Treco Wire India Private Limited v. Additional Commissioner Central Tax Delhi North & Ors.

What happened

The petitioner manufactures copper wires. An audit of 1 July 2017 to 31 March 2021 led to an audit memo of 23 July 2023 alleging that it had availed input tax credit of ₹3,34,21,261 on supplies from suppliers whose registrations had allegedly been cancelled with retrospective effect, and proposing interest of ₹50,30,256 for delayed payment to suppliers beyond 180 days. The audit report in Form GST ADT-02 followed on 27 July 2023, the petitioner disputed the objections, saying that the transactions were genuine and the suppliers registered at the time, and a pre-show cause intimation in Form GST DRC-01A was followed by a show cause notice of 22 September 2023 under section 74 of the CGST Act. By Order-in-Original No. 45/ADC/D.N./Bhavan Meena/2024 dated 15 January 2024 the Additional Commissioner confirmed the credit demand of ₹3,34,21,261, made up of ₹1,67,10,630 each of central and State tax, under section 74(1) with interest and an equal penalty, and confirmed interest of ₹50,30,256 under section 50. The petitioner challenged the order and Form GST DRC-07, the show cause notice, the validity of section 16(2)(c) and the proviso to section 16(2) on interest for payment beyond 180 days, arguing that the order did not name the suppliers, give invoice dates or the dates of cancellation, or disclose any particulars of fraud, wilful misstatement or suppression, and that retrospective cancellation of a supplier's registration cannot by itself satisfy section 74. The department relied on the audit objections and on an earlier order of 24 September 2025 in W.P.(C) 14428/2025, and could not confirm when asked whether its case involved fraudulent credit from a particular entity.

Questions before the court

• Does an order under section 74 of the CGST Act that confirms an input tax credit demand because suppliers' registrations were cancelled retrospectively have to disclose the suppliers, the transactions and the facts of fraud, wilful misstatement or suppression?

Why the court ruled this way

The Court first held that the challenge to section 16(2)(c) no longer survived, because the Supreme Court in Bhandari Scrap Traders, in declining to interfere with the Gujarat High Court's decision in Maruti Enterprises, had noted that there is no parity between a purchaser under the CGST Act and a purchaser under the Delhi VAT Act and had referred to the scheme of re-availment of reversed credit under sections 41, 73 and 74, and had held that no ground was made out to declare the provision unconstitutional or read it down (paragraphs 17–23). It then said that the question was not whether the petitioner is entitled to the credit but whether the demand was adjudicated in accordance with the requirements of section 74 with sufficient findings of fact (paragraph 24). An order invoking section 74 must disclose the factual basis on which the statutory ingredients are said to be met, and reproducing the statutory language without particulars does not show application of mind (paragraphs 25–26). The audit objection on which the demand rested made only a general assertion that credit was taken on supplies from suppliers whose registrations had been cancelled before the invoice dates, and the order did not give the suppliers' names or GSTINs, the invoice and cancellation dates, the credit attributable to each supplier or the material for the cancellation dates, nor any finding on how the petitioner committed fraud, wilful misstatement or suppression, nor did it deal with the petitioner's defence (paragraphs 27–33). Where a demand rests on retrospective cancellation, the order must show the connection between the cancellation and the particular transactions, and the omissions were not technical because they deprived the petitioner of an effective opportunity to meet the case, which matters all the more where an equal penalty is imposed (paragraphs 34–36). The Court noted apparent inconsistencies in the dates of the order but did not decide on them, and held that the earlier order of 24 September 2025 did not determine the controversy (paragraphs 37–41).

Controlling point

An adjudication order under section 74 that does not identify the suppliers and transactions behind a demand based on retrospective cancellation of registrations, and records no specific findings of fraud, wilful misstatement or suppression, cannot be sustained, although the challenge to the validity of section 16(2)(c) is closed by the Supreme Court's decision.

Order and next steps

The Court set aside the Order-in-Original of 15 January 2024 and the consequential proceedings and remanded the matter to the adjudicating authority for fresh adjudication in accordance with law after notice and a reasonable and effective hearing. The authority must consider the petitioner's reply and material, record specific findings on the factual basis of the demand, identify the suppliers and transactions if it relies on retrospective cancellation, independently examine whether section 74 is attracted, and endeavour to pass a fresh order within eight weeks of the petitioner's appearance, which was fixed for 8 October 2026 at 2:30 p.m. The prayers to strike down or read down section 16(2)(c) were rejected, no further orders were made on the consequential reliefs, and the petition and pending application were disposed of.

Practical implications

A taxpayer facing a demand under section 74 based on the retrospective cancellation of its suppliers' registrations can check whether the order names the suppliers, gives invoice-wise details and the cancellation dates, records findings of fraud, wilful misstatement or suppression, and deals with the taxpayer's defence.

Limits of this ruling

• The Court expressed no opinion on the merits of the demand or on the petitioner's entitlement to credit under section 16, and its observations are confined to the deficiencies in the order that required it to be set aside. The judgment does not separately discuss the challenge to the proviso to section 16(2) on interest for payment beyond 180 days or the challenge to the show cause notice.