ITC Dispute: Calcutta HC Upholds SCN, Cancels Adjudication Order for Breach of Natural Justice

The Calcutta High Court has announced its final decision on a writ petition filed by Jyoti Tar Products Private Limited and Others against the Deputy Commissioner, State Tax, Shibpur Charge, WBGST & Ors, challenging a show cause notice (SCN) dated June 18, 2025, under Section 74 of the West Bengal Goods and Services Tax Act, 2017, and an adjudication order dated November 04, 2025, confirming tax, interest, and penalty on the company.

The petitioner company is engaged in the business of trading in crude tar and other allied products. The tax authorities alleged the company wrongly claimed ITC from suppliers whose GST registrations were later cancelled and suspected fraudulent passing of ITC in the supply chain.

However, the petitioner argued that they fulfil all the conditions of Section 16(2) of the GST law and have also furnished all the relevant documents (including tax invoices, e-way bills, bank statements, and GST return records) proving the same. To prove the genuineness of the transaction, the petitioner was not required to produce any other document except those mentioned in Section 16(2) of the said Act of 2017.

They contended that buyers should not be penalised if suppliers later turn out to be nonexistent or have their registrations cancelled retrospectively. They also claimed the show cause notice showed a predetermined mindset and therefore violated principles of natural justice.

The state tax authorities argued that the GST framework provides a complete adjudication process and the writ petition was premature because the show-cause notice (SCN) only reflected a prima facie view. According to the department, the genuineness of the transactions was doubtful because the suppliers dealt in unrelated goods and there were irregularities in the ITC chain.

The High Court held that courts generally should not interfere at the show-cause notice stage unless there is a clear lack of jurisdiction or patent illegality. The court found that the notice was based on “reasons to believe” and only expressed a prima facie view, not a final decision. Therefore, the challenge to the show cause notice was rejected.

However, the court set aside the adjudication order dated November 4, 2025, because it was passed without granting the petitioner a personal hearing, violating Section 75(4) of the GST law and principles of natural justice. The petitioner was granted 30 days to file a reply, after which the tax authority must decide the matter afresh after giving a proper hearing.