Facts of the Case:

In this case, the petitioner had transitioned CENVAT/VAT credit into the GST regime by filing TRAN-1 and TRAN-2 under Section 140 of the CGST Act. An audit was initiated in 2018 to verify transitional credit claims. After prolonged correspondence and submission of voluminous records, a show cause notice under Section 73 was issued in December 2021 proposing denial and recovery of transitional credit exceeding ₹22 crores with interest and penalty. Following earlier writ proceedings, the petitioner responded to the SCN and participated in personal hearing. The department conducted physical verification of invoices and records and prepared verification reports dated 27.01.2025 and 03.02.2025. However, copies of these verification reports were not furnished to the petitioner despite request.

Subsequently, the adjudicating authority passed an Order-in-Original in Form GST DRC-07 confirming substantial denial of transitional credit along with interest and penalty. The order itself recorded that verification was incomplete due to paucity of time and high volume of stock/invoices. Aggrieved, the petitioner approached the High Court. 

Issue:

Whether the impugned order denying transitional credit under Section 140 of the CGST Act could be sustained when verification reports relied upon by the adjudicating authority were not furnished to the petitioner. The order was passed in haste without complete verification of records

Held that:

The Court held that there was a clear breach of principles of natural justice. When verification reports form the basis of adverse findings, copies of such reports must be supplied to the noticee to enable an effective response. Forming conclusions based on internal verification conducted behind the back of the petitioner is impermissible.

The Court further noted from the impugned order itself that the verification was incomplete due to time constraints and large volume of records. Such hurried adjudication, without complete examination of invoices and stock registers, was found to be unsustainable.

Accordingly, the impugned order was quashed and set aside. The matter was remanded with directions to furnish copies of verification reports to the petitioner. 

Case Name: Pidilite Industries Limited Versus The Union of India, The Principal Commissioner of Central Goods and Services Tax and C. Ex, Mumbai South, Divn. -VIII, Range IV, Mumbai, The Additional Commissioner of Central Goods and Service Tax and C. Ex Mumbai. dated 20.02.2026