Quick answer: In M/s Neelkanth Entrepreneurs Private Limited v. State of U.P., decided on 9 September 2026, a Division Bench of the Allahabad High Court (Lucknow Bench) dismissed a writ petition challenging a show cause notice issued under Section 74A(5)(ii) of the Central Goods and Services Tax Act, 2017 for the financial year 2025-26, holding that Section 61 scrutiny of returns is not an invariable jurisdictional precondition to a Section 74A notice. Where the department’s case rests on independent verification — here, an allegation that eighteen sub-contractors who purportedly supplied works-contract services to the petitioner were bogus and non-existent — rather than on a discrepancy thrown up by scrutiny of the petitioner’s own returns, Section 61 and Rule 99 of the CGST Rules, 2017 have no application. The Court also declined to interfere with the notice’s invocation of the fraud/wilful-misstatement limb of Section 74A at the threshold, holding that the sufficiency of the allegations is a matter for the adjudicating authority, and dismissed the petition while granting the petitioner four weeks to file a detailed reply.
Key Takeaways
- Section 61 and Section 74A are not sequentially linked. The Court held that “Section 61 and Section 74A lacks commutative property” — scrutiny may lead to a demand notice, but a demand notice does not require scrutiny to have occurred first, unless the notice’s own foundation is a return-based discrepancy.
- The source of the allegation decides which procedure applies. Where the department’s information comes from audit, inspection, search, or independent verification of the counterparty chain, Section 61’s ASMT-10/ASMT-11/ASMT-12 mechanism is simply not engaged, whatever the assessee’s returns otherwise show.
- A jurisdictional challenge to a Section 74A(5)(ii) notice must fail on demurrer, not on facts. The Court distinguished between the notice disclosing no ingredients of fraud or suppression at all (a jurisdictional defect reviewable in writ) and the ingredients being disputed on the merits (not reviewable at the show cause stage).
- The Section 16(2)(c) vires challenge was not decided on merits — it was conceded. Counsel withdrew the constitutional challenge in light of the Supreme Court’s dismissal of the special leave petition against the Gujarat High Court’s ruling upholding Section 16(2)(c), leaving that question settled for now but not freshly reasoned by this Bench.
- Suncraft Energy’s supplier-first rule does not automatically extend to allegations of non-existent suppliers. The Court read Suncraft Energy as confined to a genuine, existing supplier who collected but did not deposit tax, and left open — for the adjudicating authority — whether a “non-existent supplier” case falls outside that protection altogether.
- Writ jurisdiction against a show cause notice remains exceptional. Absent one of the Whirlpool Corporation exceptions, the existence of a statutory reply-and-adjudication route was itself sufficient to defeat the petition on maintainability grounds, independent of the two substantive rulings.
1. Introduction
On 9 September 2026, a Division Bench of the Allahabad High Court’s Lucknow Bench, comprising Justices Shekhar B. Saraf and Abdhesh Kumar Chaudhary, dismissed a writ petition filed by M/s Neelkanth Entrepreneurs Private Limited against a show cause notice proposing to deny input tax credit on the ground that eighteen sub-contractors from whom the petitioner claimed to have received works-contract services were bogus and non-existent. The judgment is marked for reporting (A.F.R.) and addresses a question recurring across GST litigation with growing frequency as the department leans on Section 74A, the unified demand provision applicable to later tax periods: must a proper officer first scrutinise an assessee’s returns under Section 61 before issuing a demand notice, or can a notice be founded directly on another source — audit, inspection, or, as here, independent verification of a counterparty’s existence?
The petitioner’s case rested on two propositions: that Section 16(2)(c) of the CGST Act, which conditions input tax credit on the supplier having actually deposited the corresponding tax, is unconstitutional; and — the point that occupied the bulk of the hearing — that the notice was issued in breach of a supposedly mandatory procedure requiring the department to first scrutinise returns and seek an explanation before proceeding to a formal demand. Both arguments failed, the first because it had already been foreclosed by an intervening Supreme Court order, the second because the Court found no such invariable sequence built into the statute.
This article sets out the transaction and demand at issue, the procedural posture in which the writ petition reached the Court, and the Bench’s reasoning on the relationship between Section 61 scrutiny and Section 74A adjudication, the sufficiency of a fraud allegation at the show cause stage, and the limits of Article 226 interference with a notice. It then considers what the ruling means for assessees facing input tax credit demands founded on allegations against their supply chain, and for the department’s own drafting practice.
2. Case summary and background
The petitioner, a private limited company holding GSTIN 09AADCN8452H1Z6, is engaged in supplying works-contract services under SAC 9954, and claimed to be executing large-scale sub-contract works for NCC Limited, a public infrastructure company, across Bihar, Jharkhand, Uttar Pradesh and Maharashtra — including diaphragm-wall construction for an irrigation project at Dehri, Bihar, distribution infrastructure under the Revamped Distribution Sector Scheme, installation of smart prepaid metering infrastructure, and rural water-supply works, with individual contract values ranging from approximately ₹1.24 crore to ₹8.43 crore. For the financial year 2025-26, the petitioner claimed to have sub-contracted portions of this work, on a back-to-back basis, to eighteen registered sub-contractors, and to have availed input tax credit on the strength of their invoices, supported — on the petitioner’s account — by work orders, measurement sheets, banking-channel payments, GSTR-2A/2B reflections, and signed undertakings from the sub-contractors’ authorised signatories.
On 9 July 2026, the Deputy Commissioner, State Tax, Lucknow, issued a show cause notice under Section 74A(1) of the CGST Act, invoking Section 74A(5)(ii) — the limb applicable where the demand is founded on fraud, wilful misstatement or suppression of facts — and proposing to deny the credit together with tax, interest and penalty, on the footing that the works purportedly sub-contracted to the eighteen firms were fictitious and the firms themselves non-existent. The petitioner did not reply to the notice. Instead, it approached the High Court under Article 226, seeking two reliefs: quashing of the notice, and a declaration that Section 16(2)(c) of the CGST Act and its Uttar Pradesh GST Act counterpart are ultra vires Articles 14, 19(1)(g) and 300A of the Constitution, or, in the alternative, a reading down of the provision to exempt a bona fide recipient who has otherwise satisfied Section 16(2)(a), (b) and (d) and has paid the supplier.
At the outset of the hearing, counsel for the petitioner conceded the second relief, noting that the Supreme Court had, by order dated 24 July 2026, dismissed the special leave petition in Bhandari Scrap Traders v. Union of India (2026 SCC OnLine SC 1570), thereby affirming the Gujarat High Court’s ruling in Maruti Enterprises v. Union of India upholding Section 16(2)(c)’s constitutional validity and confirming that input tax credit is a conditional statutory concession rather than a vested right. The petitioner accordingly confined its case to the challenge against the notice itself, arguing that the notice bypassed a mandatory scrutiny mechanism under Section 61 read with Rule 99, and that it was, in any event, issued without the jurisdictional ingredients required to invoke Section 74A(5)(ii). The Court framed three questions — the Section 61 point, the Section 74A(5)(ii) jurisdictional point, and the availability of writ relief against a show cause notice at all — and answered each against the petitioner, dismissing the petition while leaving the petitioner at liberty to file a detailed reply within four weeks and directing the adjudicating authority to decide the matter uninfluenced by the Court’s observations.
3. Legal analysis
3.1 Section 61 as a self-contained, non-exclusive gateway
The petitioner’s central submission was that Section 61(2) and (3) of the CGST Act, read with Rule 99 of the CGST Rules, 2017, oblige the department to scrutinise a registered person’s returns, issue a discrepancy notice in Form GST ASMT-10, and afford an opportunity to explain in Form GST ASMT-11 before any proceeding for determination of tax can follow — and that the word “shall” in Rule 99(1) makes this sequence mandatory wherever a demand notice under Section 73 or Section 74A is contemplated. The Court rejected this as a misreading of the statutory architecture. Section 61 sits in Chapter XII of the Act, dealing with “Assessment,” and is, in the Court’s phrase, “a pre-adjudicatory, verificatory mechanism” that does not itself result in any determination or confirmation of demand — no recovery can be effected on an ASMT-10 notice or even an ASMT-12 closure order standing alone.
Section 73 and Section 74A, by contrast, operate independently and are attracted whenever tax has not been paid, has been short paid, or credit has been wrongly availed, a determination the department may reach through any of several routes: scrutiny under Section 61, audit under Sections 65 or 66, inspection, search or seizure under Sections 67 to 72, or — as in this case — independent verification of the antecedents of the counterparties from whom credit is claimed to have arisen. The Court read the opening words of Section 74A(1), “where it appears to the proper officer,” as deliberately unbound to any single source of information, holding that had the legislature intended Section 61 to be an invariable precondition, “that fact would have been clearly depicted in Section 74,” and no such cross-reference exists. On this footing, the Bench held in terms that “Section 61 and Section 74A lacks commutative property, as Section 61 may lead to Section 74A but the reverse is not true.”
Crucially, the Court did not hold Section 61 compliance always irrelevant. It distinguished a line of authorities relied upon by the petitioner — the Rajasthan High Court’s rulings in Goverdhandham Estate Private Limited v. State of Rajasthan and Ramhari & Brothers v. Joint Commissioner (State Tax), Bharatpur, the Gauhati High Court’s Pepsico India Holdings (P) Ltd. v. Union of India, the Orissa High Court’s M/s Qualicum Solutions Pvt. Ltd. v. Chief Commissioner of CT & GST, and the Calcutta High Court’s Amex Services v. Commissioner, State Tax — on the ground that in each of them the department had admitted that Section 61 scrutiny had in fact been initiated, and the vice lay in not issuing the ASMT-10 notice or not considering the reply before proceeding to a demand. Those cases, the Court held, stand for the narrower proposition that once scrutiny is actually undertaken, its safeguards must be honoured; they do not require scrutiny as a threshold matter in every case. Because no Section 61 scrutiny of the petitioner’s returns had been initiated at all — the case rested instead on verification revealing the sub-contractors to be bogus — that line of authority was held inapplicable. The Court found support in the Andhra Pradesh High Court’s Devi Traders v. State of Andhra Pradesh, a coordinate Allahabad Bench’s Nagarjuna Agro Chemicals (P) Ltd. v. State of U.P., and the Madras High Court’s Mandarina Apartment Owners Welfare Association v. Commercial Tax Officer, each holding that scrutiny is not a sine qua non for proceedings under Section 73 or Section 74.
3.2 The regime point: Section 74A and the fraud/no-fraud distinction after the 2024 amendments
The case is also useful for what it says, in passing, about how the fraud/no-fraud distinction now operates. Under the pre-amendment Sections 73 and 74, that distinction governed both the limitation period (three years against five) and the quantum of penalty. Section 74A, inserted with effect from 1 November 2024 to apply prospectively to later tax periods — the financial year in issue here, 2025-26, falls within its ambit — unifies the two provisions procedurally but preserves the substantive distinction through its own sub-sections: Section 74A(5)(i) applies where no fraud, wilful misstatement or suppression is alleged, and Section 74A(5)(ii), invoked here, applies where it is. The notice’s characterisation under the fraud limb was thus not a matter of drafting choice but carried its own penal consequences, which is precisely why the petitioner pressed the argument that the notice disclosed no foundational facts capable of attracting Section 74A(5)(ii) at all.
3.3 The sufficiency of the fraud allegation: a jurisdictional-fact test, not a merits test
On this second point, the Court drew a sharp distinction between two different objections that can be made to a notice invoking the fraud limb of a demand provision: that the notice discloses no ingredients of fraud, wilful misstatement or suppression on its face — which is a jurisdictional objection reviewable in writ — and that the ingredients alleged are, on the facts, incorrect or unproven — which is a merits objection that must await adjudication. The impugned notice stated, in terms the Court reproduced, that the petitioner had shown receipt of inward supply “based on fictitious documents without any actual movement of goods and deliberately utilized the so generated ITC illegally.” An allegation that an entire chain of sub-contracts and invoices was engineered around fictitious entities is, the Court held, on its face an allegation of a fraudulent claim of credit, squarely capable of attracting Section 74A(5)(ii) — drawing on the Madras High Court’s ruling in a batch of some 250 writ petitions led by Tvl. K. Ezhil Arasan, Contractor v. Joint Commissioner (ST) Intelligence, Salem, which had construed the “where it appears” formula as satisfied once the notice’s allegations are traceable to connected records, without requiring proof of evasion at the initiation stage.
Whether the sub-contractors were, in fact, bogus and non-existent, or were — as the petitioner maintained — genuinely registered and functional, was, the Court held, a question requiring appreciation of evidence: work orders, measurement sheets, bank statements, GSTR-2A/2B reflections, sub-contractor undertakings and, if necessary, physical verification — an exercise falling within the adjudicating authority’s domain and not the summary jurisdiction of Article 226. The Court noted that “the existence of a jurisdictional fact is not the same as the truth or otherwise of that fact once alleged with sufficient particulars,” disposing of the second issue against the petitioner without pronouncing on whether the allegation would ultimately hold up.
A related question the Court left open concerns the reach of Suncraft Energy (P) Ltd. v. Assistant Commissioner, State Tax — a Calcutta High Court ruling, affirmed by the Supreme Court’s dismissal of the department’s special leave petition, holding that credit cannot be denied to a bona fide recipient merely because of a GSTR-2A/3B mismatch, without the department first proceeding against the defaulting supplier. The petitioner invoked Suncraft Energy, and argued that State of Karnataka v. M/s Ecom Gill Coffee Trading Private Limited (a Karnataka VAT case on movement of goods) was inapposite to works-contract services. The Court read Suncraft Energy as resting on a genuine, existing supplier who collected but failed to deposit tax, holding that it “does not deal with a situation, as alleged in the impugned notice, where the very existence of the supplying entities is itself doubted.” Whether the facts fall within Suncraft Energy’s protection, Ecom Gill Coffee’s stricter approach, or a distinct category of non-existent-supplier cases, was left to the adjudicating authority, “all such contentions being kept open.”
3.4 Writ jurisdiction against a show cause notice: the residual, independent ground
The third and, on one reading, most consequential holding is procedural rather than substantive. Invoking Union of India v. Kunisetty Satyanarayana and State of U.P. v. Brahm Datt Sharma, the Court reaffirmed that ordinarily no writ lies against a mere show cause notice, since such a notice does not by itself cause any adverse civil consequence unless issued wholly without jurisdiction. Testing the petitioner’s case against the recognised exceptions to the alternative-remedy bar carved out in Whirlpool Corporation v. Registrar of Trade Marks — infringement of fundamental rights, breach of natural justice, want of jurisdiction, or a vires challenge — the Bench found none of the four attracted, given its conclusions on the first two issues and the abandonment of the constitutional challenge. Coupled with the fact that the petitioner had not even filed a reply to the notice before rushing to Court, this residual finding — that the existence of an efficacious statutory remedy alone justified declining interference — meant the petition would have failed even had either of the substantive points been closer than they were.
3.5 What the ruling does not decide
The judgment expressly does not decide the merits of whether the eighteen sub-contractors were genuine or fictitious, nor does it resolve which line of Supreme Court authority — Ecom Gill Coffee or Suncraft Energy — governs a non-existent-supplier allegation in the works-contract context; both questions are left open for the adjudicating authority. Nor does the ruling revisit Section 16(2)(c)’s constitutional validity on independent reasoning, since that point was conceded rather than argued; practitioners should treat the Bench’s brief remarks on Bhandari Scrap Traders as recording, rather than independently testing, the position that Section 16(2)(c) survives constitutional challenge.
4. Practical significance
For assessees who receive a Section 73 or Section 74A notice, the judgment supplies a workable diagnostic before mounting a Section 61-based jurisdictional challenge: the question is not whether scrutiny of returns could have been undertaken, but whether it actually was, and whether the notice’s own foundation is a discrepancy thrown up by that scrutiny. Where the department’s file shows no ASMT-10 notice and no scrutiny record, and the notice instead cites audit findings, search or inspection material, or independent verification of counterparties, an argument that Section 61 ought to have preceded the notice is unlikely to succeed on this reasoning — even though the same argument would carry real force where scrutiny was, in fact, initiated and then not carried through to its logical procedural end.
The ruling also has direct implications for due diligence in sub-contracting chains, particularly in works contracts where large volumes of credit are built up across tiers of sub-contractors. Documentary support of the kind the petitioner produced — work orders, measurement sheets, banking-channel payments, GSTR-2A/2B reflections and signed undertakings — is necessary but, on this ruling, not sufficient to defeat a fraud-based notice at the threshold; it goes to the merits, which must be argued in reply and, if necessary, in appeal, not compressed into a writ petition against the notice itself. Assessees facing an allegation that their suppliers or sub-contractors are non-existent should treat the Suncraft Energy line of protection as contested territory rather than settled law until the adjudicating authority — or a higher court — rules on whether it extends to such allegations, and should accordingly marshal independent evidence of the counterparty’s physical existence and capacity (site visits, contemporaneous correspondence, statutory filings by the sub-contractor) rather than relying solely on portal-reflected data.
For departmental practice, the judgment confirms that a notice under Section 74A(5)(ii) can be sustained at the threshold on the strength of a clear, particularised allegation of fictitious documentation, without a prior scrutiny exercise — provided the notice itself states the foundational facts (here, that the underlying works were fictitious and the firms non-existent) rather than a bare recital of the statutory formula. Departments issuing similar notices should ensure the same specificity, since the Court’s own reasoning makes clear that a notice reciting fraud without stating what was actually done would fail the jurisdictional-fact test the Bench applied here.
5. Conclusion
The Allahabad High Court’s ruling in Neelkanth Entrepreneurs settles, for now, a procedural question that has generated conflicting High Court authority: Section 61 scrutiny of returns is one of several routes by which the department may arrive at a demand under Section 73 or Section 74A, not an invariable jurisdictional gateway through which every such notice must pass. The distinction the Court draws — between cases where scrutiny was actually initiated and its safeguards then bypassed, and cases where the department’s information came from an altogether different source — is likely to be decisive in how future writ challenges to demand notices founded on counterparty-verification exercises are argued and decided.
The judgment is, at the same time, a narrow one on the merits: it decides nothing about whether the eighteen sub-contractors were in fact bogus, leaves open the precise reach of Suncraft Energy in non-existent-supplier cases, and records rather than re-examines the constitutional validity of Section 16(2)(c). For assessees, the practical message is that a Section 61-based jurisdictional objection is only as strong as the departmental record showing scrutiny was actually undertaken, and that allegations of fictitious documentation, once particularised in a notice, will ordinarily have to be met on the merits before the adjudicating authority rather than defeated at the threshold.
The authorities and provisions relied on
| Authority / Provision | Role in the judgment |
|---|---|
| Section 61, Central Goods and Services Tax Act, 2017, with Rule 99, CGST Rules, 2017 | Scrutiny of returns mechanism (Forms ASMT-10/11/12); held to be a pre-adjudicatory, verificatory procedure and not an invariable precondition to proceedings under Section 73 or Section 74A. |
| Section 73 and Section 74A, Central Goods and Services Tax Act, 2017 | Substantive demand provisions; held to operate independently of Section 61 and to be triggerable on information from any credible source, including independent verification of counterparties. |
| Section 74A(5)(i) and (ii), Central Goods and Services Tax Act, 2017 | Unified demand provision applicable to later tax periods (from 1 November 2024); sub-clause (ii), invoked here, applies where fraud, wilful misstatement or suppression is alleged. |
| Section 16(2)(a)-(d), Central Goods and Services Tax Act, 2017 | Conditions for availing input tax credit; sub-clause (c), conditioning credit on the supplier’s actual payment of tax, was the subject of the (conceded) vires challenge. |
| Bhandari Scrap Traders v. Union of India, 2026 SCC OnLine SC 1570 (Supreme Court, SLP dismissed 24 July 2026) — applied | Affirmed the Gujarat High Court’s ruling in Maruti Enterprises v. Union of India upholding the constitutional validity of Section 16(2)(c); relied on by the petitioner’s own counsel to withdraw the vires challenge. |
| Devi Traders v. State of Andhra Pradesh, 2023 SCC OnLine AP 1886 (Andhra Pradesh High Court, Division Bench) — applied | Held scrutiny under Section 61 is not sine qua non for proceedings under Section 74; followed on the central procedural point. |
| Nagarjuna Agro Chemicals (P) Ltd. v. State of U.P., 2023 SCC OnLine All 5339 (Allahabad High Court, decided 15 May 2023) — applied | Coordinate Bench ruling holding that a Section 61(3) notice is not a condition precedent for action under Section 74; followed. |
| Mandarina Apartment Owners Welfare Association v. Commercial Tax Officer, 2024 SCC OnLine Mad 3501 (Madras High Court, decided 16 July 2024) — applied | Held Sections 61 and 73 are distinct and independent proceedings; scrutiny is not a condition precedent to Chapter XV proceedings. |
| Goverdhandham Estate (P) Ltd. v. State of Rajasthan, (2025) 147 GSTR 239 (Rajasthan High Court, Division Bench, decided 17 January 2024) — distinguished | Held mandatory where scrutiny was actually undertaken and an ASMT-10 notice issued; distinguished because no scrutiny was undertaken in the present case. |
| Pepsico India Holdings (P) Ltd. v. Union of India, (2026) 159 GSTR 404 (Gauhati High Court, Single Bench, decided 19 September 2025) — distinguished | Relied on Goverdhandham on facts where scrutiny was admittedly undertaken; held not to lay down a universal rule and distinguished. |
| Ramhari & Brothers v. Joint Commissioner (State Tax), Bharatpur, (2026) 44 Centax 327 (Raj.) (Rajasthan High Court, decided 16 July 2026) — distinguished | Scrutiny under Section 61 was admittedly initiated; distinguished on facts. |
| M/s Qualicum Solutions Pvt. Ltd. v. Chief Commissioner of CT & GST, 2024 SCC OnLine Ori 3126 (Orissa High Court, Division Bench, decided 14 November 2024) — distinguished | Scrutiny was admittedly initiated but not carried through before issuing a Section 73 notice; distinguished on facts. |
| Amex Services v. Commissioner, State Tax, (2024) 129 GSTR 482 (Calcutta High Court, Single Bench, decided 22 May 2024) — distinguished | Similarly distinguished; scrutiny was admittedly initiated in that case. |
| Suncraft Energy (P) Ltd. v. Assistant Commissioner, State Tax, (2023) 117 GSTR 78 (Calcutta High Court; Supreme Court SLP(C) Nos. 27827-27828 of 2023 dismissed 14 December 2023) — distinguished | Protects a bona fide recipient against credit denial based on a genuine, existing supplier’s default; read as confined to that fact pattern and not extended to an allegation of non-existent suppliers. |
| State of Karnataka v. M/s Ecom Gill Coffee Trading Private Limited — considered, cited by petitioner as inapposite | A Karnataka VAT case on substantiating genuineness of purchases in the context of goods; the petitioner argued it does not transfer to works-contract services; the Court left its applicability open for the adjudicating authority. |
| Tvl. K. Ezhil Arasan, Contractor v. Joint Commissioner (ST) Intelligence, Salem, 2026:MHC:2274 (Madras High Court, batch of writ petitions, decided 8 June 2026) — applied | Construed “where it appears” in Section 74 as satisfied once a notice’s fraud allegations are traceable to connected records at the initiation stage. |
| Union of India v. Kunisetty Satyanarayana, (2006) 12 SCC 28; State of U.P. v. Brahm Datt Sharma, (1987) 2 SCC 179; Special Director v. Mohd. Ghulam Ghouse, (2004) 3 SCC 440 — applied | Establish that ordinarily no writ lies against a mere show cause notice absent want of jurisdiction. |
| Whirlpool Corporation v. Registrar of Trade Marks, (1998) 8 SCC 1 — applied | Supplies the recognised exceptions to the alternative-remedy bar; none found attracted on the facts. |
| Union of India v. Deoki Nandan Aggarwal, 1992 Supp (1) SCC 323 — applied | Cited for the principle that fiscal statutes are to be strictly construed and courts may not add words to a provision. |
Frequently Asked Questions
Must the GST department scrutinise returns under Section 61 before issuing a demand notice?
Not invariably. The Allahabad High Court held that Section 61 scrutiny is one of several routes — alongside audit, inspection, search, seizure, or independent verification of counterparties — by which the department may form the view that tax has been short paid or credit wrongly availed. Section 61 compliance becomes mandatory only where the department’s own case is, in fact, founded on a discrepancy identified through scrutiny of the assessee’s returns.
What was the basis of the show cause notice against the petitioner?
The notice, issued under Section 74A(1) and invoking Section 74A(5)(ii) of the CGST Act, alleged that eighteen sub-contractors from whom the petitioner claimed to have received works-contract services, and correspondingly availed input tax credit, were bogus and non-existent entities, and that the underlying supplies were fictitious.
Did the Court decide whether the sub-contractors were actually bogus?
No. The Court held that whether the sub-contractors were genuine or fictitious is a factual question requiring appreciation of evidence, which falls within the domain of the adjudicating authority considering the petitioner’s reply to the notice, and is not a matter the High Court could resolve in writ jurisdiction under Article 226.
What happened to the challenge to Section 16(2)(c) of the CGST Act?
The petitioner’s counsel withdrew this challenge at the hearing, in light of the Supreme Court’s dismissal of the special leave petition in Bhandari Scrap Traders v. Union of India, which affirmed the Gujarat High Court’s ruling upholding the constitutional validity of Section 16(2)(c). The Allahabad High Court did not independently re-examine the question.
Does Suncraft Energy protect a recipient whose supplier is alleged to be non-existent?
The Court left this question open. It read Suncraft Energy as applying to a genuine, existing supplier who collected tax but failed to deposit it, and distinguished it from the present case, where the department’s allegation was that the supplying entities did not exist at all — but it expressly declined to decide whether that takes the case outside Suncraft Energy’s protection, leaving the point for the adjudicating authority.
This article is not legal advice and does not create an attorney–client relationship. Readers should verify the certified copy of the judgment and any subsequent clarificatory orders before relying on it, and consult a qualified advocate on the facts of their matter.