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2026 Supreme(Raj) 1040
IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR
ARUN MONGA, ASHUTOSH KUMAR, JJ
Sumetco Alloys Private Limited – Appellant
Versus
Union Of India, Through Its Secretary, Department Of Revenue, Ministry Of Finance North Block, New Delhi. - Respondents
D.B. Civil Writ Petition No. 9323 OF 2026
Decided On : 13-08-2026
Important Points
Subject
Tax Law - GST (Goods and Services Tax)
Act Referred
Headnote
(B) Interpretation of Statutes - Plea of reading down Section 16(2)(c) to protect bona fide purchasers rejected - Highest court has affirmed the validity of the provision and explicitly declined to read it down - Even if read down, such protection would not extend to transactions involving allegations of fake invoices and bogus supplies (Paras 27, 30).
(C) Natural Justice and Administrative Law - Non-issuance of pre-notice intimation in Form GST DRC-01A does not vitiate proceedings as the provision is an enabling facility ("may") and not a mandatory condition precedent (Para 39) - Rule against bias is displaced where the statute consciously vests both investigative and adjudicatory functions in the same "proper officer," provided no personal animus or interest is proven (Paras 42-44).
(D) Writ Jurisdiction - Where a statutory appellate remedy is available, a writ petition is not maintainable for challenging factual findings or the adequacy of a reasoned order, as such grievances are errors within jurisdiction to be addressed by the appellate authority (Paras 47-50).
Facts of the case:
A manufacturing company claimed input tax credit on purchases. Following inspections, authorities alleged that the company had wrongly availed credit through fake invoices and bogus supplies involving multi-layered paper transactions without actual movement of goods. A show cause notice was issued under Section 74 of the Act, and an order was subsequently passed confirming a substantial tax demand. The company challenged the constitutional validity of Section 16(2)(c) and sought the quashing of the notice and order via a writ petition.
Findings of Court:
Section 16(2)(c) suffers from no constitutional infirmity; the burden of proving the genuineness of a transaction for ITC claims lies on the purchasing dealer. The invocation of Section 74 was justified given the detailed allegations of fraud and fake invoices. The proceedings were not vitiated by bias or the absence of DRC-01A. The petitioner's grievances regarding the appreciation of its reply are matters of merit for the appellate forum.
Issues: (i) Whether Section 16(2)(c) of the Act is ultra vires the Constitution or liable to be read down? (ii) Whether the show cause notice lacked the jurisdictional foundation for invoking Section 74? (iii) Whether the proceedings were vitiated by breach of natural justice, including the rule against bias and non-issuance of Form GST DRC-01A? (iv) Whether the petitioner ought to be relegated to the statutory appellate remedy?
Ratio Decidendi: The court ruled that the risk of supplier default is intentionally placed on the recipient by the legislature. The statutory scheme allows the same proper officer to investigate and adjudicate. Since no jurisdictional error or gross violation of natural justice was established, the petitioner must exhaust the statutory remedy of appeal before seeking judicial intervention.
Result: The challenge to the constitutional validity of Section 16(2)(c) and the impugned order was rejected; liberty was granted to the petitioner to prefer an appeal under Section 107 of the Act.
Advocate Appeared:
For the Petitioners: Mr. Jatin Harjai with Mr. Palak Gupta, Ms. Nikshubha Sharma, Mr. Bimal Jain
For the Respondents: Mr. Bharat Vyas, ASG- Sr. Adv. With Ms. Mahi Yadav, AAG, Ms. Chelsi Agarwal, AAAG, Mr. Yuvraj Singh Rajawat, Mr. Devesh Yadav, CGC, Ms. Anima Chaturvedi
Order(Oral) :
Arun Monga, J.
1. Vide instant writ petition, three reliefs are pressed. The first is issuance of a writ in the nature of certiorari, quashing/declaring that Section 16(2)(c) of the Central Goods and Services Tax Act, 2017, alleged to be ultra vires the Constitution, being arbitrary and violative of Article 14. The second is quashing of the order in original dated 10.04.2026 (Annexure P-10), whereby a demand of Rs. 56,44,08,265/- was raised against the petitioner. The third is quashing of the show cause notice dated 26.09.2025 (Annexure P-5), which was the precursor to that order.
2. The petitioner company manufactures pure lead and lead ingots. It procures raw material from Haryana, Delhi and Rajasthan, and also by way of imports. It asserts that in accordance with law it has maintained its books of account, discharged tax on outward supplies and availed input tax credit on the strength of purchases made from registered suppliers.
3. On 20.03.2024, the State Tax Authorities inspected the petitioner’s premises. Queries were raised regarding purchases from certain suppliers whose registrations came to be cancelled thereafter. The petitioner produced ledgers, financial statements, stock details and creditor details. During the proceedings, the petitioner deposited Rs. 50,00,000/- through Form GST DRC-03. The deposit is stated to have been made under protest and without admission of liability.
4. Summons under Section 70 of the Act followed. The Director of the petitioner appeared and his statement was recorded on 22.04.2024. The petitioner again furnished input tax credit ledgers, financial statements, bank statements, tax invoices, e-way bills, transport documents, payment proofs, weighment slips and allied records. It is the case petitioner that the suppliers held valid registrations as on the dates of the transactions. That every transaction is backed by invoice, banking channel payment and transport documentation.
5. Notwithstanding, respondent No. 3 issued the impugned show cause notice dated 26.09.2025 under Section 74 of the Act for the financial years 2020-21 to 2023-24. The notice alleges wrongful availment of input tax credit on purchases from certain suppliers. The petitioner replied in detail on 01.11.2025 with supporting documents. However, Respondent No. 3 thereafter passed the impugned order in original dated 10.04.2026 confirming the demand.
6. Hence, this writ petition.
7. Mr. Jatin Harjai, learned counsel for the petitioner submits that the petitioner is a bona fide purchaser.
7.1. He urges that once possession of a tax invoice, actual receipt of goods, payment through banking channels and filing of returns are established, the entitlement to input tax credit cannot be defeated by the default of a supplier over whom the petitioner has no control.
7.2. He relies on the judgment of the High Court of Tripura in Sahil Enterprises v. Union of India , 2026 SCC Tri 4 and on the judgment of the High Court of Karnataka in Instakart Services Private Limited v. Union of India , 2026 SCC Kar 2469. He submits that in both these judgments, Section 16(2)(c) has been read down and benefit thereof be accorded to the petitioner-Company.
7.3. He further submits that the writ petition is maintainable notwithstanding the appellate remedy, because there is a breach of the principles of natural justice and a want of jurisdiction under Section 74.
8. Au contraire, learned counsels for the respondents, at the outset raise a preliminary objection on maintainability. They submit that the order dated 10.04.2026 is appealable under Section 107 of the Act, with a further appeal under Section 112.
8.1. They submit that none of the recognised exceptions to the rule of alternative remedy is attracted in the case in hand. That, what the petitioner seeks herein is nothing but appreciation of disputed facts.
8.2. On the constitutional challenge, they argue that the provision has been enacted with the legitimate object of protecting revenue and pr
