# M/s Abhay Traders Rajmarg Kuthaund, Jalaun v. Commissioner Commercial Tax , Lko & Anr

- **Citation:** (2023) 8 ILRA 1546
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2023-07-14
- **Case number:** Writ-Tax No. 1265 of 2022
- **Bench:** Siddhartha Varma, Arun Kumar Singh Deshwal
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/m-s-abhay-traders-rajmarg-kuthaund-jalaun-v-commissioner-commercial-tax-lko-anr-50563
- **Pages:** 6

## Headnote

(A) Tax Law - The Uttar Pradesh Goods
And Services Tax Act, 2017 - Section 74 -
Determination of tax not paid or short
paid or erroneously refunded or input tax
credit wrongly availed or utilised by
reason of fraud or any wilful misstatement
or suppression of facts - principles of
natural justice can only be met by a show
cause notice - if it contains the necessary
material and the proposed penalty, even if
it's not explicitly mentioned - requirement
can be met if it can be easily discerned
from the reading of the notice.(Para -10)

Dispute over a purchase - notice served - goods
not supplied - Enterprises was a bogus firm -
petitioner was asked to respond to notice -
claim - Input Tax Credit, which petitioner
claimed, was wrongly claimed due to the bogus
supply - court questioned why tax, penalty, and
interest were not imposed on petitioner.(Para -
2)

HELD:-Petitioner relegated to remedy of filing
a reply to the impugned show cause notice as it
outlines the case's foundation, stating that there
8 All. M/s Abhay Traders Rajmarg Kuthaund, Jalaun Vs. Commissioner Commercial Tax, Lko
 & Anr.
1547
was no actual supply of goods. Show cause
notice not quashed, but allowed the petitioner
to respond on the fact that goods were indeed
supplied to the petitioner. (Para -11,12)

Writ petition disposed of. (E-7)

List of Cases cited:-

## Text

1546 INDIAN LAW REPORTS ALLAHABAD SERIES
authority be recorded in the order and be
communicated to the aggrieved party and it
may dispense with such a requirement. It
may do so by making an express provision
to that effect as those contained in the
Administrative Procedure Act, 1946 of
U.S.A. and the Administrative Decisions
(Judicial Review) Act, 1977 of Australia
whereby the orders passed by certain
specified authorities are excluded from the
ambit of the enactment. Such an exclusion
can also arise by necessary implication
from the nature of the subject matter, the
scheme
and
the
provisions
of
the
enactment. The public interest underly-ing
such a provision would outweigh the
salutary purpose served by the requirement
to record the reasons. The said requirement
cannot, therefore, be insisted upon in such a
case.

18. It is noticed that in absence of
giving any reasons the respondents have
acted in most illegal and arbitrary manner
and in violation of Article 14 of the
Constitution of India.

19. In light of the above, the order
dated 05.12.2000 is quashed. The matter is
remitted to the State Government to pass a
fresh order in accordance with law without
being influenced by the order dated
26.06.1999 passed by the Conciliatory
Authority /Assistant Labour Commissioner,
Lucknow. Considering that the matter is
pending for the last more than two decades,
let an appropriate order be passed by the
State Government within a period of four
weeks from the date a certified copy of this
order is produced before it.

20. With the above observations /
directions, the writ petition is allowed.
----------
(2023) 8 ILRA 1546
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 14.07.2023

BEFORE

THE HON'BLE SIDDHARTHA VARMA, J.
THE HON'BLE ARUN KUMAR SINGH
DESHWAL, J.

Writ-Tax No. 1265 of 2022

M/s Abhay Traders Rajmarg Kuthaund,
Jalaun ...Petitioner
Versus
Commissioner Commercial Tax , Lko &
Anr. ...Respondents

Counsel for the Petitioner:
Sri Aloke Kumar

Counsel for the Respondents:
C.S.C., Sri Ankur Agarwal, Sri Ankur
Agarwal, Sri Gopal Verma

(A) Tax Law - The Uttar Pradesh Goods
And Services Tax Act, 2017 - Section 74 -
Determination of tax not paid or short
paid or erroneously refunded or input tax
credit wrongly availed or utilised by
reason of fraud or any wilful misstatement
or suppression of facts - principles of
natural justice can only be met by a show
cause notice - if it contains the necessary
material and the proposed penalty, even if
it's not explicitly mentioned - requirement
can be met if it can be easily discerned
from the reading of the notice.(Para -10)

Dispute over a purchase - notice served - goods
not supplied - Enterprises was a bogus firm -
petitioner was asked to respond to notice -
claim - Input Tax Credit, which petitioner
claimed, was wrongly claimed due to the bogus
supply - court questioned why tax, penalty, and
interest were not imposed on petitioner.(Para -
2)

HELD:-Petitioner relegated to remedy of filing
a reply to the impugned show cause notice as it
outlines the case's foundation, stating that there
8 All. M/s Abhay Traders Rajmarg Kuthaund, Jalaun Vs. Commissioner Commercial Tax, Lko
 & Anr.
1547
was no actual supply of goods. Show cause
notice not quashed, but allowed the petitioner
to respond on the fact that goods were indeed
supplied to the petitioner. (Para -11,12)

Writ petition disposed of. (E-7)

List of Cases cited:-

1. M/s Nkas Services Pvt. Ltd. Vs St. of
Jharkhand & ors., W.P. (T) No. 2444 of 2021

2. Cera Sanitaryware Ltd. Vs St. of Guj. , 2020
(40) G.S.T.L. 439 (Guj.)

3. Gorkha Security Services Vs Govt. (NCT of
Delhi) , (2014) 9 SCC 105

4. Metal Forging & anr. Vs U.O.I & ors. , 2003
(2) SCC 36

5. Commissioner of Central Excise, Chandigarh
Vs Shital International , (2011) 1 SCC 109

6. Dilip N Shroff Vs J.C.I.T. , (2007) 6 SCC 329

7. Khem Chand Vs U.O.I. AIR 1958 SC 300

8. Oryx Fisheries P. Ltd. Vs U.O.I. , (2010) 13
SCC 427

(Delivered by Hon'ble Arun Kumar Singh
Deshwal, J.)

1. Heard Sri Aloke Kumar, learned
counsel for the petitioner, Sri Ankur
Agarwal, learned counsel for respondent
nos.1 & 2 and Sri Gopal Verma, learned
counsel for respondent no.3.

2. Controversy in the present writ
petition is that for the A.Y. 2018-19, a notice
was served to the petitioner-M/s Abhay
Traders on 22.06.2022 indicating that with
regard to two purchases made from M/s
Raghav Enterprises vide Invoice Detail
Nos.94 and 95 on 12 June, 2018 of the value
of Rs.2,64,022/- and Rs.8,00,088/-, it was
found that there had been no actual supply of
goods from M/s Raghav Enterprises to the
petitioner. It was also found that M/s Raghav
Enterprises was a bogus firm. Under such
circumstances, a notice was issued to the
petitioner on 22 June, 2022 asking it to reply
as to why tax, penalty and interest be not
imposed upon the petitioner. It was stated that
because the petitioner had made a bogus
supply, the Input Tax Credit, which the
petitioner had claimed, was wrongly claimed.

3. Learned counsel for the petitioner has
submitted that the notice itself was vague and
bad in law and, therefore, be quashed and set
aside. He further submits that on the basis of
the Special Investigation Branch report, it
was concluded that no goods had been
supplied from M/s Raghav Enterprises to the
petitioner-M/s Abhay Traders and, therefore,
the conclusion itself was wrong. However,
the Department came to the conclusion that
the report submitted by Special Investigation
Branch was correct. A notice to that effect
was also to have been given to the petitioner
so that the petitioner could have replied that
in fact, goods were purchased by the
petitioner from M/s Raghav Enterprises and,
therefore, the Input Tax Credit which the
petitioner had claimed was in accordance
with law.

4. To substantiate his point, Sri Aloke
Kumar, learned counsel for the petitioner,
heavily relied upon the judgement and
order dated06.10.2021passed inW.P. (T)
No. 2444 of 2021 (M/s Nkas Services
Private Limited Vs. State of Jharkhand
& Others)of the High Court of Jharkhand
at Ranchi.

5. Sri Ankur Agarwal, learned
counsel appearing for respondent nos.1 & 2
and Sri Gopal Verma, learned counsel for
respondent no.3, essentially made their
submissions relying upon Section-74 of the
1548 INDIAN LAW REPORTS ALLAHABAD SERIES
Uttar Pradesh Goods And Services Tax
Act, 2017 (hereinafter referred to as the
'Act, 2017'). Relying upon Section 74 (1) of
the Act 2017, learned counsel for the
respondents stated that the proper officer
had yet to conclude to initiate the
proceedings. If only it "appeared" to the
proper officer that tax had not been paid or
short paid or erroneously refunded or
where Input Tax Credit had been wrongly
availed or utilized by reason of fraud or any
wilful statement or suppression of fact, the
proceeding could be initiated.

6. Sri Ankur Agarwal, learned
counsel for respondent nos.1 and 2
submitted that in the instant case, when it
only appeared to the proper officer that the
Input Tax Credit had been wrongly availed,
the
proceedings
had
been
correctly
initiated. He also submitted that the
challenge was only to a notice under
Section 74 (1) of the Act, 2017 and,
therefore, it was open for the petitioner to
reply to the same at the appropriate stage
and before the appropriate authority, and
this writ petition was therefore not
maintainable.
Learned
counsel
for
respondent nos.1 and 2 heavily relied upon
the judgement of the Gujarat High Court
reported in2020 (40) G.S.T.L. 439 (Guj.)
Cera Sanitaryware Limited Vs. State of
Gujarat. Learned counsel appearing for
respondent nos.1 and 2, upon being
confronted with the notice that the notice
was only to the effect that the petitioner
had to reply as to what was the tax, the
penalty and the interest to be imposed, he
very categorically submitted that when the
notice itself was based upon the fact that
the petitioner had not been supplied the
goods and when that eventuality had yet
not been concluded by any proceeding,
then it was open to the petitioner to reply
also to the effect that M/s Raghav
Enterprises actually supplied the goods and
that M/s Raghav Enterprises was not a
bogus firm on the date of transaction i.e.
12.06.2018.

7. After hearing both the parties and
on perusal of the record, it would be proper
for this Court to consider the issue of
whether the impugned notice can be
challenged by way of this writ petition,
though remedy of filing reply is available.
The issue regarding the proper show cause
notice was considered by the Apex Court in
the cases ofGorkha Security Services Vs.
Government (NCT of Delhi) reported in
(2014) 9 SCC 105;Metal Forging &
Another Vs. Union of India & Others
reported in 2003 (2) SCC 36as well as in
the case ofCommissioner of Central
Excise,
Chandigarh
Vs.
Shital
International reported in (2011) 1 SCC
109. In the judgement mentioned above,
Apex Court observed that it is trite law that
unless the foundation of the case is laid in
the show cause notice, the same cannot be
treated as proper show cause notice and
notice issued in a format without even
striking out any relevant portion and
without
stating
clear
contraventions
committed by the petitioner, will not
substitute the requirement of proper show
cause notice. Paragraph nos.21 and 22 of
the Apex Court judgement inGorkha
Security Services Vs. Government (NCT
of Delhi) (supra)are being quoted as
below:

"21. The central issue, however,
pertains to the requirement of stating the
action which is proposed to be taken. The
fundamental purpose behind the serving of
show cause notice is to make the noticee
understand the precise case set up against
him, which he has to meet. This would
require the statement of imputations
8 All. M/s Abhay Traders Rajmarg Kuthaund, Jalaun Vs. Commissioner Commercial Tax, Lko
 & Anr.
1549
detailing the alleged breaches and defaults
he has committed so that he gets an
opportunity to rebut the same. Another
requirement, according to us, is the nature
of action which is proposed to be taken for
such a breach. That should also be stated
so that the noticee is able to point out that
proposed action is not warranted in the
given case, even if the defaults/breaches
complained
of
are
not
satisfactorily
explained. When it comes to blacklisting,
this requirement becomes all the more
imperative, considering that it is harshest
possible action.

22. The High Court has simply
stated that the purpose of a show cause
notice is primarily to enable the noticee to
meet the grounds on which the action is
proposed against him. No doubt, the High
Court is justified to this extent. However, it
is equally important to mention what would
be the consequence if the noticee does not
satisfactorily meet the grounds on which an
action is proposed. To put it otherwise, we
are of the opinion that in order to fulfill the
requirements of principles of natural
justice, a show cause notice should meet
the following two requirements viz:

i) The material/grounds to be
stated
on
which,
according
to
the
department necessitates an action;

ii)
Particular
penalty/action
which is proposed to be taken. It is this
second requirement that the High Court
has failed to omit.

We may hasten to add that even if
it is not specifically mentioned in the show
cause notice, but it can be clearly and
safely discerned from the reading thereof,
that would be sufficient to meet this
requirement."

8. Hon'ble Apex Court in Dilip N
Shroff Vs. Joint Commissioner of Income
Tax reported in (2007) 6 SCC 329, has
also observed that expression in Section
73/74 of the Act, 2017 "appears to be
proper officer" is not to a casual act but
should show the full application of mind by
proper officer.

9. Purpose of the show cause
proceeding is meant to give a person
proceeded against a reasonable opportunity
of making his objection against the
proposed charges as indicated therein as
observed by the Hon'ble Supreme Court in
the case of Khem Chand Vs. Union of
India AIR 1958 SC 300. This judgement
was also considered by the Apex Court in
Oryx Fisheries P. Ltd. Vs. Union of India
reported in (2010) 13 SCC 427. Paragraph
Nos.24 to 27 are being quoted as below:

"24. This Court finds that there is
a lot of substance in the aforesaid
contention. It is well settled that a quasijudicial authority, while acting in exercise
of its statutory power must act fairly and
must act with an open mind while initiating
a show cause proceeding. A show cause
proceeding is meant to give the person
proceeded
against
a
reasonable
opportunity of making his objection against
the proposed charges indicated in the
notice.

25.
Expressions
like
"a
reasonable
opportunity
of
making
objection" or "a reasonable opportunity of
defence" have come up for consideration
before this Court in the context of several
statutes. A Constitution Bench of this Court
in Khem Chand v. Union of India, of
course,
in
the
context
of
service
jurisprudence, reiterated certain principles
applicable in the present case also.
1550 INDIAN LAW REPORTS ALLAHABAD SERIES

26. S.R. Das, CJ speaking for the
unanimous Constitution Bench in Khem
Chand held that the concept of `reasonable
opportunity' includes various safeguards
and one of them, in the words of the
learned Chief Justice, is:

"(a) An opportunity to deny his
guilt and establish his innocence, which he
can only do if he is told what the charges
levelled against him are and the allegations
on which such charges are based;"

27. It is no doubt true that at the
stage of show cause, the person proceeded
against must be told the charges against
him so that he can take his defence and
prove his innocence. It is obvious that at
that stage, the authority issuing the charge-
sheet cannot, instead of telling him the
charges,
confront
him
with
definite
conclusions of his alleged guilt. If that is
done, as has been done in this instant case,
the entire proceeding initiated by the show
cause notice gets vitiated by unfairness and
bias
and
the
subsequent
proceeding
becomes an idle ceremony."

10. Therefore, from the law laid down
by the Apex Court in the judgement
mentioned
above,
it
is
clear
that
requirement of principles of natural justice
by a show cause notice can only be met if:

(I) a show cause notice contains
the material/ground which, according to the
department necessitates an action;

(II) the particular penalty/action
which is proposed to be taken. Even if it is
not specifically mentioned in the show
cause notice but it can be clearly and
safely discerned from the reading thereof
that would be sufficient to meet this
requirement.

11. From the perusal of the impugned
notice, it is clear that it contains necessary
details and grounds, which are the basis for
issuing the same. Still, at the tail end of the
impugned notice, instead of seeking a reply
on
the
allegation
mentioned
in
the
impugned show cause notice issued under
Section 74 (1) of the Act, 2017, petitioner
was directed to reply with regard to the tax
and penalty and it was stated that if no
reply was furnished then order under
Section 74(9) of the Act, 2017 would be
passed. Therefore, the impugned notice
because of the facts mentioned in the
earlier part of the notice cannot be said to
be
patently
illegal,
being
without
jurisdiction. Therefore, there is no ground
for quashing the same under Article 226 of
the Constitution of India.

12. Therefore, after considering the
submission of parties, the contention made
by the learned counsel for the respondents
and on the perusal of the record and after
taking into account all the observations
made by the Apex Court, we are of the
view the petitioner should be relegated to
the remedy of filing a reply to the
impugned show cause notice. Because the
notice did contain the details about the
foundation of the case, i.e. that there was
no actual supply of goods on 12 June, 2018
by M/s Raghav Enterprises to petitioner,
we are not quashing the show cause notice
instead we are permitting the petitioner to
also reply with regard to the fact that goods
were in fact supplied to the petitioner from
M/s Raghav Enterprises.

13. Under such circumstances, this
writ petition is disposed of, allowing the
petitioner to file his reply/objection against
the impugned notice, along with relevant
material, within one month. In his response,
it shall be open to the petitioner to
8 All. M/s Abhay Traders Rajmarg Kuthaund, Jalaun Vs. Commissioner Commercial Tax, Lko
 & Anr.
1551
specifically
submit
his
explanation
regarding the fact that there was an actual
supply of goods from M/s Raghav
Enterprises.

14. Needless to say, it was open to the
petitioner to submit a reply regarding the
fact that the taxation, the penalty and the
charging of interest were being wrongly
made.

15. Further, we direct that the report
of the Special Investigation Branch shall
not be considered a final report and shall be
subject to the decision by the Assessing
Authority. The order shall be passed after
considering the petitioner's reply, the
evidence it might submit and the evidence
it may offer.
----------