# M/s Samsung India Electronics Pvt. Ltd v. State of U.P. & Ors

- **Citation:** (2024) 4 ILRA 1019
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2024-03-12
- **Case number:** Writ Tax No. 777 of 2022
- **Bench:** Shekhar B. Saraf
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/m-s-samsung-india-electronics-pvt-ltd-v-state-of-u-p-ors-51734
- **Pages:** 11

## Headnote

Civil Law -Integrated Goods and Services
Tax Act, 2017 - Section 16 - Central
Goods and Services Tax Act, 2017 -
Sections 2(19), 2(59) - Constitution of
India,1950
-
Article 226
-
Petitioner
challenged orders dated October 25, 2021, and
February
24,
2023,
rejecting
refund
of
unutilised Input Tax Credit (ITC) for JulySeptember 2019
(Rs. 7,46,52,231/-) and
October-December 2019 (Rs. 8,20,59,875/-) on
inputs used for export of IT services. Court
held: (1) Department's inconsistent rejection of
refund claims, despite sanctioning similar
claims for prior and subsequent periods under
identical
facts,
violated
the
principle
of
consistency in taxation, undermining fairness
and public trust (Birla Corpn. Ltd. Vs CCE, 2005
(186) ELT 266 (SC)). (2) Department travelled
beyond show cause notices by rejecting
refunds on grounds of Accounting Standard 10,
not raised in notices, violating natural justice
(Reckitt & Colman of India Ltd. Vs Collector of
Central Excise, (1997) 10 SCC 379). (3)
Specific goods used for R&D and software
development,
not
capitalised
in
books,
qualified as inputs under Section 2(59) of
CGST Act, not capital goods, as they were
essential for IT services (Tata Engineering &
Locomotive Company Ltd. Vs St. of Bihar, 1994
(74) ELT 193 (SC)). (4) GST authorities lacked
jurisdiction
to
question
compliance
with
Accounting Standards, governed by Companies
Act, 2013. Impugned orders dated October 25,
2021, and February 24, 2023, quashed;
consequential reliefs to follow. (Paras 7-22)

Writ Petitions Allowed.

List of Cases cited:

## Text

4 All. M/s Samsung India Electronics Pvt. Ltd. Vs. State of U.P. & Ors.
1019
Accordingly, the impugned order dated
December 31, 2022 is quashed and set
aside with a direction upon the authority
concerned to grant another opportunity of
hearing to the petitioner and pass a
reasoned
order
on
the
same
and
specifically giving reasons with regard to
imposition of tax on the particular goods
that are not mentioned in the schedule of
New Act. The parties shall be at liberty to
place
the
relevant
documents
and
judgments
before
the
authority
concerned. The entire exercise should be
completed within a period of three
months from date. Upon passing of the
reasoned order a copy of the same be
handed over to the petitioner within a
week, thereafter.

10. The instant writ petition is
allowed in aforesaid terms. There shall be
no order as to the cost.

----------
(2024) 4 ILRA 1019
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 12.03.2024

BEFORE

THE HON'BLE SHEKHAR B. SARAF, J.

Writ Tax No. 777 of 2022
With
Writ Tax No. 660 of 2023

M/s Samsung India Electronics Pvt. Ltd.
 ...Petitioner
Versus
State of U.P. & Ors. ...Respondents

Counsel for the Petitioner:
Sri M.P. Devnath, Sri Nishant Mishra Sri
Abhishek Anand

Counsel for the Respondent:
Sri Rishi Kumar, Addl. C.S.C.
Civil Law -Integrated Goods and Services
Tax Act, 2017 - Section 16 - Central
Goods and Services Tax Act, 2017 -
Sections 2(19), 2(59) - Constitution of
India,1950
-
Article 226
-
Petitioner
challenged orders dated October 25, 2021, and
February
24,
2023,
rejecting
refund
of
unutilised Input Tax Credit (ITC) for JulySeptember 2019
(Rs. 7,46,52,231/-) and
October-December 2019 (Rs. 8,20,59,875/-) on
inputs used for export of IT services. Court
held: (1) Department's inconsistent rejection of
refund claims, despite sanctioning similar
claims for prior and subsequent periods under
identical
facts,
violated
the
principle
of
consistency in taxation, undermining fairness
and public trust (Birla Corpn. Ltd. Vs CCE, 2005
(186) ELT 266 (SC)). (2) Department travelled
beyond show cause notices by rejecting
refunds on grounds of Accounting Standard 10,
not raised in notices, violating natural justice
(Reckitt & Colman of India Ltd. Vs Collector of
Central Excise, (1997) 10 SCC 379). (3)
Specific goods used for R&D and software
development,
not
capitalised
in
books,
qualified as inputs under Section 2(59) of
CGST Act, not capital goods, as they were
essential for IT services (Tata Engineering &
Locomotive Company Ltd. Vs St. of Bihar, 1994
(74) ELT 193 (SC)). (4) GST authorities lacked
jurisdiction
to
question
compliance
with
Accounting Standards, governed by Companies
Act, 2013. Impugned orders dated October 25,
2021, and February 24, 2023, quashed;
consequential reliefs to follow. (Paras 7-22)

Writ Petitions Allowed.

List of Cases cited:

1. Birla Corpn. Ltd. Vs CCE, 2005 (186) ELT 266
(SC) (Para 12)

2. Indian Oil Corporation Ltd. Vs Collector of C.
Ex., Baroda, 2006 (202) ELT 37 (SC) (Para 13)

3. Bharat Sanchar Nigam Ltd. Vs U.O.I., (2006)
3 SCC 1 (Para 14)

4. Boving Fouress Ltd. Vs Commissioner of
Central Excise, Chennai, 2006 (202) ELT 389
(SC) (Para 4)
1020 INDIAN LAW REPORTS ALLAHABAD SERIES
5. Reckitt & Colman of India Ltd. Vs Collector of
Central Excise, (1997) 10 SCC 379 (Para 4)

6. Commissioner of Central Excise, Bangalore Vs
M/s Brindavan Beverages (P) Ltd., Appeal (Civil)
3417-3425 of 2002 (Para 4)

7. Tata Engineering & Locomotive Company Ltd.
Vs St. of Bihar, 1994 (74) ELT 193 (SC) (Para
16)

8. Ramlala Vs St. of U.P., 2023 SCC OnLine (All)
2479 (Para 18)

9. Associated Switch Gears and Projects Vs St.
of U.P., 2024:AHC:12780 (Para 19)

10. The Board of High School and Intermediate
Education, U.P. Vs Kumari Chitra Srivastava,
(1970) 1 SCC 121 (Para 18)

(Delivered by Hon'ble Shekhar B. Saraf, J. )

1. M/s Samsung India Electronics
Private Limited (hereinafter referred to as
the "Petitioner") has preferred the instant
writ petitions under Article 226 of the
Constitution of India challenging the order
of the Additional Commissioner, Grade - 2
(Appeal) - I, Commercial Tax, NOIDA.

2. The facts and submissions made in
the instant writ petitions bearing Writ Tax
Nos. 777 of 2022 and 660 of 2023 are
similar except for the relevant period and
refund amount in question and hence, they
are being taken up together.

FACTS

3. The factual matrix leading up to the
instant writ petitions has been laid down
below:

a. The petitioner is a company
engaged in the export of Information
Technology
design
and
software
development services pertaining to mobile
devices ("IT Services") to its overseas
holding company, namely, M/s Samsung
Electronics
Company
Limited,
Korea
(hereinafter referred to as the "SEC
Korea") in terms of prevalent service
agreement dated January 1, 2019. Such
export of IT services is made by the
Petitioner under Letter of Undertaking
(hereinafter referred to as the "LOU")
without payment of IGST which constitutes
zero rated supply as per Section 16 of the
Integrated Goods and Services Tax Act,
2017 (hereinafter referred to as the "IGST
Act, 2017")

b. For rendering IT Services to
SEC Korea, the Petitioner procures various
inputs, input services, and capital goods
and accordingly avails ITC of the CGST,
SGST,
and
IGST
paid
thereon,
in
accordance with the applicable provisions
of the GST laws.

c. The Petitioner had filed a
refund claim of unutilised ITC of CGST,
SGST, and IGST paid on various inputs and
input services for the period of April 2019
to June 2019. After due consideration by
the
Department,
said
refund
claim
amounting
to
Rs.6,36,69,447/-
was
sanctioned by the Department barring for
an amount of Rs.7,500/- on the ground of
claiming refund of unutilised ITC on
invoices missing in the GSTR-2A returns.

d. The Petitioner then filed for the
refund of the unutilised ITC of CGST,
SGST, and IGST paid on various inputs and
input services, for the period of July -
September,
2019
amounting
to
Rs.7,46,52,231/- and October - December,
2019
amounting
to
Rs.8,20,59,875/-.
Against the aforesaid refund applications,
deficiency memos under FORM GST-RFD03 and later show cause notices were issued
4 All. M/s Samsung India Electronics Pvt. Ltd. Vs. State of U.P. & Ors.
1021
by the Department proposing to reject the
refund for the aforesaid periods.

e. Thereafter, the Petitioner filed
a reply to the show cause notices and
attended personal hearing, after which the
Department partially allowed the refund
and rejected a portion of the demand on the
ground that the specific goods are capital
goods, and not inputs vide orders dated
April 28, 2021 and November 8, 2021.

f. Thereafter, the Petitioner filed
appeals against the aforesaid orders dated
April 28, 2021 and November 8, 2021. The
said appeals were rejected vide orders
dated October 25, 2021 and February 24,
2023.

g. Aggrieved by the order dated
October 25, 2021, the Petitioner preferred
the Writ Tax No.777/2022 before this Court
and aggrieved by the order dated February
24, 2023, the Petitioner preferred the Writ
Tax No. 660/2023 before this Court.

CONTENTIONS
OF
THE
PETITIONER

4. Sri M.P. Devnath, learned counsel
appearing on behalf of the Petitioner has
made the following submissions:

a. The Department has adopted an
inconsistent approach in dealing with the
refund applications of the Petitioner,
despite the fact that each of the refund
applications arise out of the same set of
facts and circumstances, which is grossly
incorrect in law.

b. It is imperative to mention that
for the subsequent and prior periods, except
the period from July 2019 to March 2020,
the
refund
claims
have
duly
been
sanctioned to the Petitioner on the same
facts and circumstances only.

c. It is a settled position of law
that the Department cannot take contrary
stand and adopt an inconsistent approach
while dealing with the same set of facts as
well as legal background. Reliance in this
regard is placed on the judgments of the
Hon'ble
Supreme
Court
in
Birla
Corporation Ltd. v. CCE reported in 2005
(186)
ELT
266
(SC),
Indian
Oil
Corporation Ltd. v. Collector of C. Ex.,
Baroda reported in 2006 (202) ELT 37
(SC), and Boving Fouress Ltd. v.
Commissioner
of
Central
Excise,
Chennai reported in 2006 (202) ELT 389
(SC).

d. The Department has travelled
beyond the scope of show cause notices.
The show cause notices and the refund
rejection orders had rejected the refund on
the ground that the specific goods are not
consumed in the process of provision of
output service and hence cannot be treated
as inputs. However, the impugned orders
dated October 25, 2021 and February 24,
2023, have proceeded on a completely
different ground and have held that the
expenses incurred on specific goods were
required to be capitalised in the books of
accounts as per Accounting Standard 10,
and hence, the same are covered under the
ambit of capital goods in terms of Section
2(19) of the Central Goods and Services
Tax Act, 2017 (hereinafter referred to as the
"CGST Act, 2017"). The Respondent No. 2
has therefore clearly travelled beyond the
scope of the show cause notices, which is
clearly impermissible in law. Reliance is
placed on the judgments of the Hon'ble
Supreme Court in Reckitt & Colman of
India Ltd. v. Collector of Central Excise
reported in (1997) 10 SCC 379 and
1022 INDIAN LAW REPORTS ALLAHABAD SERIES
Commissioner
of
Central
Excise,
Bangalore v. M/s Brindavan Beverages
(P) Ltd. and others (Appeal (Civil) 34173425 of 2002).

e. The Department has gone
beyond the settled principles of law that if
an allegation or ground is not made at the
time of issuance of show cause notice, the
authority cannot go beyond the scope of
show cause notice to create a new ground
at the later stage of adjudication. However,
it is apparent and abundantly clear in the
instant case that the Respondent No. 2 has
completely travelled beyond the scope of
show cause notices while adjudicating the
issues on the principles of Accounting
Standards which is not applicable to the
facts and circumstances of the instant case.
Neither the same was ever highlighted in
the show cause notice nor in the order
issued by the Respondent No. 3.

f. It is an admitted and undisputed
fact that the specific goods have not been
capitalised by the Petitioner. Upon a
reading of the definition of the 'input' and
'capital goods', it is abundantly clear that
the goods, which are not capitalised in the
books of account and are intended to be
used in course or furtherance of a business,
would qualify as 'input'. In effect, as per
the CGST Act, 2017, the only distinction
between inputs and capital goods is that
capital goods are the goods value of which
has been capitalised in the books of account
of the person claiming credit.

g.
The
Petitioner
has
not
capitalised the value of specific goods in
its books of account because the specific
goods procured by it were used for the
purpose of R & D, software development,
and validation thereof, which includes,
inter alia, development of project, testing
and validation of the output results. The
Petitioner used these specific goods for
undertaking
research,
design,
and
development related activities. Since the
specific goods were procured by the
Petitioner specifically for the purpose of
software development and the validation
thereof, the Petitioner did not capitalise
these goods in its books of accounts. The
Petitioner followed the capitalisation
method based on use of goods and given
that specific items became redundant
after
completion
and
validation
of
software and were discarded thereafter,
the said goods were not capitalised in the
books and accordingly, the Petitioner
availed ITC on such goods by treating
them as inputs. Therefore, the Petitioner
has clearly treated the specific goods as
'inputs'.

h. It is further submitted that the
capitalisation of assets cannot depend
upon any straight jacket formula. The
question of capitalisation has to be seen
and analysed, keeping in mind the use
case of the given industry. Goods which
can be capital goods for one industry can
be input for other industry. The Supreme
Court
in
Tata
Engineering
&
Locomotive Company Ltd. v. State of
Bihar reported in 1994 (74) ELT 193
(SC) held that tyres, tubes, and batteries
would constitute inputs as they are
essential and necessary for producing the
goods in which it has been used. The
Supreme Court held that no vehicle could
operate or work, nor can it be said to
have been produced unless tyres, tubes,
and batteries are fixed to it, hence, these
items would be inputs. Similarly, the
specific goods in question are inputs
because they are put for use for providing
the services of R & D, software
development, and validation thereof.
4 All. M/s Samsung India Electronics Pvt. Ltd. Vs. State of U.P. & Ors.
1023

i.
Without
prejudice,
the
Petitioner
further
submits
that
the
impugned orders dated October 25, 2021
and February 24, 2023, have erred in
questioning the applicability of Accounting
Standards under GST laws. Accounting
Standards are applied to present Financial
Statements reliably and the applicability of
Accounting Standards on companies is
governed by the Companies Act, 2013.
Further, the financial statements of a
company are required to comply with the
Accounting Standards and deviation from
the same is required to be disclosed along
with
financial
effects
thereof.
The
consequences of failure to comply with the
provisions of the Accounting Standards are
also contained in the Companies Act, 2013.
Hence, GST authorities cannot be permitted
to
question
the
applicability
and
compliance of Accounting Standards as the
same is beyond their jurisdiction. As long
as financial statements stood prepared and
audited in accordance with the provisions
of Companies Act, 2013 and there were no
questions raised by the relevant officers
under Companies Act, 2013, the GST
authorities were to regard that all expenses
stood correctly recorded in the books of
accounts.

j. In view of the aforesaid
submissions, it is prayed that the impugned
orders dated October 25, 2021 and
February
24,
2023
passed
by
the
Respondent No. 2 are patently illegal,
devoid of jurisdiction and have been passed
in a colourable exercise of power, and
hence are liable to be set aside.

CONTENTIONS
OF
THE
RESPONDENTS

5. Learned Additional Chief Standing
Counsel appearing on behalf of the
respondents
has
made
the
following
submissions:

a. The principle of res judicata
does not apply in matters of taxation and
merely because refund claims have been
sanctioned previously, does not mean that
the refund claims for subsequent period
will also be sanctioned.

b. It is clear that the Petitioner
while preparing its financial statements has
not adhered to the Accounting Standards.
Specific goods have not been capitalised by
the
Petitioner
in
accordance
with
Accounting Standard 10.

ANALYSIS AND CONCLUSION

6. I have heard the learned counsels
appearing on behalf of the parties and
perused the materials on record.

7. Taxation serves as the cornerstone of
governmental
revenue,
facilitating
the
provision
of
public
services
and
infrastructure. Essential to this system is
consistency, ensuring that similar factual and
legal circumstances are met with uniform
treatment. Inconsistencies can erode public
trust, undermine compliance, and ultimately
compromise the integrity of the tax system.
Consistency in taxation entails the application
of standardized rules and principles to
taxpayers confronting analogous factual and
legal circumstances. This uniformity is
fundamental
to
fostering
fairness,
transparency and predictability within the tax
regime. The absence of consistency can breed
perceptions of inequity and arbitrariness,
eroding taxpayer compliance and faith in the
tax systems' integrity.

8. The Petitioner in the instant case has
put forth a compelling argument, contending
1024 INDIAN LAW REPORTS ALLAHABAD SERIES
that the approach adopted by the Department
in
dealing
with
similar
facts
and
circumstances lacks consistency. Upon a
careful consideration, this Court finds itself in
agreement with the Petitioner's assertion. It is
evident that refund claims arising from
precisely similar facts and circumstances for
previous and subsequent assessment periods
were duly sanctioned. However, a stark
deviation from this precedent is observed in
the treatment of refund claims for the periods
of July-September 2019 and OctoberDecember,
2019,
which
have
been
inexplicably withheld by the Department.
This sudden change in the Department's
stand is not only inconsistent but also
irrational. The principle of consistency
dictates that when faced with identical factual
and legal circumstances, the treatment should
remain uniform. In this instance, the
Department's decision to withhold refund
claims for the aforementioned periods,
despite having sanctioned similar claims in
the past and subsequently in the future, lacks
cogent rationale.

9. When taxpayers find themselves in
analogous factual and legal circumstances,
tax
authorities
must
apply
consistent
treatment to avoid perceptions of unfairness.
Inconsistencies in addressing comparable
factual circumstances can lead to distrust in
the
fairness
of
the
tax
system
and
compromise
compliance.
Taxation
departments must adhere to consistent
interpretations and applications of tax laws
and regulations. This adherence ensures that
taxpayers are treated equitably under the law
and prevents arbitrary decision-making by tax
authorities. Such consistency also fosters
predictability and certainty.

10. The crux of the matter lies in the
undeniable fact that the factual and legal
circumstances
surrounding
the
refund
claims for July-September 2019 and
October-December
2019
are
indistinguishable from those of previous
assessment periods and also the subsequent
assessment periods for which the refunds
have been approved. The Department's
failure to provide a valid justification for
this disparate treatment further underscores
the inconsistency and irrationality of its
actions. Moreover, such inconsistencies
create uncertainty and confusion among
taxpayers, leading to potential disputes and
litigation. In the absence of clear and
consistent guidelines, taxpayers may find it
challenging to navigate the tax system,
resulting in increased compliance costs and
administrative burdens. Taxpayers have a
legitimate expectation that similar factual
and legal circumstances will be met with
uniform treatment, and any deviations from
this principle undermine the credibility and
legitimacy of the actions taken by tax
authorities.

11. The inconsistency and irrationality
displayed
by
the
Department
in
withholding
refund
claims
for
JulySeptember 2019 and October-December
2019, despite having sanctioned similar
claims in the past and in the future are
indefensible.

12. The Supreme Court has upheld
the doctrine of consistency on numerous
occasions and held that Revenue cannot
take a different stand when facts are almost
identical. In Birla Corpn. Ltd. v. CCE
(supra), the Supreme Court held has
follows:

"5. In the instant case the same
question arises for consideration and the
facts are almost identical. We cannot
permit the Revenue to take a different stand
in this case. The earlier appeal involving
4 All. M/s Samsung India Electronics Pvt. Ltd. Vs. State of U.P. & Ors.
1025
identical issue was not pressed and was
therefore,
dismissed.
The
respondent
having taken a conscious decision to accept
the principles laid down in Pepsico India
Holdings Ltd. [(2001) 130 ELT 193 :
(2001) 42 RLT 800 (cegat)] cannot be
permitted to take the opposite stand in this
case. If we were to permit them to do so,
the law will be in a state of confusion and
will place the authorities as well as the
assessees in a quandary."

13. Similarly, reference can also be
made to Indian Oil Corporation Ltd. v.
CCE (supra), relevant paragraph of which
is extracted below:

"9. Since the point involved in the
present case is identical to the point
involved in Hindustan Petroleum Corpn.
Ltd. [(2000) 124 ELT 323 (Tri)] and the
Department having accepted the principle
laid down in Hindustan Petroleum Corpn.
Ltd. [(2000) 124 ELT 323 (Tri)] the
Department cannot be permitted to take a
different stand in the present appeals."

14. In Bharat Sanchar Nigam Ltd.
And Anr. v. Union of India and others
reported in (2006) 3 SCC 1, the Supreme
Court held that even though res judicata
does not apply to tax matters, where facts
and law are same, no authority can
generally be permitted to take a different
view. Relevant paragraph is extracted
below:

"20. The decisions cited have
uniformly held that res judicata does not
apply in matters pertaining to tax for
different assessment years because res
judicata applies to debar courts from
entertaining issues on the same cause of
action whereas the cause of action for each
assessment year is distinct. The courts will
generally adopt an earlier pronouncement
of the law or a conclusion of fact unless
there is a new ground urged or a material
change in the factual position. The reason
why the courts have held parties to the
opinion expressed in a decision in one
assessment year to the same opinion in a
subsequent year is not because of any
principle of res judicata but because of the
theory of precedent or the precedential
value of the earlier pronouncement. Where
facts and law in a subsequent assessment
year are the same, no authority whether
quasi-judicial or judicial can generally be
permitted to take a different view. This
mandate is subject only to the usual
gateways of distinguishing the earlier
decision or where the earlier decision is
per incuriam. However, these are fetters
only on a coordinate Bench which, failing
the possibility of availing of either of these
gateways, may yet differ with the view
expressed and refer the matter to a Bench
of superior strength or in some cases to a
Bench of superior jurisdiction."

15.

What
emerges
from
the
aforementioned judgments of the Supreme
Court is that the principles of consistency is
sacrosanct in taxation matters. The Supreme
Court has consistently emphasized that
Revenue cannot take a different stand when
facts are almost identical. These judgments
underscore the significance of consistency in
tax administration and the need for tax
authorities to adhere to established principles
and precedents. The arbitrary withholding of
refund claims for specific periods, despite
past precedents and the absence of any
material change in circumstances, is contrary
to the principles of fairness and equity.

16. Another ground taken in the
instant dispute by the Petitioner revolves
around the difference between input and
1026 INDIAN LAW REPORTS ALLAHABAD SERIES
capital goods. Under Section 2 of the
CGST Act, 2017 "capital goods" are
defined as goods value of which is
capitalized in the books of account of the
person claiming ITC and are used in the
course or furtherance of business. On the
other hand, "input" is defined as any goods
other than capital goods used or intended to
be used by a supplier in the course or
furtherance of business. The distinction
between inputs and capital goods lies in
whether the value of the goods is
capitalized in the books of account of the
taxpayer claiming ITC. Capital goods, by
virtue of their nature, are intended for longterm use in the business and are typically
subject to capitalization. Inputs, however,
are goods used in the day-to-day operations
of the business and are not subject to
capitalization. In the instant case, specific
goods procured by the Petitioner for R &
D, software development, and validation
directly contributed to the provisions of IT
services exported to SEC Korea. These
goods were not capitalized in the books of
account, as they were deemed redundant
after the completion and validation of
software projects. The Petitioner's assertion
aligns with the definition of inputs
provided under the CGST Act, 2017 which
includes any goods used or intended to be
used in the course or furtherance of
business. Moreover, the Supreme Court's
decision
in
Tata
Engineering
&
Locomotive Company (supra) underscores
the principle that goods essential for
producing a final product qualify as inputs.
In the instant case, the specific goods used
for R & D and software development are
essential for providing IT services, and
therefore, qualify as inputs under the CGST
Act, 2017.

17. It is also apparent that the
Department in the instant case has travelled
beyond the show cause notice by taking a
completely contrary stand. The issuance of
a show cause notice entails the obligation
on the authority to meticulously delineate
specific allegations or concerns prompting
its issuance. The principles of natural
justice demands that the recipient be
accorded a fair and impartial opportunity to
respond to the allegations or concerns
raised in the show cause notice. This
includes the right to be heard, the right to
present evidence or arguments in their
defence and the right to present evidence or
arguments in their defence and also the
right to a reasoned decision based on the
merits of the case. Any attempt by the
issuing authority to expand the scope of
inquiry or introduce new allegations
beyond those articulated in the show cause
notice would constitute a violation of the
principles of natural justice. Such actions
would not only undermine the recipient's
right to a fair hearing but also erode trust in
the integrity and impartiality of the
adjudicatory process. The issuance of a
show cause notice marks the initiation of a
dialogue between the authority and the
recipient, providing an avenue for the latter
to present their perspective and defend
against any allegation made. This process is
rooted in the principle that individuals or
entities should be given an opportunity to
be heard before any adverse action is taken
against them. By formally notifying the
recipient of the grounds for initiating
action, the authority is compelled to
provide a coherent and substantiated basis
for
its
actions,
thereby
fostering
transparency in decision-making processes.

18. In Ramlala v. State of U.P. and
others reported in 2023 SCC OnLine (All)
2479 this Court propounded that a person
must be accorded a fair chance to put up his
case and therefore the authorities cannot
4 All. M/s Samsung India Electronics Pvt. Ltd. Vs. State of U.P. & Ors.
1027
traverse beyond the show cause notice.
Relevant paragraphs are extracted herein:

"9. The principle that emerges
from the above judgments is patently clear
that a show cause notice is required to
provide details of the nature of the offence
and the grounds on which the show cause
notice has been issued. Furthermore, the
order that is subsequently passed, based on
the show cause notice, cannot go beyond
the said show cause notice and cannot in
any manner penalise the noticee on
grounds that were not stated in the show
cause notice.

10. The rationale for not allowing
the respondents from going beyond the
realm of the show cause notice is that the
petitioner has to be given a chance to put
up his case with regard to the said show
cause notice. In the event, a particular case
is made out in the show cause notice and
the order passed subsequently is beyond the
said show cause notice, the same would
amount to violation of the principles of
natural justice, as the petitioner would not
have been aware of the new grounds or new
factual elements and could never have
placed his case for the above before the
authority
concerned.
It
is
in
this
background that the Supreme Court in
umpteen judgments has laid down the law
that an order passed by an authority cannot
go beyond the scope of the show cause
notice. In fact, the Supreme Court in the
case of The Board of High School and
Intermediate Education, U.P. v. Kumari
Chitra Srivastava, (1970) 1 SCC 121 has
categorically stated that the principles of
audi alteram partem are required to be
followed even if the same is burdensome in
nature. Justice S.M. Sikri in his inimitable
style stated as follows: "Principles of
natural
justice
are
to
some
minds
burdensome but this price - a small price
indeed - has to be paid if we desire a
society governed by the rule of law."

19. In Associated Switch Gears and
Projects v. State of U.P. and others
reported in 2024:AHC:12780, this Court
espoused on the importance of show cause
notice. Relevant paragraphs are extracted
below:

"8. The significance of adhering
to the confines of a show cause notice lies
in upholding the rule of law and preventing
arbitrary exercises of power. Any action
taken by an authority beyond the scope
defined in the notice risks transgressing the
boundaries of legality and procedural
fairness.
Such
overreach
not
only
undermines the legitimacy of the authority
but also compromises the rights of the
individuals or entities involved, potentially
leading to legal challenges and erosion of
public trust. Moreover, the issuance of a
show cause notice imposes a duty on the
part of the authority to meticulously outline
the
specific
allegations
or
concerns
prompting its issuance. This requirement
fosters transparency and accountability, as
the recipient is entitled to a clear
understanding of the charges against it,
enabling it to formulate an informed
response. Any attempt by the authority to
expand the scope of inquiry or introduce
new allegations beyond those articulated in
the notice would violate this principle of
specificity, depriving the recipient of a fair
opportunity to address the accusations
leveled against it.

9. The issuance of a show cause
notice represents a pivotal juncture in
administrative proceedings, demarcating
the boundaries within which any authority
can exercise its powers. By adhering to the
1028 INDIAN LAW REPORTS ALLAHABAD SERIES
confines of the notice, authorities uphold
principles
of
fairness,
accountability,
procedural regularity, and legal certainty
essential
for
the
legitimacy
and
effectiveness of governance systems. Any
attempt to transcend these limits not only
violates the rights of the individuals or
entities involved but also undermines the
rule of law and public trust in the
institutions tasked with upholding it. Thus,
this Court holds that, adhering to the show
cause notice is not merely a procedural
formality, but a mandatory requirement,
beyond the scope of which, no action can
be taken. Adherence to the show cause
notice is a fundamental safeguard against
arbitrary exercises of power, ensuring that
authority remains tethered to the principles
of justice and the rule of law."

20. It is evident in the instant case
that the Department has deviated from the
show cause notice, and as such any order
passed by it running contrary to the
grounds taken in the show cause notice,
cannot be sustained. Issuance of the show
cause notice represents a pivotal juncture
in legal or administrative proceedings,
demarcating the boundaries within which
any authority can exercise its powers.
Adhering to the confines of the show
cause
notice
upholds
principles
of
fairness,
accountability,
procedural
regularly, and legal certainty essential for
the legitimacy and effectiveness of the
governance systems. Any attempt to
transcend these limits not only violates the
rights of the individuals or entities
involved but also undermines the rule of
law and public trust in the institutions
tasked with upholding it. Therefore,
adherence to the show cause notice is not
merely a procedural formality but a
mandatory requirement, beyond the scope
of which, no action can be taken.

21. Principles emerging from the
aforesaid discussion have been summarised
below:

a. While the principle of res
judicata does not apply to taxation matters,
it is incumbent upon authorities to take a
consistent approach when dealing with
similar factual and legal circumstances. The
principle of consistency states that when
faced with analogous factual and legal
circumstances, the treatment should remain
uniform. Taxpayers have a legitimate
expectation that similar factual and legal
circumstances will be met with uniform
treatment, and any deviations from this
principle undermine the credibility and
legitimacy of the actions taken by tax
authorities.

b. When facts and circumstances
in a subsequent assessment year are the
same, no authority, whether quasi-judicial
or judicial can generally be allowed to take
a contrary view. The arbitrary withholding
of refund claims for specific periods,
despite past precedents and the absence of
any material change in circumstances, is
contrary to the principles of fairness and
equity.

c. Capital goods, are intended for
long-term use and are typically subject to
capitalization. However, inputs, are goods
used in the day-to-day operations of the
business
and
are
not
subject
to
capitalization.

d. While issuing a Show Cause
Notice,
it
is
incumbent
upon
the
Department to clearly outline the specific
allegations
or
concerns
against
the
recipient. In no case, the Department can be
allowed to traverse beyond the confines of
the Show Cause Notice, since the same will
4 All. M/s Eco Plus Steels Pvt. Ltd. Vs. State of U.P. & Ors.
1029
trample upon the recipient's right to defend
itself. Any attempt by the issuing authority
to expand the scope of inquiry or introduce
new allegations beyond those articulated in
the show cause notice would constitute a
violation of the principles of natural justice.
Such actions would not only undermine the
recipient's right to a fair hearing but also
erode trust in the integrity and impartiality
of the adjudicatory process. Any action
taken beyond the confines of the Show
Cause Notice, is void ab initio and cannot
be sustained.

22. In light of the aforesaid, it is
evident that the impugned orders dated
October 25, 2021 and February 24, 2023
are palpably erroneous, and cannot be
sustained. Accordingly, let there be a writ
of certiorari issued against the orders dated
October 25, 2021 and February 24, 2023
passed by the Respondent No. 2. The said
orders are hereby quashed and set aside.

23. The writ petitions bearing Writ
Tax No.777 of 2022 and Writ Tax No.660
of
2023
are,
accordingly,
allowed.
Consequential reliefs to follow. There shall
be no order as to the costs.

24. An urgent photostat-certified copy
of the order, if applied for, should be
readily made available to parties upon
compliance with requisite formalities.
----------
(2024) 4 ILRA 1029
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 03.04.2022

BEFORE

THE HON'BLE SHEKHAR B. SARAF, J.

Writ Tax No. 916 of 2022
WITH
Writ Tax No. 1600 of 2022

M/s Eco Plus Steels Pvt. Ltd. ...Petitioner
Versus
State of U.P. & Ors. ...Respondents

Counsel for the Petitioner:
Sri Aloke Kumar

Counsel for the Respondent:
C.S.C.

Civil Law - U.P. Goods and Services Tax
Act, 2017 - Sections 74, 107, 122, 130 -
Constitution of India,1950 - Article 226 -
-
Petitioner
challenged
orders
dated
September 25, 2019, and April 5, 2022
(confiscation and penalty under Sections 130
and 122), and orders dated December 3,
2022, and August 3, 2022 (tax liability under
Section 74), alleging improper assessment of
excess stock. Court held: (1) Mere presence
of excess stock does not justify confiscation
under Section 130(1) unless tax liability arises
at the point of supply or intent to evade tax is
established; no such intent was alleged (M/s
Maa Mahamaya Alloys Pvt. Ltd. Vs St. of U.P.,
2023 82 NTN DX 393). (2) Stock valuation
based on eye estimation, without physical
weighing
or
counting
despite
available
facilities, violated Section 15 and Rules,
rendering confiscation and penalty orders
unsustainable (M/s Metenere Ltd. Vs U.O.I.,
Writ Tax No. 360 of 2020). (3) Inordinate
delay of 10 months in issuing show cause
notice and 11 months in passing confiscation
order indicated callous conduct, vitiating
proceedings.
(4)
Burden
of
proof
for
confiscation
and
penalty
lies
on
the
Department, which failed to conduct proper
physical verification. Impugned orders dated
September 25, 2019, April 5, 2022, December
3, 2022, and August 3, 2022, quashed;
deposited amounts to be refunded within
eight weeks. (Paras 7-15)

Writ Petitions Allowed.

List of Cases cited:

1. M/s Maa Mahamaya Alloys Pvt. Ltd. Vs St. of
U.P., 2023 82 NTN DX 393 (Paras 7-8)