the petitioner’s



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                                               WTAX No. - 1024 of 2026











GSTR-2A.       According to the learned Counsel, the tax



being duly paid, the petitioner has rightly availed input



credits as the tax charged in respect of supply has been



actually paid by the said suppliers to the Government.



Thus, he submits that the conditions contemplated under



Section 16(2)(c) of the GST Act has been duly complied



with and as such there was no occasion for the



respondents to have issued the impugned the show cause



notice.











13. It has been next submitted that the petitioner and



the concerned Suppliers are existing and functional



registered tax payers. According to him, the petitioner is



neither a non-existent entity nor an untraceable person



and apparently, the suppliers were registered persons



and the relevant supplies were duly reported in their



returns and the corresponding tax was duly discharged.



Thus, the petitioner cannot be made liable for any



unsubstantiated inference regarding the supply chain,



particularly    without        any       specific   allegations     or



demonstrable evidence that the petitioner has itself



participated in any fraudulent transaction.











14. Mr. Mishra has strenuously tried to impress upon this



Court by submitting that the impugned Show Cause



Notice has been issued by completely bypassing the



statutory mechanism as provided under Section 61 of the



GST read along with Rule 99(1) of the Rules framed



therein.   According      to   him,      the    foundation    of   the



impugned Show Cause Notice is the scrutiny of returns



filed by the petitioner and as such the respondent was



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                                         WTAX No. - 1024 of 2026











obliged to follow Section 61 of the GST Act by first



providing him an opportunity to reconcile the discrepancy



or pay the differential tax, before the issuance of the



impugned Show Cause notice. He has stressed on the



word “shall” used in Section 61 read with Rule 99(1) of



the GST Rules to buttress his argument that the word



indicates a mandatory provision, so as to provide an



assessee the opportunity to explain the discrepancy if the



return is selected for scrutiny. The learned Counsel



drawing a logical conclusion has argued that it is only



when the assessee failed to furnish a satisfactory



explanation or fails to take appropriate corrective steps



that the Statute contemplates further proceedings for



determination of tax as per law. Further, argument of



Section 61 being a procedural safeguard for the assessee



and the alleged discrepancy noted in the impugned Show



Cause     Notice   being   in   the   nature   of   discrepancy



contemplated under Section 61 has been put forth to



challenge the issuance of the impugned Show Cause



Notice.











15. The learned Counsel has taken this Court through



Rule 99(1) of the GST Rules to submit that the said Rules



provide for a complete statutory mechanism for dealing



with discrepancies noticed during scrutiny of returns.



According to him, the respondent has neither followed



the steps as required under Section 61 or Rule 99 and



has technically deprived the petitioner an opportunity to



explain the discrepancy at the threshold and straightaway



issued the impugned Show Cause Notice under section



74A of the GST Act, thus, according to him, the impugned



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                                     WTAX No. - 1024 of 2026











Show Cause Notice is contrary to the statutory scheme



and suffers from a fundamental procedural illegality. He



further has relied on the following judgment to bring



home his aforesaid submission:











(i)    Judgment of Division Bench of the Orissa High Court



       in M/s Qualicum Solutions Pvt. Ltd. Kolkata



       V/s The Chief Commissioner of CT & GST (W.P



       (Civil) No. 27986 of 2024, decided vide judgment



       dated 14.11.2024);











(ii)   Judgment of Single Judge of the Calcutta High Court



       in Amex Services & Anr. v/s Dy. Commissioner,



       Sales Tax (W.P (A) No. 9391 of 2024, judgment



       dated 22.05.2024);











(iii) Judgment passed by Division bench of Rajasthan



       High Court in Goverdhandham Estate private



       Limited V/s State of Rajasthan & Ors. (D.B



       Civil Writ Petition No. 16702/2023 decided on



       17/01/2024);











(iv) Judgment of Single Bench of Gauhati High Court in



       M/s Pepsico Indian Holdings Pvt. Ltd. V/s



       Union of India (W.P (c) No. 6960 of 2023



       decided by a Single Bench on 19.09.2025);











(v)    Judgment of Division bench in Rajasthan High Court



       in Ramhari & Brothers V/s Joint Commissioner



       (State Tax), Bharatpur, (D.B Civil Writ Petition



       No. 20189 of 2025 decided on 16.07.2026).



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                                          WTAX No. - 1024 of 2026











16. The learned Counsel has next submitted that the



impugned Show Cause Notice, which has been issued



invoking the provisions of Section 74A(5)(ii) of the GST



Act, actually suffers from jurisdictional error, in as much



as the provisions, which has been sought to be invoked



envisages a situation, wherein some fraud has been



committed or that some willful statement or suppression



of material facts have been made with an intention to



evade tax, which is missing in the impugned Show Cause



Notice. He submits that there is no specific allegation,



much less any material demonstrating that the petitioner



has caused any of the acts, so as to invoke the stringent



Sections of 74A(5)(ii) of the GST Act, as the entire case



of the respondents are based on returns and information



furnished    by    the   petitioner      themselves     or   the



corresponding data available on the GST common portal.



Thus,   he   has   submitted      that   the   allegations   are



unsustainable on the face of it and as such the impugned



Show Cause Notice is wholly without jurisdiction and



legally unsustainable.











17. The learned Counsel has verbosely submitted that



the Show Cause Notice suffers from non-application of



mind, absence of necessary jurisdictional foundation and



violation of the statutory procedure, apart from violation



of principles of natural justice. According to the learned



Counsel, the respondent cannot vicariously penalize the



bonafide purchasing dealer by reversing their I.T.C.



without first exhausting recovery measures against the



supplier who failed to deposit the tax. He has relied on



the judgment of Suncraft Energy P. Ltd. v. Asstt.



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                                           WTAX No. - 1024 of 2026











Commr., S.T., (2023) 117 GSTR 78; affirmed by



Supreme Court in SLP(C) no. 027827/2023; to submit



that I.T.C. cannot be automatically denied to the recipient



solely on the ground of GSTR-2A and 3B mismatch and



the department should first proceed against the defaulter



supplier and cannot arbitrarily shift the liability to a buyer



unless the supplier is a missing dealer.











18. Per contra, Shri Sanjay Sarin, learned Additional



Chief Standing Counsel for the Respondent-Department



has submitted that the GST returns of the petitioner was



never picked for scrutiny, so as to mandatorily follow the



provisions of Section 61 of the GST Act or Rule 99 of the



GST Rules. According to the learned Counsel, the said



provisions are purely meant, in case the department



choose    to   scrutiny    the    return    and      notes   some



discrepancy. He submits that the present impugned Show



Cause Notice was issued not in the background that a



discrepancy was noted in the GST returns of the



petitioner, but on the fact that the petitioner has availed



illegal I.T.C. of firms, which were not registered with the



department.











19. The learned Additional Chief Standing Counsel has



further submitted that the present case is at the stage of



Show Cause Notice and as on date no reply has been filed



by the petitioner. According to him, the grounds and facts



taken before this Court to challenge the Show Cause



Notice can very well be taken in their reply to the Show



Cause    Notice   and     the    department     is    very   much



accustomed and have the requisite jurisdictional power to



                            13







                                      WTAX No. - 1024 of 2026











decide the said objections of the petitioner. He further



submits that the interference of this Court at the stage of



issuance of Show Cause Notice is very limited under



Article 226 of the Constitution of India and the petitioner



has not been able to make a single ground for such



interference. As far as the jurisdictional error in issuance



of notice is concerned, the petitioner has not challenged



the competency of the authority, who has issued the



notice has but camouflaged the jurisdictional issue with



facts and as such the ground of jurisdiction raised by the



petitioner being an essential factual aspect, can be very



well decided by the authority, who has issued the Show



Cause Notice. Thus, he submits that the present writ be



dismissed.











20. As far as the judgments referred by the petitioner is



concerned, the learned Additional Chief Standing Counsel



has submitted that in all these cases, there was no



dispute as to whether the case was picked for scrutiny or



not, as in each case the department has accepted that



the returns had been taken for scrutiny and as such it has



been submitted that in the said background, the Hon’ble



Courts have held that Section 61 and Rule 99 was



required to be complied mandatorily. However, in the



present case, there was no requirement of any scrutiny



and the department on the basis of the examination of



the return formed an opinion to issue Show Cause Notice,



which is not barred by law. He specifically relies on a



judgment of a co-ordinate Bench of this Court, in



Nagarjuna Agro Chemicals (P) Ltd. v. State of U.P.,



reported in 2023 SCC OnLine All 5339; (decided on



                             14







                                      WTAX No. - 1024 of 2026











15.05.2023) and judgment of a division Bench of the



Andhra Pradesh High Court, rendered in the case of



Devi Traders Vs State of Andhra Pradesh, 2023 SCC



Online AP 1886; to submit that issuance of Section 61



notice was not mandatorily required for issuance of Show



Cause Notice under Section 74 of the GST Act.











21. Having heard learned Counsels for the parties and



perused the material on record, this Court is of the



considered view that inevitably the following points arise



for consideration in the present petition:











      (i) Whether the impugned Show Cause Notice



     dated 09.07.2026 is vitiated for non-compliance



     with Section 61 of the GST Act read with Rule 99 of



     the Rules framed thereunder;











     (ii) Whether the invocation of Section 74A(5)(ii) of



     the GST Act in the impugned notice is without



     jurisdiction for want of the necessary ingredients of



     fraud, wilful misstatement or suppression of facts;











     (iii) Whether, in the facts of the present case, this



     Court ought to exercise its extra-ordinary writ



     jurisdiction under Article 226 of the Constitution of



     India to interdict the impugned Show Cause Notice



     at the threshold.











22. As far as the first issue is concerned, this Court finds



that Section 61 of the GST Act empowers the proper



officer to scrutinize the returns and related particulars



                             15







                                       WTAX No. - 1024 of 2026











furnished by a registered person, so as "to verify the



correctness of the return" and, upon noticing any



discrepancy, to seek an explanation from the registered



person in the manner prescribed under Rule 99 and for



which Form GST ASMT-10 has been prescribed under the



GST Act. Further, the provisions provide that the assessee



is required to file an explanation to the said notice in



terms of form ASMT-11 and this scrutiny proceedings can



be closed on satisfactory explanation of the discrepancy



by the assessee, leading to passing of a formal order as



per Form ASMT-12 of the GST Act. It would be profitable,



at this juncture, to quote Section-61 of the GST Act,



which inter-alia states as under :-











    “Section 61 — Scrutiny of Returns :-







    Section 61(1) empowers the proper officer to



    scrutinise the return and related particulars



    furnished by a registered person to verify the



    correctness of the return, in the manner prescribed.



    Section 61(2) provides that where discrepancies are



    noticed, the officer shall inform the registered



    person in the prescribed form (Form GST ASMT-10,



    under Rule 99 of the CGST Rules, 2017) and seek



    an explanation within a specified time. Section



    61(3) provides that where the explanation is found



    acceptable, the registered person is informed



    accordingly and no further action is taken; where no



    satisfactory explanation is furnished within thirty



    days (or the extended period allowed), or where the



    registered person, after accepting the discrepancies,



    fails to take corrective measures, the proper officer



    may      initiate  appropriate    action,   including



    proceedings under Sections 65, 66 or 67, or proceed



    to determine tax and other dues under Section 73



    or Section 74 (and, for periods to which it applies,



    Section 74A).”



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                                          WTAX No. - 1024 of 2026











23. A plain reading of the aforesaid provisions brings us



to fore that Section 61 is basically a pre-adjudicatory,



verificatory mechanism, as it does not itself result in a



determination or confirmation of demand as neither any



recovery can be effected on the strength of an ASMT-10



notice or an ASMT-12 order alone. The provision, both in



its text and its placement in Chapter XII of the Act



dealing with "Assessment", operates within a defined and



self-contained field, namely, scrutiny of returns already



filed by the registered tax payer.











24. However, as far as Section 73 or Section 74A is



concerned, this Court, finds that both these Sections 73



and    74A     operate    independently   and    are   attracted



whenever tax has not been paid, or has been short-paid,



or Input Tax Credit has been wrongly availed or utilised,



which the department out to determine before proceeding



any further. Further, we find that the said determination



by the Department may be arrived at through several



mechanism, including, (a) by scrutiny of returns under



Section 61; or (b) through audit under Section 65; or (c)



special audit under Section 66; or (d) inspection, search



and seizure under Sections 67 to 72; or, as in the present



case, independent verification and cross-examination of



the antecedents of the sub-contractors from whom Input



Tax Credit is claimed to have arisen. The list of grounds is



not exhaustive as there can be several grounds for



issuance of Show Cause Notice under Section 74A of the



GST Act. Therefore, to say that Section 61 is the only



mode and/or route through which Section 74A notice can



be    issued   is   a    wrong   understanding    of   the   GST



                                 17







                                           WTAX No. - 1024 of 2026











provisions. Nothing in the scheme of the Act renders the



resort to Section 61 a mandatory pre-condition for



invoking Section 74A; such a construction would render



otiose   the     independent      and     free-standing    powers



conferred upon the proper officer under the latter



provision.











25. Thus, according to this Court, Section 61 does not



constitute the sole or exclusive gateway through which



the Department must necessarily pass, before it can



proceed under Section 73 or Section 74A of the Act.











26. The submission of learned Counsel for the petitioner,



founded upon the word "shall" occurring in Rule 99(1),



proceeds on the premise that the process of scrutiny



under Section 61 had in fact been already initiated in the



present case. That premise is factually incorrect and at



variance with the present case, wherein the admitted



case of the parties is that Section 61 has not been



initiated at all. Further, we find that it has been



categorically    stated    on    behalf   of     the   Respondent-



Department, and not controverted by way of any material



on record, that the returns of the petitioner were never



picked up for scrutiny under Section 61; rather, the



impugned       notice   traces   its   genesis    to   independent



verification revealing that the eighteen sub-contractors,



from whom the petitioner claims to have received works-



contract services and consequential Input Tax Credit,



were found to be bogus and non-existent entities.



                               18







                                          WTAX No. - 1024 of 2026











27. The provisions of Rule 99 or the mandatory word of



‘shall’ comes into play only when Section 61 has already



been invoked, which is not the present case herein.











28. Section 74A(1), like Section 74(1), which finds a



place before it, opens with the words "where it appears to



the proper officer", therefore, according to this Court



these phraseology provided by the legislature under



Section 74(1) is hinged on as to what appears to a Proper



Officer, and in a way is an unfettered and unbound



formulation which is not tethered to any one source of



information, be it scrutiny under Section 61, audit under



Sections   65/66,    inspection      under     Section    67,    or



independent     verification   which     all   come    jointly   or



severally be a conducive ground for the proper officer to



trigger for action, leading to the issuance of the Show



Cause Notice. The word “appears” has a wider amplitude



subsuming in it not only Section 61 or 65/66/67 but also



any other credible information from a different source. If



the intendment of legislature was to make Section 74



bound by Section 61 alone, that fact would have been



clearly depicted in Section 74. However, we do not find



any specific reference to Section 61 in Section 74 except



the usage “where it appears”.











29. Further, it is also clear from a plain reading of



Section 74A that it is not a discrepancy noticed during



scrutiny   of   a   return     but   a    finding,    arrived    at



independently, that the underlying supply itself is non-



genuine, is the foundational fact for issuance of the



impugned Show Cause Notice. Therefore, the obligation



                               19







                                            WTAX No. - 1024 of 2026











cast by Rule 99(1), which by its own terms operates "in



case any discrepancy is noticed" during scrutiny is not



attracted in the first place. This Court finds that an



identical issue was raised before a Division Bench of the



Andhra Pradesh High Court in Devi Traders Case



(supra) wherein, the division Bench of that Court after



discussing the various provisions of the GST Act returned



a finding that scrutiny under Section 61 is not sine qua



non for proceedings under Section 74 and that the proper



officer may act on any material that causes tax evasion



to "appear" to him.











30. The judgments relied upon by the petitioner, as



fairly pointed out by learned Additional Chief Standing



Counsel, were all rendered in a factual matrix where



scrutiny   under   Section     61         had   admittedly   been



undertaken by the Department.             For instance, as far as



the reliance on the Rajasthan High Court judgment, in



Goverdhandham         Estate        (P)    Ltd.   v.   State    of



Rajasthan and others, reported in (2025) 147 GSTR



239; (decided on 17/01/2024), is concerned, the facts



clearly reveal that department undertook scrutiny of the



returns and even issued notice in prescribed GST form of



ASMT-10    intimating   certain       discrepancies,      thereby



drawing proceeding under Section 61 of the GST Act. The



Rajasthan High Court clearly observed in the said



judgment that jurisdiction under Section 73 was assumed



only on the ground that discrepancies were found in the



return and it was in that specific factual matrix that the



High Court went on to hold that mandate of Section 61



was required to be followed by the proper officer before



                             20







                                       WTAX No. - 1024 of 2026











assuming jurisdiction under Section 73 of the GST Act.



(Please see paragraph 24 and 25 of the said Judgment).



Thus, the reliance of the petitioner on the said judgment



is misplaced as the same is distinguishable on facts of the



present case, wherein the department has not initiated



any such exercise of scrutiny. The factum that an S.L.P.



preferred against the said judgment of the Rajasthan



High Court being dismissed also does not take the case



any further in favour of the petitioner.











31. As far as reliance on the Gauhati High Court



judgment in M/s Pepsico India Holdings (P) Ltd. v.



Union of India, reported in (2026) 159 GSTR 404;



(decided by a Single Bench on 19.09.2025), is concerned,



this Court finds that the said judgment has been



rendered by the learned Single Judge by heavily placing



reliance on the judgment of the Rajasthan High Court in



Goverdhandham case (supra), which this Court has



already observed herein above to be distinguishable on



facts. Further, we note that although this Court is not



bound by the judgment of the said learned Single judge



of the Gauhati High Court, nor the same has any



persuasive effect in view of the principle of hierarchy,



however, the fact of the matter remains that we find that



the judgment rendered by the learned Single Judge is



based on an analogy that in case the alleged short



payment, wrong availment of credits, discrepancy etc. is



based on the scrutiny of the taxpayer’s own returns i.e.



material that are squarely and exclusively the subject



matter of scrutiny under Section 61 and nothing more



than, it was incumbent that any Show Cause Notice



                                21







                                             WTAX No. - 1024 of 2026











under Section 73 has to be mandatorily preceded by a



conclusion arrived at by the revenue authority in the form



of scrutiny of returns as prescribed under Section 61 of



the GST Act.











32. However, the facts of the present case are at stark



difference as the Show Cause Notice is not only based on



the GST returns of the petitioner, but also on the returns



filed by 18 different parties as aforesaid. The analogy,



sought to be drawn by the learned Counsel for the



petitioner, basing his reliance on the judgment of the



learned Single Judge of the Gauhati High Court is not



only trying to give a very restrictive meaning to Section



73 of the GST Act but also tries to give Section 61 such a



predominance,      which   it   does    not     deserve    for   the



operation and effect of Section 74A of the GST Act. On a



facial reading of Section 73, it is clear that it is not inter-



dependent on Section 61 and no doubt scrutiny of case



under Section 61 may eventually lead to issuance of



Show Cause Notice under Section 73 but to say that



Section 73 can be invoked only once Section 61 has been



followed and/or complied, would be a misnomer and an



absolute absurdity. According to this Court, Section 61



and Section 74A lacks commutative property, as Section



61 may lead to Section 74A but the reverse is not true. It



has to be remembered that literal or strict interpretation



is essential for fiscal, tax and penal laws and the Court



cannot   abridge    or   elongate      the    meaning     of   those



statutory provisions, particularly, when the language



employed therein is plain, unambiguous and simple. The



Apex Court has reiterated the strict rule of interpretation



                            22







                                     WTAX No. - 1024 of 2026











in a slew of decisions. In Union of India v. Deoki



Nandan Aggarwal, reported in 1992 Supp (1) SCC



323 : AIR 1992 SC 96; the Apex Court observed thus:











     “14. ……. It is not the duty of the Court



     either to enlarge the scope of the legislation



     or the intention of the legislature when the



     language of the provision is plain and



     unambiguous. The Court cannot rewrite,



     recast or reframe the legislation for the very



     good reason that it has no power to legislate.



     The power to legislate has not been



     conferred on the courts. The Court cannot



     add words to a statute or read words into it



     which are not there.”







     Further, we find that the learned Single Judge,



Gauhati High Court has also observed that since the



department did not dispute that any such scrutiny was



not undertaken by them or that explanation was not



sought, the Court held that the notice issued by the



revenue was unauthorised and contrary to the provisions



of law. However, in the present case, there is a specific



dispute raised by the respondents that they have not



undertaken any scrutiny in the sense sought to be



adjudicated by the learned Counsel for petitioner. Thus,



this Court, on scrutiny of the facts and the law relied on



by the learned Single Judge of the Gauhati High Court,



finds the facts of that present case to be absolutely



different from the present case. We are unable to



subscribe to the submission of the learned Counsel for



the petitioner that the learned Gauhati High Court has



mandatorily held that Section 61 should be followed in all



cases, wherein, the department proposes to issue notice



under Section 74A of the GST Act. In any case, the said



                                      23







                                               WTAX No. - 1024 of 2026











judgment also does not further the case of the petitioner



in any manner.











33. Next, we come to the third judgment relied by the



learned Counsel for the petitioner of the Rajasthan High



Court,    in     Ramhari          and        Brothers      Vs      Joint



Commissioner (State Tax), Bharatpur, reported as



(2026)     44       Centax        327        (Raj.);     (decided    on



16.07.2026), again the said judgment is distinguishable



on facts, in as much as it is well recorded in the said



judgment       itself   that     the       revenue     authority    have



themselves admitted in the impugned order of that case



that ‘after scrutiny of returns under Section 61 of the



RGST/CGST Act, 2017, a notice intimating discrepancies



was issued to the petitioner through the GSTN Portal and



that full opportunity of hearing was afforded to the



petitioner in accordance with the principles of natural



justice’. Therefore, on the fact of that case, the Rajasthan



High Court found that although the department has



initiated scrutiny under Section 61 of the GST Act,



however, actually no notice was ever served on the



assessee and it was in this background that the said High



Court after recording Section 61 and Rule 99 of the GST



Rules,   went     on    to     hold    the    mandatory     nature    of



compliance of the said Section and the Rules framed



therein. In contrast, in the present case, it is an admitted



fact of the department that they have not initiated any



scrutiny under Section 61 of the GST Act, therefore, to



the mind of this Court, there was no requirement of



issuance of any notice under the said provision, nor any



compliance was required under Rule 99 of the GST Rules,



                              24







                                         WTAX No. - 1024 of 2026











as is being agitated by the petitioner. The Rajasthan High



Court case is thus like the earlier one, is absolutely



distinguishable on facts, as in both the case, there is a



clear admission on the part of the revenue authority that



they have initiated scrutiny under Section 61 of the GST



Act.











34. Similarly, in other cases relied by the petitioner,



rendered by a Division Bench of the Orissa High Court in



M/s Qualicum Solutions (P) Ltd. Vs The Chief



Commissioner of CT & GST, reported in 2024 SCC



OnLine Ori 3126;        (judgment dated 14.11.2024) and



judgment by a Single Judge of the Calcutta High Court, in



Amex Services v. Commr., State Tax, reported in



(2024) 129 GSTR 482; (judgment dated 22.05.2024),



it was an admitted case by the department that Scrutiny



proceedings were initiated under Section 61 GST Act,



however, the department without issuing notice under



Section 61 and/or without considering the reply of the



assessee, issued a Show Cause Notice under Section 73



of the GST and it was in these peculiar facts that the High



Court quashed the Section 73 Show Cause Notice and



held the same without jurisdiction.











35. Even in the judgment of the Calcutta High Court



rendered in Suncraft Energy P. Ltd. v. Asstt. Commr.,



S.T., reported in (2023) 117 GSTR 78; and confirmed



by the Hon’ble Supreme Court, we find that the Show



Cause Notice itself followed a scrutiny under Section 61



that had revealed the discrepancy and it was in that



specific   context   that   compliance    with   the   scrutiny



                            25







                                       WTAX No. - 1024 of 2026











mechanism     assumed     relevance.     Those     decisions,



therefore, do not assist the petitioner in a case where no



such scrutiny was ever undertaken by the department.



This view finds support in the judgment of a co-ordinate



Bench of this Court in M/s Nagarjuna Agro Chemicals



(P) Ltd. v. State of U.P., reported in 2023 SCC



OnLine All 5339; (decided on 15.05.2023), holding that



issuance of notice under Section 61 is not a mandatory



pre-requisite for initiation of proceedings under Section



74 of the Act, in the following words:











     “…...The argument that unless deficiency in



     return is pointed out to the assessee, and an



     opportunity is given to rectify such deficiency,



     that the department cannot proceed under



     section 74 is not borne out from the statutory



     scheme and the argument in that regard



     therefore, must fail.







     The scrutiny proceedings of return as well as



     proceedings under section 74 are two



     separate and distinct exigencies and issuance



     of notice under section 61(3), therefore,



     cannot be construed as a condition precedent



     for initiation of action under section 74 of the



     Act.”







36. We also find that in another judgment passed by a



Single Bench of the Madras High Court in Mandarina



Apartment Owners Welfare Assn. Vs Commercial



Tax Officer/State Tax Officer, reported in 2024 SCC



Online Mad 3501; (decided on 16 July 2024), the



Madras High Court held that Sections 61 and 73 operate



as distinct and independent proceedings and a scrutiny



under Section 61 is a pre-adjudication exercise under



which no demand can be confirmed or recovered, and is



                                26







                                          WTAX No. - 1024 of 2026











not a condition precedent to proceedings under Chapter



XV (Sections 73/74) of the CGST Act. The Court clarified



that although an ASMT-10 notice, once scrutiny is



undertaken and a discrepancy is found, must itself be



issued (failing which the scrutiny exercise is vitiated),



scrutiny as such is not a mandatory prerequisite to a



Section 73 proceeding, since the Show Cause Notice



represents the culmination of an investigation which the



proper officer is free to conduct on material gathered



from any source, and is not restricted to material



unearthed only through Section 61 scrutiny.











37. Having noted the various precedents and on its



reconciliation, we are clear in our mind that Section 61 is



not, as a matter of law, an invariable jurisdictional



precondition to issuance of every Section 74A notice; but



where the proper officer in fact possesses only return-



based discrepancy material and no independent source of



information, compliance with Section 61 and Rule 99 may



be a mandatory procedural safeguard, non-compliance of



which may expose the resultant Section 74A proceedings



to challenge on ground of jurisdiction or breach of the



statutory scheme or principles of natural justice.











Thus,   Point   (i)   is   accordingly   decided   against   the



petitioner.











38. That brings us to the second issue. As far as the



contention of the learned Counsel for the petitioner that



the impugned notice suffers from a jurisdictional error



inasmuch as it invokes Section 74A(5)(ii), which is



                                 27







                                            WTAX No. - 1024 of 2026











attracted    only    where    fraud,    wilful   misstatement    or



suppression of facts is made out, cannot detain this Court



for   very   long.     The   impugned      Show     Cause    Notice



specifically alleges that the works purportedly sub-



contracted by the petitioner to eighteen firms were bogus



and that the said firms were non-existent, and that the



petitioner has, on that basis, wrongfully availed Input Tax



Credit running into a substantial sum. An allegation that



the entire chain of sub-contracts and the corresponding



invoices were engineered around fictitious entities is, on



its very face, an allegation of a fraudulent claim of Input



Tax Credit and is squarely capable of attracting Section



74A(5)(ii). Further, we find that an almost identical issue



was engaging the attention of the Madras High Court in a



batch of almost 250 writ petitions, leading being Tvl. K.



Ezhil Arasan, Contractor v. Joint Commissioner (ST)



Intelligence,       Salem     reported    in     2026:MHC:2274;



(decided on 08.06.2026), wherein, on the very question



of the jurisdictional/foundational-fact and the threshold



for invoking Section 74 was raised. We find that the



Madras High Court after dissecting the provision of



Section 74 held that the expression "where it appears"



permits the proper officer to invoke the provision once



the material on record prima facie indicates evasion



attributable to fraud, wilful misstatement or suppression,



and   that   once      the   notice    expressly   invokes   those



ingredients and the allegations are traceable to connected



records, the statutory requirement stands satisfied at the



stage of initiation.



                                     28







                                             WTAX No. - 1024 of 2026











39.     As far as the present case is concerned, we find



that the impugned Show Cause Notice in as many words



has mentioned the foundational fact for issuance as



‘Thus, on the basis of fake documents/ invoices from the



above firms, you have shown receiving inward supply



based    on    fictitious      documents    without      any     actual



movement of goods and deliberately utilized the so



generated ITC illegally and improperly.’ The contention of



the learned Counsel for the petitioner that these firms



were very much in existence and thus, Show Cause



Notice would not have had been issued in the manner as



it has been issued, does not help the case of the



petitioner. It is one thing to say that the Show Cause



Notice does not contain any of the ingredients as



mentioned under Section 74A(5)(ii) and an absolutely



different thing to say that the allegations mentioned are



disputed or erroneous, because the former being an issue



of jurisdiction error can always be raised in a writ



petition, however, for the later an adjudication of the



Show Cause Notice necessarily has to follow as per law.



For, whether the allegation is ultimately made out on



facts or not, that is to say, whether the sub-contractors



were in truth bogus and non-existent, or whether, as the



petitioner    asserts,        they   were   genuinely     registered,



functional and had actually executed the works in



question; is a matter requiring appreciation of evidence,



work orders, measurement sheets, bank statements,



GSTR-2A/2B       reflections,        undertakings   of     the    sub-



contractors,    and,     if    necessary,   verification    of    their



physical existence and capacity to execute works of the



value indicated.



                             29







                                      WTAX No. - 1024 of 2026











40. According to this Court, such an exercise falls



squarely within the domain of the adjudicating authority



and is not amenable to determination in the summary



jurisdiction under Article 226 of the Constitution of India.



The existence of a jurisdictional fact is not the same as



the truth or otherwise of that fact once alleged with



sufficient particulars. Thereafter, the impugned Show



Cause Notice discloses the foundational facts to attract



Section 74A(5)(ii), and its correctness is a matter for



adjudication and cannot be a cause for pre-emptive



foreclosure by this Court.











Thus, Point (ii) is also accordingly decided against the



petitioner.











41. We now come to the third leg and the most



important issue relating to the extent, this Court could



exercise its Jurisdiction at the Show Cause Notice stage.



It is well settled, as held by the Hon'ble Supreme Court in



Union of India v. Kunisetty Satyanarayana, reported



in (2006) 12 SCC 28; that ordinarily no writ lies against



a mere Show Cause Notice, since such a notice does not



by itself give rise to any cause of action or visit the



noticee with an adverse civil consequence, unless it is



shown to have been issued by an authority wholly



without jurisdiction, a principle traceable to State of



U.P. v. Brahm Datt Sharma, reported in (1987) 2 SCC



179 : AIR 1987 SC 943; and Special Director v.



Mohd. Ghulam Ghouse, reported in (2004) 3 SCC



440.



                                   30







                                                 WTAX No. - 1024 of 2026











42. No doubt, time and again the Constitutional Courts



have held that the availability of an alternative statutory



remedy does not operate as an absolute bar on the writ



jurisdiction under Article 226 and for maintainability of a



writ     petition     has    carved     out    the     well-recognised



exceptions in Whirlpool Corporation v. Registrar of



Trade Marks, reported in (1998) 8 SCC 1; namely,



enforcement of fundamental rights, violation of natural



justice, proceedings wholly without jurisdiction, or a



challenge to the vires of a provision.











43. However, we find that as far as the facts of the



present case are concerned, the principles as carved out



in     the   Whirlpool       Corporation         Case     (supra)     are



conspicuously absent as none of the four contingencies,



namely       (i)    infringement   of    fundamental       rights;    (ii)



violation of principle of natural justice; (iii) want of



jurisdiction; and (iv) vires challenge, is being attracted as



noticed herein above.











44. We note that all objections available to the noticee/



petitioner, including the very grounds urged before this



Court, namely, the genuineness of the sub-contractors,



actual execution of works, banking-channel payments,



reflection of the transactions in GSTR-2A, absence of any



adverse        finding      upon      physical      verification,     the



applicability or otherwise of the ratio in Suncraft Energy



(supra), as affirmed by the order of the Hon'ble Supreme



Court dismissing the Department's Special Leave Petition



(C)     Nos.       27827-27828     of   2023      vide   order      dated



14.12.2023, are available to be urged before, and



                                  31







                                            WTAX No. - 1024 of 2026











considered by, the adjudicating authority in reply to the



Show Cause Notice. The reliance placed by the petitioner



upon   Suncraft      Energy       (supra)    is,     in    any   event,



premature at this stage and, on a closer reading,



distinguishable as apparently the said decision proceeds



on the footing of a genuine, existing supplier who had



charged and collected tax but failed to deposit it, and



expressly holds that the Department must, ordinarily,



proceed    against    such    a     defaulting     supplier      before



mulcting   the    bona-fide       purchasing       dealer,     save    in



exceptional   circumstances         of   collusion        between     the



recipient and the defaulting supplier. However, according



to this Court, Suncraft Energy (supra) does not deal



with a situation, as alleged in the impugned notice, where



the very existence of the supplying entities is itself



doubted and put in question. Whether the present case



falls within the parameter of Ecom Gill Coffee (supra) or



Suncraft Energy (supra) or is one of non-existent



suppliers taking it outside that ratio and squarely within



its own exception is again a matter for the adjudicating



authority to examine on facts, and this Court expresses



no opinion thereon one way or the other, all such



contentions being kept open.











Thus, point (iii) is also decided against the petitioner.











45. Having       discussed    the      overwhelming          facts    and



circumstances of the present case and the issue raised



therein, it further deserves notice that the petitioner has,



admittedly, not filed any reply to the impugned Show



Cause Notice and has chosen instead to invoke the extra-



                             32







                                       WTAX No. - 1024 of 2026











ordinary writ jurisdiction of this Court even before the



statutory authority had an occasion to consider its



defence. The existence of an efficacious alternative



remedy, coupled with the fact that the grounds urged



herein are essentially factual and require an appreciation



of the material referred to above, persuades this Court



that this is not a fit case for exercise of jurisdiction under



Article 226 of the Constitution of India. Interference at



this stage would amount to short-circuiting the statutory



adjudicatory process and pre-judging disputed questions



of fact that are yet to be tested.











46. For all the aforesaid reasons, this Court finds no



merit in the present writ petition. Learned counsel for the



petitioner not having pressed the second relief in view of



the decision of the Hon'ble Supreme Court referred to in



paragraph 11 above, and the first relief having failed on



the grounds discussed herein above, the writ petition is



accordingly dismissed.











47. It is, however, made clear that the dismissal of this



petition shall not preclude the petitioner from filing a



detailed reply to the impugned Show Cause Notice dated



09.07.2026, raising all factual and legal contentions



available to it, including those urged before this Court,



within a period of four weeks from today. In the event



such reply is filed within the aforesaid period, the



adjudicating authority shall consider the same on its own



merits, in accordance with law, uninfluenced by any



observations made by this Court in the course of the



present order, and after affording adequate opportunity of



                                                        33







                                                                 WTAX No. - 1024 of 2026











                            hearing to the petitioner, including an opportunity to



                            place on record the documents referred to in paragraphs



                            6 to 8 above. All rights and contentions of the parties on



                            the merits of the Show Cause Notice are kept open.











                            48. The writ petition stands dismissed in the above



                            terms.











                            49. Pending application(s), if any, stand disposed of.











                            50. There shall be no order as to cost(s).



















                                                  (Abdhesh Kumar Chaudhary, J.)







                                                                I agree



















                                                        (Shekhar B. Saraf, J.)



















                            September 09, 2026



                            Anuj Singh



















Digitally signed by :-



ANUJ PRATAP SINGH



High Court of Judicature at Allahabad,



Lucknow Bench