Challenge on GST SCN alleging Fraud and Misrepresentation: Calcutta HC dismisses Britannia Industries Appeal on Availability of Statutory Remedy [Read Order]

The Calcutta High Court dismissed the petition of Britannia Industries challenging the show cause notice ( SCN ) alleging fraud and misrepresentation under the Central Goods and Service Tax ( CGST )Act, 2017.  The court advised to follow the statutory remedies provided under the CGST Act, 2017 including submitting a detailed response to the SCN.

 Britannia Industries Limited, the petitioner, is engaged in manufacturing and supplying various food items, including bakery products such as biscuits, bread, cakes, and rusks, along with dairy products. These products are distributed to customers and dealers through the petitioner’s multiple units across India.

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On December 16, 2021, the officers of the Directorate General of GST Intelligence (DGGI), Delhi Zonal Unit herein respondent no. 3, searched the petitioner’s premises in Delhi. During the proceedings, several summonses were issued, statements were recorded, and various documents and information were sought from the petitioner. The petitioner duly complied with all the requirements during these proceedings.

Subsequently, Respondent No. 3 issued a Show Cause Notice (‘SCN’) dated August 3, 2024, under Section 74(1) of the CGST Act, 2017, read with Section 20 of the Integrated Goods and Services Tax (IGST) Act, 2017. The SCN sought recovery of ₹1,05,11,99,662 in GST, along with interest under Section 50 and an equivalent penalty under Section 74(1) of the CGST Act, 2017.

The SCN contains several allegations against the Petitioner. First, it accuses the Petitioner of wrongfully availing the benefit of an exemption on the supply of "Kulcha" by misclassifying it as "bread" under S. No. 97 of Notification No. 02/2017 - Central Tax (Rate) dated June 28, 2017.

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Additionally, the SCN denies the reduction of the Petitioner’s outward tax liability based on credit notes issued for deficient services and destroyed goods. This denial is grounded on the claim that the corresponding Input Tax Credit (ITC) was not reversed by the suppliers or recipients of such goods, as required under Section 34 of the CGST Act.

Further, the SCN alleges non-reversal of ineligible ITC by the Petitioner. Specifically, it points to inputs used in the manufacture of destroyed goods and inputs used for manufacturing sample free goods, both of which fall under the ambit of Section 17(5)(h) of the CGST Act.

The Petitioner has filed the present writ petition before the  High Court, challenging the SCN. The Petitioner contends that the SCN is without jurisdiction and has been issued in gross violation of the principles of natural justice. The Counsel appearing on behalf of the petitioner submitted that the SCN invoking the extended period of limitation under Section 74 of the Act is wholly without jurisdiction. The extended period of limitation of five years under Section 74 is applicable only in cases where fraud, collusion, wilful misstatement, suppression of facts or contravention of provisions with the intent to evade payment of tax is established.

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The impugned SCN failed to substantiate allegations of fraud, suppression or wilful misstatement with evidence. Moreover, the SCN is devoid of allegations demonstrating mala fide intent on the petitioner’s part. For instance, the classification issue concerning Kulcha fails to demonstrate a deliberate intention to evade tax. The extended period of limitation invoked under Section 74 is thus without jurisdiction.

It has been further submitted that the petitioner uses goods exclusively for organoleptic testing by employees to evaluate quality, taste and durability. These goods are not distributed as free samples to customers. Therefore, the restriction on ITC under Section 17(5)(h) of the CGST Act is inapplicable. The SCN erroneously categorizes such goods as free samples, disregarding the distinction between inputs used for internal testing and those distributed for promotional purposes.

It is well-settled that writ courts do not interfere in cases where statutory remedies are available unless there is a clear violation of fundamental rights, lack of jurisdiction, or procedural perversity leading to manifest injustice.

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A single bench of Justice Rajarshi Bharadwaj observed that the petitioner has not demonstrated any such exceptional circumstances warranting this Court's intervention. Instead, the statutory framework under the CGST Act provides adequate mechanisms for addressing the petitioner’s concerns, including responding to the SCN, participating in adjudication proceedings and availing appellate remedies if dissatisfied with the outcome.

The adjudicating authority is directed to independently and impartially decide the matter based on the evidence and submissions presented before it. While dismisisng the appeal, the petitioner is advised to exhaust the statutory remedies provided under the CGST Act, 2017 including submitting a detailed response to the SCN.

To Read the full text of the Order CLICK HERE

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