The Delhi High Court has declined to set aside a ₹7.26 crore GST demand against a cement trader at the writ stage, holding that disputes over the underlying transactions and alleged duplicate proceedings must be examined by the appellate authority.

The Bench of Justice Anil Kshetarpal and Justice Shail Jain disposed of a petition which challenged a show cause notice and an order. The firm had also challenged the constitutional validity of Section 16(2)(c) of the Central Goods and Services Tax Act, 2017, insofar as it can deny input tax credit (ITC) to a purchaser when a supplier has not paid the tax.

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The petitioner/assessee trades in cement and allied products. According to the judgment, GST intelligence officers searched its proprietor’s residence and office on December 2, 2020, while investigating suspected ITC claims based on invoices without corresponding supplies. A separate show cause notice issued by the Directorate General of Goods and Services Tax Intelligence (DGGI) in April 2023 proposed penalties connected with alleged transactions involving non-existent firms. An order confirming the demand in those proceedings was passed in January 2025, and an appeal against it is pending.

The proceedings before the High Court concerned another notice, issued under Section 73 of the CGST Act. Based on GST returns, e-way bills and other records, the department alleged that the firm had incorrectly declared its tax liability and claimed ITC on purchases from suppliers whose GST registrations stood cancelled before the invoice dates.

The notice proposed a tax liability of ₹7,26,59,252, comprising CGST of ₹3,60,93,588, SGST of ₹3,60,93,588 and IGST of ₹4,72,076. The February 2025 order confirmed that liability.

The firm argued that ITC could not be denied mechanically because a supplier had allegedly failed to deposit tax. It said a bona fide purchaser could not reasonably be expected to ensure an independent supplier’s tax compliance, particularly without evidence of fraud or collusion by the purchaser.

It also alleged that its detailed reply had not been properly considered and that it had not received an effective personal hearing. On that basis, it described the order as inadequately reasoned.

The firm further relied on Section 6(2)(b) of the CGST Act, arguing that the department could not initiate another proceeding on the same subject matter after the DGGI investigation. It claimed the two sets of proceedings could result in duplicate demands concerning the same transactions.

The High Court held that the constitutional challenge to Section 16(2)(c) was covered by the Supreme Court’s decision in Bhandari Scrap Traders v. Union of India, which upheld the provision. The Bench said the condition concerning payment of tax by the supplier could not be read down merely because a supplier might default.

As to the firm’s ITC claim, the Court noted that deciding whether goods were actually received and the relevant tax was paid would require examination of transport records, delivery challans and payment trails. That factual exercise, it said, belongs before the appellate authority.

The Bench also found that the record showed a personal hearing had been afforded and the firm’s reply considered, although its arguments were rejected. Whether the consideration was adequate would require closer scrutiny of the reply, hearing record and order.

On the allegation of parallel proceedings, the Court observed that the DGGI case concerned penalties arising from alleged fraudulent availment and passing on of ITC through non-existent firms, while the challenged Section 73 notice concerned ITC claimed from suppliers with cancelled registrations. Whether the two proceedings nevertheless covered the same subject matter—and whether any demand had been duplicated—required factual verification.

The High Court directed the firm to pursue its remedy under Section 107 of the CGST Act. It said the firm may apply under Section 14 of the Limitation Act, 1963, to seek exclusion of the time spent pursuing the writ petition; the appellate authority must consider any such application in accordance with law.

The Bench made clear that its observations were confined to its decision against intervening at the writ stage. The appellate authority remains free to examine the firm’s objections independently on their merits.

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