Tax Orders Must Address Specific Replies and Binding Circulars; Vague "Sub-Judice" Claims Are Illegal.

Tax Orders Must Address Specific Replies and Binding Circulars; Vague “Sub-Judice” Claims Are Illegal.

The Dispute: The “Sub-Judice” Shield

The Conflict: The petitioner was accused of failing to reverse Input Tax Credit (ITC) related to exempt supplies for the years 2020-21 and 2021-22.

The 2020-21 Context: For the previous year, the department had accepted the petitioner’s explanation and dropped the matter.
The 2021-22 Deadlock: For the current year, despite the petitioner filing detailed replies and citing specific CBIC Circulars (dated June 2024 and September 2025), the officer issued an order confirming the demand.
The Officer’s Error: The officer merely stated that the reply was “unsatisfactory” and that the matter was “sub-judice,” without explaining which court case made it so or why the circulars didn’t apply.

The Judicial Verdict: Non-Application of Mind

The High Court ruled in favour of the Assessee (Remanded), quashing the demand order based on the following legal failures:

1. Failure to Issue a “Reasoned Order”

Under Section 75(6), every tax order must set out the relevant facts and the basis of the decision. The Court found that simply calling a reply “unsatisfactory” without addressing the specific arguments regarding taxable versus tax-free supplies is a violation of the principles of natural justice.

2. Ignoring Binding Circulars

The petitioner had relied on CBIC Circulars from 2024 and 2025. By law, circulars issued by the Board are binding on the Departmental officers. The Court held that the officer’s failure to even mention or distinguish these circulars made the order legally unsustainable.

3. The “Sub-Judice” Fallacy

The Department failed to show any ongoing litigation that would prevent them from adjudicating the matter. Furthermore, since the Department itself had dropped the same issue for the year 2020-21, asserting that the issue was “sub-judice” for 2021-22 was contradictory and lacked a factual basis.

Strategic Takeaways for Taxpayers in 2026

The “Reasoned Order” Requirement: If you receive an order that says “Reply considered but found not tenable” without explaining why, you have strong grounds to challenge it in a Writ Petition for “non-application of mind.”
Invoke the Latest Circulars: In 2026, many legacy ITC issues (especially regarding Section 17(2) reversals) have been clarified by recent circulars. Ensure your reply explicitly quotes the Circular Number and Paragraph. If the officer ignores them, the order is void.
Consistency of Stand: If the Department has accepted your logic for one assessment year (e.g., 2020-21), they cannot take a different view for the next year (2021-22) unless there is a change in law or facts. This is known as the Principle of Consistency.
Remand Strategy: A “Remand” gives you a fresh start. Use the opportunity to file an Additional Reply that addresses the specific points the High Court highlighted, making it much harder for the officer to pass the same “robotic” order again.

HIGH COURT OF PUNJAB & HARYANA

Bagga Vet Pharma

State of Punjab^*

Deepak Sibal and Ms. Lapita Banerji, JJ.

CWP NO. 7816 OF 2026 (O & M)

APRIL 17, 2026

Sandeep Goyal, Sr. Adv. and Rishab Singla, Adv. for the Petitioner. Saurabh Kapoor, Addl. AG and Ms. Muskan Gupta, Adv. for the Respondent.

ORDER

Ms. Lapita Banerji, J.- Prayer in the present petition under Articles 226/227 of the Constitution of India is for issuance of a writ in the nature of certiorari for quashing the impugned order dated December 30, 2025 (Annexure P-11) passed by the Joint Commissioner, Patiala, Punjab.

2. The grievance of the petitioner in short is that not only without considering the reply submitted by the petitioner to the Show Cause Notice, the impugned order has been passed but the same was also passed beyond the scope of the Show Cause Notice.

3. The brief facts of the case are as follows:

(i)

The petitioner is a proprietorship concern run by its sole proprietor one Inderpal Singh. The petitioner is engaged in the trading of Veterinary and Poultry Feed Supplements and Additives.

(ii)

During the financial year 2020-21, the petitioner was issued DRC-01A dated November 11, 2024 (Annexure P-1) by the department alleging that the petitioner had failed to reverse the Input Tax Credit (ITC) in respect of common input availed by the petitioner for supply of taxable goods and exempted goods. Accordingly, a demand of Rs.2,30,52,557/- was proposed to be imposed on the petitioner.

(iii)

Against the same, the petitioner submitted a reply dated November 18, 2024 (Annexure P-2). After being satisfied with the petitioner’s reply, no proceedings were initiated by the authorities under Section 73 or 74 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “the CGST Act”)/punjab Goods and Services Tax Act, 2017 (hereinafter referred to as “the PGST Act”).

(iv)

For the financial year 2021-22, a scrutiny notice ASMT-10 dated August 19, 2025 (Annexure P-3) was issued by the respondent No.2-Deputy Commissioner of State Tax, Patiala. The same issue regarding short reversal of ITC in respect of supply of exempted goods was raised by the respondent-department.

(v)

The petitioner replied to the said Show Cause Notice on August 26, 2025 (Annexure P-4) and submitted that the petitioner had availed ITC only to the tune of Rs.6,80,00,226/- which pertained exclusively to taxable supplies. The petitioner also handed over the supporting documents including ledgers to the department.

(vi)

The respondent No.2 issued a Show Cause Notice dated September 29, 2025 (Annexure P-6) in the form of DRC-01 raising the same issues by recording that reply was not satisfactory and the matter was “sub-judice”. With regard to issue of credit notes, it was recorded that the reply was not satisfactory.

(vii)

The petitioner submitted a detailed reply dated November 18, 2025 (Annexure P-7) wherein the petitioner brought to the notice of the authorities that for the financial year 2020-21, the same issues were raised and after considering the petitioner’s reply and perusing its books of accounts, the department dropped the proceedings against the petitioner.

(viii)

In the detailed reply, the petitioner had placed reliance on the circulars issued by the Central Board of Indirect Taxes and Customs (CBIC) dated June 26, 2024 and September 12, 2025 (Annexures P-8 and P-9) to augment its argument that ITC was availed only for the taxable supplies. Thereafter, the petitioner again filed an additional reply dated December 25, 2025 submitting complete reconciliation of reversal of ITC by its recipients along with proof thereof, segregating recipients who were not eligible for reversal.

(ix)

However, the impugned order dated December 30, 2025 was passed by respondent No.2 confirming the demand proposed to be imposed on the petitioner in the Show Cause Notice DRC-01. In the attachment of the impugned order under Section 73 of the CGST/pGST Act, 2017 it has been clearly recorded that on perusal of reply submitted by the tax payer, it has transpired that the matter was still “sub-judice” on merits qua the applicability of ITC reversal. Therefore, the reply filed by the petitioner remained unsatisfactory.

4. Mr. Goyal, Senior advocate appearing on behalf of the petitioner submits that there was a complete non-application of mind by respondent No.2 in passing the impugned order as there was no issue that was “sub-judice” qua the merits of the petitioner’s case. The issues raised by the department through Show Cause Notice DRC-01A dated November 11, 2024 for financial year 2020-21 were not proceeded with after considering the reply filed by the petitioner and perusing its books of accounts.

5. He vehemently contends that the impugned order is a unreasoned one passed without any application of mind. Neither the submissions made by the petitioner firm nor the reconciliation furnished by it was considered by respondent No.2 who had simply repeated that the matter was “sub-judice” and the reply filed by the petitioner remain unsatisfactory, in the impugned order. Hence, the same should be set-aside.

6. Issue Notice of motion to the respondents.

7. Mr. Saurabh Kapoor, Additional Advocate General, Punjab accepts notice on behalf of the respondents and upon instructions submits that no issue was “sub-judice” on merits qua applicability of ITC reversal, in petitioner’s case.

8. This Court has heard learned counsel for the parties and perused the material on record.

9. From the perusal of the impugned order dated December 30, 2025 it transpires that no cogent reason at all has been provided for not accepting the replies filed by the petitioner. Only reply dated November 18, 2025 finds mention in the impugned order where the adjudicating authority has stated that the disparity in the profit ratio of tax free and taxable outward supplies remained unexplained and the matter was still “subjudice” on merits on applicability of ITC reversal. No reason at all was provided as to which of the outward supplies were tax free and which ones were taxable after consideration of CBIC circulars dated June 26, 2024 and September 12, 2025. There is not even a whisper as to the basis on which respondent No.2 came to the finding that the matter was “sub-judice” on merits especially when it was not disputed that after considering the reply dated November 18, 2024 to DRC-01A dated September 11, 2024 the department chose not to proceed against the petitioner firm in respect of the demand raised for financial year 2020-21.

10. In the light of the undisputed facts, fair submissions by Mr. Kapoor and aforesaid discussion, this Court is of the view that the impugned order dated December 30, 2025 suffers from complete nonapplication of mind and the same is set-aside and/or quashed. However, this order shall not preclude the authorities from proceeding in terms of the Show Cause Notice DRC-01 dated September 29, 2025 but the same shall be done only after considering all the replies filed by the petitioner, giving a fresh opportunity to a representative of the petitioner firm and in accordance with law.

11. With the aforesaid directions, the writ petition, being CWP No.7816 of 2026 is disposed of.

12. Connected application(s), if any, shall also stand disposed of accordingly.