Punjab & Haryana High Court Quashes GST Demand of ₹2.30 Crore: Unreasoned Orders Under Section 73 Cannot Sustain
Overview
The Punjab and Haryana High Court recently delivered a significant ruling in M/s Bagga Vet Pharma v. State of Punjab and another, reinforcing one of the most fundamental tenets of tax adjudication — the obligation to pass reasoned orders. The Court held that a demand order issued under Section 73 of the CGST/PGST Act that neither assigns reasons nor engages with the assessee's replies is legally unsustainable and must be quashed on the ground of complete non-application of mind.
This judgment carries far-reaching implications for GST adjudication across India, particularly in matters involving Input Tax Credit (ITC) reversals, where adjudicating authorities often confirm demands without meaningfully addressing the explanations and documentation placed on record by assessees.
Background and Facts of the Case
M/s Bagga Vet Pharma is a proprietorship concern engaged in trading Veterinary and Poultry Feed Supplements and Additives. The State of Punjab initiated proceedings against the firm by issuing show cause notices alleging that the assessee had failed to reverse Input Tax Credit on common inputs that were used for both taxable and exempt supplies — a requirement mandated under GST law to ensure that ITC is not availed in respect of supplies on which no output tax liability arises.
Following the show cause notices, the tax authorities confirmed a demand of ₹2,30,52,557/- under Section 73 of the CGST/PGST Act. The assessee challenged this demand before the High Court under Article 226 of the Constitution of India by way of a writ petition, seeking quashing of the impugned order.
Key Contentions Raised by the Assessee
The assessee placed several substantive and procedural objections before the Court:
Non-consideration of replies: The assessee had filed detailed replies along with reconciliation statements and supporting documentary evidence in response to the show cause notices. The impugned order, however, proceeded to confirm the demand without engaging with any of this material.
Reliance on CBIC Circulars: The assessee's submissions were backed by CBIC circulars dated June 26, 2024 and September 12, 2025, which were directly relevant to the question of ITC reversal on common inputs. The order did not even acknowledge these circulars, let alone address their applicability.
Order travelling beyond the SCN: A critical grievance raised by the assessee was that the impugned order went beyond the scope of the show cause notice — a fundamental procedural violation that strikes at the root of natural justice. An assessee can only be called upon to answer what is alleged in the notice; anything beyond that cannot form the basis of a demand.
Precedent from earlier proceedings: For the financial year 2020-21, proceedings on an identical issue had been dropped by the very same authorities after the assessee's replies were duly considered and it was accepted that ITC had been correctly availed only in respect of taxable supplies. The treatment in the subsequent year was, therefore, inconsistent and unexplained.