Apex Court issued notice in SLP challenged on cross empowerment in investigation

The Hon'ble Supreme Court in the case of the Senior Intelligence Officer Directorate General of GST Intelligence and Ors. v. Vivek Narsaria [Special Leave Petition (Civil) No. 19943/2024 dated January 15, 2024] condoned the delay and issued notice to the Respondent.

Mr. Vivek Narsaria ("the Respondent") was the proprietor of M/s Manish Trading Company and was engaged in carrying on the business of trading iron and steel and cement since 2017-18. The purchases and sales were duly reflected in the GST returns furnished by the Respondent and the outward tax liability was adjusted against the Input Tax Credit ("ITC") available to the Respondent.

On March 16, 2023, an inspection was carried out by the Intelligence Bureau of the State Goods and Service Tax ("SGST") and issued FORM GST INS-01 after the inspection was concluded. Meanwhile, the Respondent was served with a notice dated April 10, 2023, by the Preventive Branch of Central Goods and Services Tax ("CGST"), Ranchi with a direction to reverse the ITC along with interest and penalty on account of the alleged purchases from the non-existent entity.

While both departments were concurrently involved in the proceedings, a search was carried out by Directorate General of Goods and Services Tax Intelligence ("DGGI"), Intelligence Branch of CGST on June 06, 2023. While the summons was issued by the SGST (Preventive Wing) and DGGI were to be attended, the Respondent made certain reversals on different dates vide FORM GST DRC 03, totalling a sum of Rs. 3.42 Crores. Also, the bank account of the Respondent was attached by issuing FORM GST DRC-22 and more than 7 Bank Accounts were frozen.

Given the circumstances, where the Respondent has received summons from 3 Departments of GST, the Respondent had filed a writ petition under the Hon'ble Jharkhand High Court, to halt parallel proceedings.

The Hon'ble Jharkhand High Court in passed an Order dated January 15, 2024("the Impugned Order") andheld as under:

· Observed that, the entire proceedings were initiated by the inspecting team of SGST, and based upon which, certain deposits were made and State had also issued summons and notices from time to time. Hence, the issue was on 'cross-empowerment' viz., Section 6(2)(b) of the CGST Act read with Notification No. 39/2017-Central Tax dated October 13, 2017 and the clarification bearing D.O.F. No. CBEC/20/43/01/2017- GST(Pt.) dated October 5, 2018.

· Opined that, on conjoint reading of the above section, notification and clarification, it clearly denotes and implies that it is a chain of a particular event happening under the CGST Act and every and any enquiry/investigation carried out at the behest of any of the Department are interrelated. Hence, the issues raised by the Respondent herein manifestly crystalize that since all the proceedings are interrelated, the State Authorities should continue with the proceedings.

· Opined that, the bank account attachment by issuing FORM DRC-22 prior to any determination or finding of any irregular/inadmissible/wrong availment of ITC under Section 83 of the CGST Act, which conflicts with the notification issued by the CBEC from time to time, concerning guidelines for attachment of Bank, terming the same to be an 'arm twisting method' to make the Respondent succumb to the particular authority.

· Directed that, CGST and DGGI, shall forward all their investigation carried out against the Respondent and inter-related transaction to SGST, who shall continue with the proceedings from the same stage.

· Held that, CGST and DGGI to make over the entire investigations carried till date to SGST, who shall carry out further proceedings as against the Respondent in accordance with law. Further, directed to SGST to take immediate decision regarding de-freezing of the bank accounts as per Section 83 of the CGST Act. Hence, the writ petition was disposed of.

Aggrieved by the Impugned Order, the Petitioner filed Special Leave Petition ("SLP") before the Hon'ble Supreme Court.

The Hon'ble Supreme Court condoned the delay and the matter is now listed for further hearing on October 15, 2024.

Our Comment:

The CBIC had issued a Circular No. 01/2017 dated September 20, 2017 in order to provide guidelines for division of taxpayer base between centre and states to ensure single interface under GST in accordance with the recommendations of the GST Council in its 9th Meeting held on January 16, 2017.

Further, CBIC had also issued a Circular D.O.F No. CBEC/20/43/01/2017-GST (Pt.) dated October 05, 2018 in order to clarify ambiguities regarding initiation of enforcement by Central Tax Officers in case of taxpayers assigned to State Tax Authorities and vice versa.

In Pari Materia case of Sanjay Casting and Eng. Co. v. The Assistant Commissioner of State Tax[MAT 2388 of 2023 dated January 09, 2024], the Hon'ble Calcutta High Court directed SGST Department to keep Show Cuse Notice in abeyance given parallel proceedings were pending before CGST Authority.

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