HC Relegates Fraudulent ITC Case to Appeal, Citing Disputed Facts and Alternate Remedy.

Issue

Can a High Court, in its writ jurisdiction, entertain a challenge to a GST demand order (OIO) involving complex allegations of fraudulent Input Tax Credit (ITC), by bypassing the statutory appeal remedy, on the grounds of an alleged violation of natural justice (non-supply of documents)?

Facts

The petitioner was identified as a recipient in a fraudulent ITC investigation.
The department issued a Show Cause Notice (SCN) under Section 74 (fraud). The petitioner participated in the proceedings and filed a reply.
An Order-in-Original (OIO) was passed, confirming the tax liability.
This OIO was appealable under Section 107 of the CGST Act.
However, the petitioner bypassed the appeal and filed a writ petition in the High Court.
The sole ground for the writ was an alleged violation of natural justice, specifically the non-supply of relied-upon documents. The petition did not challenge the order on its merits.

Decision

The High Court dismissed the writ petition, ruling in favour of the Revenue on the point of maintainability.
It held that matters involving fraudulent ITC ordinarily warrant recourse to the statutory appeal, as they involve “complex facts, voluminous material, and systemic impact.”
The court affirmed that a writ petition can be entertained only in exceptional cases (like a total breach of natural justice, a fundamental lack of jurisdiction, or a vires challenge), and the petitioner’s plea did not meet this high bar.
The grievance regarding the non-supply of documents was a ground to be raised in the appeal, not a ground to bypass the appeal.
The petitioner was relegated to the statutory appellate remedy.
The court granted the petitioner a fresh, specified time limit to file the appeal (with the requisite pre-deposit) and directed that it be heard on its merits, without being dismissed on the ground of limitation (delay).

Key Takeaways

Writ Jurisdiction in Fraud Cases is Limited: High Courts are extremely reluctant to intervene in complex fraudulent ITC cases, which require deep factual investigation.
Alternate Remedy Rule is Strictly Applied: The statutory appeal (Section 107) is the proper and efficacious remedy. A writ petition will not be entertained unless exceptional circumstances are present.
Non-Supply of Documents is an Appellate Ground: The grievance regarding the non-supply of documents is a ground to be raised in the statutory appeal, not a ground to bypass the appeal.
Preservation of Remedy: While dismissing the writ, the court used its power to ensure the assessee was not left without a remedy. It protected the assessee’s right to appeal by condoning the delay that occurred while the writ was pending.

HIGH COURT OF MADRAS

Reckitt Benckiser (India) (P.) Ltd.

State of Tamil Nadu^*

C. Saravanan, J.

W.P. No. 28454 of 2024
WMP. Nos. 31023 & 31024 of 2024

SEPTEMBER 17, 2025

R. Jawaharlal for the Petitioner. C.Harsha Raj, Additional Government Pleader (T) for the Respondent.

ORDER

1. This is the second round of litigation before this Court. Earlier, the petitioner had approached this Court against the assessment order dated 12.03.2021 for the tax period between 01.07.2017 (the date on which, the respective GST enactments came into force) and 13.11.2017.

2. The petitioner is a manufacturer of Harpic Toilet Cleaner and Lizol Floor Cleaner. These products have been traded by the petitioner as Harpic Disinfectant Toilet Cleaner and Lizol Disinfectant Toilet Cleaner. Earlier, this Court vide order dated 23.02.2024 in W.P.No.12942 of 2021/Reckitt Benckiser (India) Ltd. v. State of Tamil Nadu (Madras) had intervened and passed order in favour of the petitioner by quashing the aforesaid order dated 12.03.2021 and remitting the case back for de novo consideration.

3. Relevant portion of the order dated 23.02.2024 of the Writ Court in W.P.No.12942 of 2021 reads as under:-

“9. I find that the impugned order of assessment suffers from the vice of non-application of mind to the objection and also nondisclosure of the fact the proposal have been received from the enforcement wing thereby the impugned order of assessment stands vitiated.

10. In view of the same the impugned order of assessment is set aside, however, liberty is granted to the second respondent to pass fresh order of assessment after granting reasonable opportunity to the petitioner in accordance with law, within a period of four months from the date of receipt of a copy of this order.

11. The writ petition stands disposed of on the above terms, No costs. Consequently, connected miscellaneous petition is closed. “

4. Before coming to the conclusion, the Court in the aforesaid order had extracted the rival entries from the HSN in Paragraph Nos. 3 and 6 of the order and the discussions are found in Paragraph Nos. 7 and 7.1 of the order which are reproduced below:-

“3.The tax payers had been adopted 18% tax rate by using the following HSN code as under (Up to 13-11-2017)

Item No.87 of Third Schedule vide HSN Code 38089400

INSECTICIDES, RODENTICIDES, FUNGICIDES, HERBICIDES, ANTI-SPROUTING No 87 of PRODUCTS AND PLANT GROWTH REGULATORS, DISINFECTANTS AND SIMILAR Third PRODUCTS, PUT UP IN FORMS OR PACKINGS FOR RETAIL SALE OR AS Schedule PREPARATIONS OR ARTICLES (FOR EXAMPLE, SULPHUR TREATED BANDS, WICKS AND CANDLES, AND FLY-PAPERS)-DISINFECTANTS.

6. The 2^nd Respondent had proceeded to pass the impugned orders of assessment treating Harpic and Lizol as falling under Entry 31 of the Fourth Schedule vide HSM Code:3402 which reads as under:

Item No.31 of Fourth Schedule vide HSN Code 3402

Organic surface-active agents (other then soap); surface – active preparations, washing preparations (including auxiliary washing preparations) and cleaning preparation, whether or not containing soap, other than those of heading 3401

7. Importantly, the impugned order of assessment states that the proposal has been received from the State Tax Enforcement which was not indicated / disclosed in the show cause notice. The impugned order of assessment places reliance primarily on the ingredients used in Harpic and Lizol to reject the classification made by the petitioner while confirming its proposal to treat Harpic and Lizol as falling under Entry 31 of the Fourth Schedule liable to tax at 14% under TNGST. The relevant portion of the impugned order is extracted hereunder :

“The reply filed by the taxpayer is stated as below:

The taxpayer replied that, since GST act 2017 came into force the company has been classifying harpic and lizol under item no 87 of Third schedule relatable to HSN code 38089400 subject to 18% by classifying it as disinfectants. But the department classify under item no 29,30,31 of fourth schedule relatable to HSN code 3307,3401,3402 subject to 28%.

Since Harpic is a disinfectant used in toilets and lizol is a disinfectant used on floors does not mean the expression Toilet preparation. The expression “Toilet preparation’ listed under item no 29,30,31 of fourth schedule relates to products used in human body like cosmetics, soaps, cream etc. Hence harpic and lizol cannot be used on human body for cleansing therefore they will not fall under entry 29,30,31.

Hence they are used for external purpose as disinfectant they will fall under item no. 87 of Third schedule relatable to HSN code 38089400 subject to 18%.

Further the active ingredient of Harpic is Hydrochloric acid, which is well-known disinfectant and in addition, it has other ingredients like Bis/2 Hydroxyethly oleylamine, alkyltrimethyl ammonium chloride, methyl salcilate etc which are used for disinfecting surface on which it is applied killing various microorganisms.

The active ingredient of Lizol is Benalkonium Chloride solution and other chemicals used for disinfecting floor, cooking platform, sink etc and kills microorganisms.

In the view of the above the taxpayer classifies Harpic and Lizol as disinfectants and levy 18% tax rate under item no 87 of Third schedule relatable to HSN code 38089400.

The reply of the taxpayer observed and the assessment for the year 2017-2018 is passed as discussed below:-

The issue arises on account of the fact that the item is having both the characteristics of a cleaning preparation and a disinfectant which are classifiable under Chapter 34 & 38 respectively. The three functions of the items are (a) cleaning (b) killing germs and (c) deodorization.

Though the item contains some disinfectant properties, the main usage is as a cleaning preparation that is the primary function of the products is for cleaning of toilet and floor. During this process, it cleans the stains, grease and also kills the germs and bacteria present in the bowl.

In support of the above by analyzing the reply of the taxpayer which contains chemical compounds used, ingredients etc the following has been identified:-

Lizol:

The ingredients used are Benzalkonium Chloride solution (Maximum share), Fatty alcohol ethoxylate, Sodium bicarbonate, EDTA tetrasodium and other fragrance and perfumed products and other chemical products.

Here the chemical Benzalkonium Chloride solution which contains 95% of ethanol/ethyl alcohol. The main usage of ethyl alcohol is it act as a solvent for oil, resins, fat etc. It solubilizes the oil and thus removes grease, stains etc

Fatty alcohol ethoxylate which is used as surfactant. The term surfactants mean surface active agents widely used for cleaning purpose. It reduces the surface tension of cleaning solution thus helps it to have easier flowing property.

Sodium bicarbonate which is a salt when dissolves in water breakdown as sodium and bicarbonate which neutralizes the acid. Hence it is used to remove grease and stains etc.

EDTA tetrasodium which is a chelating agent. Chelating agent neutralizes metal ions in hard and converts it into soft water. Hard water is not suitable for cleaning. Hence it is used to convert hard water to soft water for better cleaning purpose and allows surfactants to react over it.

Other than the above main ingredients some fragrant and other perfumed products and chemicals are used.

From the above discussion it is cleared that the use of main active ingredients of Lizol is surface cleaning products not falls under disinfectant.

Harpic: –

The ingredients of Harpic are Hydrochloric acid, Bis/2 Hydroxyethly oleylamine, alkyltrimethyl ammonium chloride, methyl salcilate etc

The main ingredient which is Hydrochloric acid above 10% usage is the main corrosive compound used in toilet bowl to remove stains.

The usage of Bis/2 Hydroxyethly oleylamine is to remove odour and alkyltrimethyl ammonium chloride which is used as surfactants.

Methyl salcilate is used as fragrant agent and odour masking agent.

From above discussions it is concluded that Harpic is exclusively used for cleaning toilets not as disinfectant.”

7.1. On a close reading of the impugned order of assessment I find that though detailed objections under various Heads have been made by the petitioner the impugned order of assessment has not dealt with the same. It is fundamental that any quasi judicial order ought to be made taking into account all factors that are relevant while eschewing the irrelevant. The fact that the impugned order of assessment do not even refer to several aspects raised in the objection indicates that the same has been made without applying its mind to the objections made. It is trite law that when objections are raised a duty is cast on the assessing authority to apply its mind to the objections and deal with each one of them. Failure to do so would vitiate the order of assessment on the ground of non-application of mind.

5. Pursuant to the aforesaid order of the Writ Court, the impugned order has been passed, wherein, the demand that was proposed in the show cause Notice that preceded the earlier assessment order dated 12.03.2021 was re-confirmed.

6. The present Writ Petition has been filed by the petitioner, on 11.09.2024, immediately after the impugned order was passed, that is within the statutory period for filing an appeal before the Appellate Commissioner namely Deputy Commissioner, GST Appeal, Salem under the respective GST enactments.

7. The learned counsel for the petitioner would endeavour to submit that as far as classification of this product is concerned, the issue has attained the finality under the VAT revised all over this Country. It is further submitted that the categorical stand of the petitioner is that these products are to be classified as ‘disinfectant’ under 3808, 9400. However, the respondent is classifying the products as ‘cleaning agent’ under 3402.

8. It is further submitted that the dispute is only confined to the period between 01.07.2017 and 13.11.2017, during which period, the rate of tax for the products belonging under ‘disinfectant’ 3808 was 18% and products belonging under the head of ‘cleaning agent’, 3402 was 28% which has been now rationalised and has been fixed at 18%. It is submitted that for the period after 15.11.2017, the rate of tax whether it is ‘disinfectant’ under the head 3808 or ‘cleaning agent’ under the head 3402 is immaterial, as tax to be paid is only 18%.

9. Considering the argument of the learned counsel for the petitioner and the learned counsel for the respondent, I am of the view that the writ petition is liable to be dismissed. However, attractive argument may have been advanced on the classification of the issue.

10. Suffice to state that this issue relating to the classification of the product has been settled by the Delhi High Court in J.K. Synthetics Ltd. v. CCE 1970 SCC Online Del 332, following the principle of law that has been laid down in respect of classification. This aspect ought to have been considered before passing of the impugned order.

11. Be that as it may, the High Court in its jurisdiction under Article 226 cannot delve into classification, unless there is factum for dissent with the order passed by the Appellate Commissioner and that appeal order is subjected to judicial review under Article 226. In the absence of the said factum, the Writ Court may proceed to pass an order directing the petitioner to the alternate remedy provided under the statute.

12. At this stage, the petitioner has an alternate remedy before the Deputy Commissioner, GST Salem, therefore, I am not inclined to pass order on merits, though, liberty is granted to the petitioner to file an appeal before the Appellate Commissioner viz., Deputy Commissioner within a period of 15 days from the date of receipt of a copy of this order.

13. The recovery proceedings initiated against the petitioner shall be kept in abeyance for 30 days from today.

14. The petitioner shall deposit 10% of the disputed tax as precondition for entertaining the appeal by the aforesaid Appellate Authority.

15. In case, the petitioner complies with the above condition and the appeal is filed before the Appellate Authority within 30 days from the date of receipt of a copy of this order, the Appellate Authority shall pass final order on merits considering the over all tax implication on the petitioner. Needless to state, the petitioner shall be heard before passing of any such orders.

With the above terms, this Writ Petition is disposed of. Consequently, connected Miscellaneous Petitions are closed. No costs.