M/S DEEPAK NITRITE LTD. vs UNION OF INDIA

C/SCA/15783/2024 JUDGMENT DATED: 16/10/2026
(GJHC240711592024)
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 15783 of 2024
With
R/SPECIAL CIVIL APPLICATION NO. 16075 of 2024

FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE A.S. SUPEHIA
and
HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI
=============================================
Approved for Reporting Yes No
✔
=============================================
M/S DEEPAK NITRITE LTD.
Versus
UNION OF INDIA & ORS.
=============================================
Appearance:
MR MIHIR JOSHI, SENIOR ADVOCATE with MR ANAND
NAINAWATI(5970) for the Petitioner(s) No. 1
MR UTKARSH R SHARMA(6157) for the Respondent(s) No. 1,2,3
=============================================
CORAM: HONOURABLE MR. JUSTICE A.S. SUPEHIA
and
HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI

Date : 16/10/2026
COMMON ORAL JUDGMENT
(PER : HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI)
1. Rule returnable forthwith. Mr. Utkarsh Sharma, learned
Senior Standing Counsel waives service of notice of rule for
and on behalf of the respondents.
2. Since a common issue is involved in the captioned writ
petitions, the same are heard and decided analogously by this
common judgment and order. The writ petition being Special
Civil Application No.15783 of 2024 is taken up as a lead matter.
3. By way of captioned writ petition, the petitioner has
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challenged the impugned show cause notice bearing No.VAD-
I/Prev/SCN/202/Gr.E/Deepak/2023-24, dated 22.03.2024 issued
by the respondent No.3.
4. Briefly stated that, Deepak Fertilizers and Petrochemicals
Corporation Limited is allotted with an industrial plot on lease
by Gujarat Industrial Development Corporation (GIDC) bearing
plot No.D-II/6/1 and D-II/6/1A, admeasuring about 5,11,274.41
sq. mtrs. situated in Industrial Phase, GIDC Industrial Estate,
Dahej-2 (Rahiyad Village), Tahsil – Vagra, District : Bharuch,
Gujarat (for short ‘subject land’). The petitioner wants to
acquire entire plot of land and the lease hold rights from
M/s.Deepak Fertilizers and Petrochemicals Corporation Ltd..
The petitioner accordingly approached M/s.Deepak Fertilizers
and Petrochemicals Corporation Ltd. to grant leasehold rights
to the petitioner in respect of the subject land. Upon request of
the petitioner and subject to the approval of GIDC on
23.09.2019, the petitioner entered into the Memorandum of
Understanding (MOU) with M/s. Deepak Fertilizers and
Petrochemicals Corporation Limited for acquiring leasehold
rights with respect to the subject land and the same came to
be assigned to the petitioner for consideration of
Rs.117,10,96,900/- having taxable value of Rs.99,24,55,000/-
and GST of Rs.17,86,41,900/-.
4.1 During the period 2021-22, the wholly owned subsidiary
of the petitioner, M/s. Deepak Chem Tech Ltd., was in the need
of parcel of industrial land for setting up projects. Accordingly,
upon such request, the petitioner by e-invoice dated
03.01.2022 assigned leasehold rights of the subject land to
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C/SCA/15783/2024 JUDGMENT DATED: 16/10/2026
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M/s.Deepak Chem Tech Ltd. for consideration of
Rs.150,91,42,295/-. The petitioner has duly collected the GST
amounting to Rs.23,02,08,146/- from M/s.Deepak Chem Tech
Ltd. and deposited the said amount of GST to the Government
Exchequer at the time of filing of Form GSTR 3B for the month
of December, 2021.
4.2 Upon information gathered and developed by the
respondents alleging that the Input Tax Credit (ITC) was availed
by the petitioner for acquiring leasehold rights over and above
the immovable property appeared to be inadmissible and the
same was liable for recovery as provided under the provisions
of Central Goods and Services Tax Act, 2017 (for short ‘CGST
Act’) and the rules made thereunder. Based on the information,
an inquiry came to be initiated against the petitioner, which
resulted into issuance of show cause notice dated 22.03.2024
by the respondent No.3 asking the petitioner to show cause as
to why the ITC amounting to Rs.17,86,41,900/- wrongly availed
by the petitioner, should not be demanded from the petitioner
under the provisions of section 74 of the CGST Act read with
corresponding section of the Gujarat Goods and Services Tax
Act, 2017 (for short ‘the GGST Act’). The aforesaid has given
rise to the filing of the present petition.
5. Mr. Mihir Joshi, learned Senior Advocate appearing for the
petitioner, at the outset, submitted that the issued involved in
the present petition is squarely covered by the decision of this
Court in the case of Gujarat Chamber of Commerce and
Industry & Ors. Vs. Union of India & Ors., (2025) 170
taxmann.com, 251 (Guj.) and the decision rendered in Special
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C/SCA/15783/2024 JUDGMENT DATED: 16/10/2026
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Civil Application No.6623 of 2026, dated 03.09.2026.
6. Mr.Utkarsh Sharma, learned Senior Standing Counsel
appearing for the respondents is not in a position to dispute
the aforesaid settled position of law, as referred to by Mr.Mihir
Joshi, learned Senior Advocate appearing for the petitioner.
7. We have heard the learned advocates appearing for the
respective parties at length. It is not in dispute that the
petitioner herein assigned leasehold rights in an industrial plot
by Gujarat Industrial Development Corporation (GIDC) bearing
plot No.D-II/6/1 and D-II/6/1A, admeasuring about 5,11,274.41
sq. mtrs. situated in Industrial Phase, GIDC Industrial Estate,
Dahej-2 (Rahiyad Village), Tahsil – Vagra, District : Bharuch,
Gujarat, for consideration of Rs.117,10,96,900/- having taxable
value of Rs.99,24,55,000/- and GST of Rs.17,86,41,900/- on
01.08.2021. The petitioner duly collected the GST amounting
to Rs.23,02,08,146/- from M/s.Deepak Chem Tech Ltd. and duly
deposited the said amount of GST to the Government
Exchequer at the time of filing of Form GSTR 3B for the month
of December, 2021.
7.1 Upon information gathered by the respondents, an
inquiry and investigation was initiated against the petitioner
and based on the same, it was alleged that the ITC availed by
the petitioner on the leasehold services received during the
period for construction of immovable property is blocked credit
under section 17(5)(d) of the CGST Act. The respondent No.3
issued the impugned show cause notice dated 22.03.2024
asking the petitioner to show cause as to why the ITC
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amounting to Rs.17,86,41,900/- wrongly availed by the
petitioner, should not be demanded from the petitioner under
the provision of Section 74 of the CGST Act read with
corresponding section of the GGST Act.
8. The aforesaid issue is no longer res-integra in view of the
decision rendered by this Court in Special Civil Application
No.6623 of 2023, dated 03.09.2026, wherein, this Court after
considering the decisions rendered in the case of Gujarat
Chamber of Commerce and Industry & Ors. (Supra) and
Special Civil Application No.18068 of 2025 , has observed
thus:
“7. Considering the aforesaid, the core issue pertains to ITC availed by
the petitioner on acquisition of leasehold rights of GIDC plot. This Court in
the case of Gujarat Chamber of Commerce and Industry & Ors.
(Supra), has held that the assignment by sale or transfer of the leasehold
rights of the plot allotted by the GIDC to the lessee in favour of the third
party-assignee for a consideration shall be assignment/sale/transfer of
benefits arising out of “immovable property” by the lessee-assignor in
favour of third party-assignee, who would become lessee of GIDC in place
of original allottee-lessee. Under such circumstances, provisions of section
7(1)(a) of the CGST Act providing for scope of supply read with clause 5(b)
of Schedule II and clause 5 of Schedule III shall not be applicable to such
transaction of assignment of leasehold rights of land and building and the
same would not be subject to levy of GST as provided under section 9 of
the CGST Act. The Coordinate Bench of this Court after extensive scrutiny
of the provision of the GST as well as the array of judgments has ultimately
declared as under :-
“83. In view of foregoing reasons, assignment by sale and
transfer of leasehold rights of the plot of land allotted by GIDC to the
lessee in favour of third party-assignee for a consideration shall be
assignment/sale/ transfer of benefits arising out of “immovable
property” by the lessee-assignor in favour of third party-assignee who
would become lessee of GIDC in place of original allottee-lessee. In
such circumstances, provisions of section 7(1)(a) of the GST Act
providing for scope of supply read with clause 5(b) of Schedule II and
Clause 5 of Schedule III would not be applicable to such transaction of
assignment of leasehold rights of land and building and same would
not be subject to levy of GST as provided under section 9 of the GST
Act.
84. In view of above, question of utilisation of input tax credit to
discharge the liability of GST on such transaction of assignment would
not arise.
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C/SCA/15783/2024 JUDGMENT DATED: 16/10/2026
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85. The petitions accordingly succeed and impugned show
cause notices and orders in original or appeal as the case may be, are
hereby quashed and set aside. Rule is made absolute to the aforesaid
extent. No order as to costs.”
7.1. In the facts of the present case, admittedly, the petitioner acquired
leasehold rights in the industrial plot allotted by the GIDC from M/S.
MYSPACE INFRACON. In view thereof, the GST charged by the supplier and
paid by the petitioner was contrary to the law. When the charging
provision itself does not apply, any amount collected or retained by the
department, whether directly as tax or indirectly by way of ITC reversal
and interest, has no legal sanctity.

7.2 Considering the aforesaid, the reversal of ITC and payment of
interest, which were premised solely on the assumption that GST was
leviable on the transaction would not survive.
8. In our opinion, the respondents have erroneously proceeded on the
footing that the ITC was “blocked” under section 17(5)(d) of the CGST Act.
Section 17(5)(d) of the CGST Act, presupposes the existence of a taxable
inward supply, on which, tax is lawfully leviable and paid. In the facts of
the present case, in light of the judgment of this Court, the transaction
itself neither qualify as “supply” under section 7 of the CGST Act nor it is
chargeable to tax under section 9 of the CGST Act. When there is no
taxable supply, the question of applying blocking provision under section
17(5) of the CGST Act does not arise at all.
8.1 The respondents have alleged that the petitioner has contravened
the provision of section 17(5)(d) of the CGST Act read with Gujarat Goods
and Services Tax Act and has availed ineligible ITC. In an identical issue
raised in Special Civil Application No.18068 of 2025, section 17(5)(d)
of the CGST Act was interpreted and it was held that the legislative intent
is clear that the bar on credit applied exclusively to construction related
expenditure and the apportionment of credit and blocked credits relating
to such business.
8.2. At this stage, it is apposite to refer to the decision rendered in
Special Civil Application No.18068 of 2025, dated 10.02.2026.
Relevant paragraphs of the said decision read thus:
“9. At this stage, we may refer to the provision of Section 17(5)
(d) of the GST Act, which is as under:
"Apportionment of credit and blocked credits.
17. (1) Where the goods or services or both are used by the
registered person partly for the purpose of any business and
partly for other purposes, the amount of credit shall be restricted
to so much of the input tax as is attributable to the purposes of
his business.
…..
(5) Notwithstanding anything contained in sub-section (1) of
section 16 and sub-section (1) of section 18, input tax credit shall
not be available in respect of the following, namely:-
….
(d) goods or services or both received by a taxable person for
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C/SCA/15783/2024 JUDGMENT DATED: 16/10/2026
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construction of an immovable property (other than plant
and machinery) on his own account including when such goods
or services or both are used in the course or furtherance of
business.
[Explanation 1.]- For the purposes of clauses (c) and (d), the
expression "construction" includes re-construction, renovation,
additions or alterations or repairs, to the extent of capitalisation,
to the said immovable property;
Explanation 2.- For the purposes of clause (d), it is hereby
clarified that notwithstanding anything to the contrary contained
in any judgment, decree or order of any court, tribunal, or other
authority, any reference to "plant or machinery" shall be
construed and shall always be deemed to have been construed
as a reference to "plant and machinery".
10. Thus, a plain and simple reading of provision of Section
17(5)(d) of the GST Act exposits that the apportionment of credit and
blocked credit relates to the goods or services or both by a taxable
person for the purpose of construction of any immovable property.
Thus, the legislative intent is clear that the bar on credit applied
exclusively to construction related expenditure and the apportionment
of credit and blocked credits relating to such business. The respondent
has not established that the petitioner has undertaken any
construction activity whatsoever and apart from transferring the
leasehold rights in GIDC Plot, is also accordingly, undertaking the
construction activities. Thus, the provision of Section 17(5)(d) of the
GST Act would not even remotely apply to the petitioner. Hence, the
allegation of availing block credit by resorting to the provision of
Section 17(5)(d) of the GST Act, is uncalled for and there is a complete
non-application of mind on behalf of the respondent. With regard to
the provision of Section 74 of the GST Act, under which the notice has
been issued, we may reproduce the same, which reads as under:
“Section 74. Determination of tax not paid or short paid or
erroneously refunded or input tax credit wrongly availed or
utilised by reason of fraud or any willful-misstatement or
suppression of facts-
(1) Where it appears to the proper officer that any tax has not
been paid or short paid or erroneously refunded or where input
tax credit has been wrongly availed or utilised by reason of
fraud, or any wilful-misstatement or suppression of facts to
evade tax, he shall serve notice on the person chargeable with
tax which has not been so paid or which has been so short paid
or to whom the refund has erroneously been made, or who has
wrongly availed or utilised input tax credit, requiring him to show
cause as to why he should not pay the amount specified in the
notice along with interest payable thereon under section 50 and
a penalty equivalent to the tax specified in the notice.
Explanation "suppression" shall mean non-declaration of facts or
information which a taxable person is required to declare in the
return, statement, report or any other document furnished under
this Act or the rules made thereunder, or failure to furnish any
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information on being asked for, in writing, by the proper officer."
11. Thus, we do not find that in the instant case, there is any
fraud or wilful mis-statement or any suppression of facts at the end of
the petitioner in availing the ITC or the same is wrongly availed. On
the contrary, it has not been denied by the respondent that, the
petitioner had, though utilised the ITC of Rs. 38,60,608/- in the month
of July, 2022 but accordingly he has reversed to Form DRC-03 dated
11.04.2023. Thus, the petitioner has paid the entire output of GST
liability in cash. Hence, the question of resorting to Section 74 of the
GST Act is also uncalled for. On both these counts, the action of the
respondent is without jurisdiction and in fact the respondent authority
has misinterpreted and misapplied the statutory provisions which calls
for interference of this Court and hence the petitioner cannot be
relegated to further remedy of facing proceeding, which does not
satisfy the statutory pre-requisite. Hence, the Writ petition succeeds.
The impugned notice dated 28.10.2025 issued by the respondent
under Section 74(1) of the GST Act is quashed and set-aside. The
respondent is directed to unblock the ITC amounting to
Rs.98,11,678/-, which has been lying in the electronic credit ledger of
the petitioner. Necessary action shall be taken within a period of three
weeks from the date of receipt of the order. Rule is made absolute
with no order as to costs.”
8.3. The facts of the present case are identical to the facts of the
aforesaid writ petition being Special Civil Application No.18068 of 2025
wherein, it is not in dispute that the petitioner herein has not undertaken
any construction activity and in view thereof, section 17(5)(d) of the CGST
Act is erroneously invoked qua the petitioner herein. Accordingly, the
allegation of availing blocked credit by the revenue is misconceived and in
view thereof, the determination demand on the basis of section 17(5)(d) of
the CGST Act is held to be unsustainable in the eyes of law.”
9. Considering the settled legal position, as referred to
herein above, the question of fraud or suppression or wilful
misstatement does not arise in the facts of the present case to
invoke section 74(1) of the CGST Act on the allegation that the
ITC constituted blocked credit under section 17(5)(d) of the
CGST Act, more particularly, the petitioner having collected the
GST amounting to Rs.23,02,08,146/- from M/s. Deepak Chem
Tech Ltd. and duly deposited the said amount of GST at the
time of filing of Form GSTR 3B for the month of December,
2021.
10. For the reasons as referred to herein above, the action of
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C/SCA/15783/2024 JUDGMENT DATED: 16/10/2026
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the revenue is contrary to the statutory provisions and settled
legal position, which requires interference. Hence, both the writ
petitions succeed. The impugned show cause notices bearing
No.VAD-I/Prev/SCN/202/Gr.E/Deepak/2023-24 dated 22.03.2024
and No.VAC-I/Prev/SCN/97/Deepak/24-25/Gr.D, dated
07.06.2024 issued by the respondent No.3, are quashed and
set aside. Rule is made absolute. No order as to costs.
(A. S. SUPEHIA, J)
(VAIBHAVI D. NANAVATI,J)
NEHA /1-2
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