Facts of the Case:

In this case, the petitioner received a show cause notice demanding payment, alleging wrongful availment of Input Tax Credit (ITC) on purchases from suppliers stated to be non-existent entities. Following the notice, the input tax credit ledger of the petitioner was frozen by the department. On receiving the notice, the petitioner requested to provide the documents and materials relied upon to issue the notice. The department, however, refused to disclose the same, contending that such information was confidential and had been obtained from the Tax Authorities of other States during a special investigation drive.

The Petitioner aggrieved by (i) the impugned show cause notice dated 14.08.2025, (ii) the freezing of its ITC ledger, and (iii) the refusal of the department to furnish the relied-upon materials, approached the High Court.

Issue:

Whether the tax department can refuse to furnish the material relied upon against a taxpayer on the ground of confidentiality, while simultaneously proceeding to recover tax and freeze the taxpayer’s ITC ledger?

Held that:

The Hon’ble High Court held that non-disclosure of material relied upon by the authorities in proceedings against a taxpayer violates the principles of natural justice. Once any document or information is used as a basis to initiate proceedings, the taxpayer has a right to inspect and obtain copies of the same to effectively defend their case.

The Court observed that confidentiality cannot override fairness in quasi-judicial proceedings and directed the department to furnish all materials and information relied upon to issue the show cause notice within one week. The authority shall grant a personal hearing and pass a reasoned order within three weeks from the date of the judgment. In the event of non-compliance within the prescribed time, the freezing of the petitioner’s ITC ledger shall stand automatically lifted, enabling the petitioner to utilize the available ITC. The materials shared with the petitioner shall be kept confidential, and the petitioner shall not disclose the same to third parties.

The Court, however, declined to interfere with the show cause notice itself, observing that it was only a preliminary step in the adjudicatory process.

Case Name: Eeya Metals and Alloys (P) Ltd v. Assistant Commissioner ST dated 29.10.2025

To read the complete judgement 2025 Taxo.online 2774