Facts of the Case:

The petitioners challenged a Show Cause Notice dated 11.06.2025 issued under Section 74 of the CGST Act for FYs 2018-19 to 2019-20 and 2023-24, proposing recovery of ₹2.37 crore towards allegedly ineligible/irregular ITC, with interest and penalty aggregating to about ₹6.3 crore. The principal dispute concerned ITC availed from suppliers who allegedly failed to file GSTR-3B and whose invoices were not reflected in the petitioners’ GSTR-2A.

The petitioners contended that they were bona fide purchasers, possessed tax invoices, had received the goods and made payments through banking channels, and that the Department had itself initiated recovery proceedings against the defaulting supplier, M/s Aster Trading Company.

During the pendency of the writ petition, the adjudicating authority passed an Order-in-Original dated 09.12.2025, allegedly without properly considering the petitioners’ detailed reply and supporting documents.

The petitioners challenged the order, relying upon Suncraft Energy Pvt. Ltd. v. Assistant Commissioner, State Tax, affirmed by the Supreme Court, and G.R. Infra Projects Pvt. Ltd. v. State/Revenue on the improper invocation of Section 74.

Issue:

Whether ITC can be denied to a bona fide recipient merely because the supplier failed to file GSTR-3B/pay tax or the invoices were not reflected in GSTR-2A, in the absence of any allegation or finding of collusion; and whether Section 74 can be mechanically invoked for a time-barred period by merely using expressions such as fraud, wilful misstatement and suppression of facts to overcome the limitation prescribed under Section 73(10).

Held That:

The High Court allowed the writ petition and quashed the Order-in-Original dated 09.12.2025 and consequential recovery notice. Relying upon Suncraft Energy, which had attained finality upon dismissal of the Revenue’s SLP by the Supreme Court, the Court held that mere non-reflection of invoices in GSTR-2A cannot automatically result in denial of ITC to a bona fide purchaser where possession of tax invoices and receipt of goods/services are not disputed. In the absence of any allegation or finding of collusion, the Department must first proceed against the defaulting supplier for recovery under Section 79, rather than effectively recovering the same tax from both supplier and recipient.

The Court further held that the SCN for FY 2018-19 was prima facie time-barred under Section 73(10) and that Section 74 could not be invoked merely by mechanically employing the words “fraud”, “wilful misstatement” or “suppression” without disclosing the material particulars forming the basis of such allegations. Such mechanical invocation was held to be without jurisdiction and a colourable exercise of power.

The matter was remanded for fresh consideration of the petitioners’ reply and documents, after granting personal hearing and passing a reasoned and speaking order. As a condition of remand, the petitioners were directed to deposit ₹10 lakh under protest, subject to adjustment/refund depending upon the outcome of fresh adjudication.

Case Name: M/s. Cart Infralog Ltd. & Anr. Vs. The Additional Commissioner, HQ Anti-Evasion Unit, CGST & CX, Kolkata South Commissionerate & Ors. dated 27.08.2026

Citation No. 2026 Taxo.online 2600