No Writ Interference at Show Cause Stage in GST Fraud Allegations: Allahabad High Court

The Allahabad High Court has reiterated that writ courts should not ordinarily interfere at the stage of issuance of a show cause notice under the Goods and Services Tax regime, particularly where allegations of fraud and disputed questions of fact are involved. Declining to quash a show cause notice issued under Section 74 of the CGST Act, 2017, the Court held that such issues are better examined during statutory adjudication proceedings. The Bench of Justice Saumitra Dayal Singh and Justice Indrajeet Shukla has clarified that the petitioner cannot be compelled to deposit the proposed tax, interest, or penalty prior to adjudication. If the department relies on statements of recipients or other witnesses, the petitioner must be given an adequate opportunity to cross-examine such witnesses. All relied-upon documents must be furnished, and the petitioner would be entitled to rebut the evidence in accordance with principles of natural justice. M/s Shakti Industries, engaged in the manufacture of hand pumps, challenged a show cause notice dated 24 September 2025 issued by the GST authorities for the tax period April 2019 to January 2024. The notice alleged wrongful availment of GST refunds under the inverted duty structure, invoking Section 74(1) of the CGST Act along with corresponding provisions of the U.P. GST Act and the IGST Act. The petitioner claimed that it procured inputs such as pipes taxed at 18% GST and supplied finished hand pumps taxed at 5%, resulting in accumulation of input tax credit and entitlement to refunds. According to the petitioner, these refunds were granted after due verification by the department, and there was no evidence of tax evasion or fictitious transactions. The petitioner contended that it had regularly filed GST returns and refunds were sanctioned after proper scrutiny. The notice was issued without any concrete material linking the petitioner to fraudulent or paper transactions. Searches conducted by the department did not yield documentary evidence against the petitioner. Regular inspections had confirmed that the petitioner was genuinely engaged in manufacturing activities. The initiation of proceedings under Section 74 was allegedly aimed at frustrating pending refund claims, including one already under challenge before the High Court. The petitioner sought quashing of the show cause notice at the threshold. Opposing the writ petition, the tax department submitted that the proceedings were based on search, inquiry, and investigation carried out by the DGGI. While the receipt of inputs by the petitioner was not in dispute, the department raised serious doubts about the genuineness of outward supplies of hand pumps. The department pointed out that statements of recipients recorded during investigation indicated that certain supplies claimed by the petitioner were disputed or appeared to be sham transactions. Consequently, it was argued that the matter required detailed factual examination during adjudication and was not fit for interference under writ jurisdiction. The High Court observed that the writ petition had been filed at the very inception of adjudication proceedings, with no final determination yet made by the adjudicating authority. The Court emphasised that the case involved disputed questions of fact, which cannot be effectively adjudicated in writ proceedings. Interference at the show cause notice stage would be premature and contrary to settled legal principles. The Court ensured protection of the assessee’s procedural rights. Holding that the issues must be examined during adjudication on both facts and law, the Allahabad High Court declined to interfere with the show cause notice and disposed of the writ petition with the above observations. Case Details Case Title: M/S Shakti Industries Versus Director, DGGI Case No.: Writ Tax No. - 775 Of 2026 Date: 02/02/2026 Counsel For Petitioner: Adarsh Singh Counsel For Respondent: Dhananjay Awasthi Click Here To Read Order

No Writ Interference at Show Cause Stage in GST Fraud Allegations: Allahabad High Court

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