Safiya Malik

The High Court of Jammu & Kashmir and Ladakh, Division Bench of Justice Sanjeev Kumar and Justice Sanjay Parihar dismissed a batch of writ petitions filed by several industrial units contesting show-cause notices issued under the Central Goods and Services Tax Act, 2017, on jurisdictional grounds. The Court held that intelligence-based enforcement actions may be undertaken by either the Central or the State tax authorities, regardless of the taxpayer’s administrative assignment, and that no separate notification is required to confer such cross-empowerment. The Bench directed that the petitioners pursue their objections before the competent authority rather than challenge the notices in writ proceedings.

Several companies engaged in manufacturing and trading of goods within the purview of the Central Goods and Services Tax Act, 2017 (CGST Act) and the State Goods and Services Tax Act, 2017 (SGST Act) challenged show-cause notices issued by the Joint Commissioner, CGST Commissionerate, Jammu. The notices, dated March 31 and April 17, 2024, were based on intelligence inputs alleging that twelve companies, including the petitioners, fraudulently availed and utilized input tax credit (ITC) without actual supply or receipt of goods.

Also Read: Supreme Court Quashes Patna High Court Anticipatory Bail Orders | Urges High Courts to Direct Applicants to Sessions Court First

The petitioners contended that the CGST authorities lacked jurisdiction as the companies were assigned to the State tax administration. They argued that the Joint Commissioner had no authority to issue notices for amounts below ₹1 crore, citing a 2018 circular. They further challenged the legality of combining alleged violations for five financial years in a single show-cause notice under Section 74 of the CGST Act.

The respondents stated that the action followed intelligence-based investigations revealing paper transactions among the companies to claim ITC. Searches conducted under Section 67(2) at the business premises in Jammu and Kashmir Integrated Textile Park, Kathua, found only two of the twelve units operational. The evidence included records of transactions indicating that ITC had been claimed without actual movement of goods.

The petitioners approached the High Court under Article 226 of the Constitution, seeking to quash the notices on jurisdictional and procedural grounds. The dispute involved interpretation of Section 6 of the CGST Act relating to cross-empowerment of officers between Central and State authorities, and questions regarding the validity of bunching multiple assessment years and the competence of the Joint Commissioner to issue the notices.

The Bench observed: “Section 6 of the CGST Act… unequivocally prescribes that the officers appointed under the State GST Acts or UT GST Acts are authorized to act as proper officers for the purpose of CGST Act, 2017… the cross-empowerment envisaged… is without prejudice to other provisions of the Act.”

It recorded: “The Government is only empowered to subject cross-empowerment of officers to such conditions as it shall, on the recommendations of the Council, specify by notification… Unless such a notification… is issued… the officers appointed under the State GST and UT GST Acts shall be the proper officers for the purposes of the CGST Act.”

The Court referred to the CBIC circular dated 22.06.2020, noting: “If no notification is issued to impose any condition, it means that the officers of State and Centre have been appointed as proper officer for all the purposes of the CGST Act and SGST Acts.”

Regarding intelligence-based enforcement, it recorded: “An intelligence-based enforcement action is edificed on information of tax evasion emanating from the value chain or chain of transactions rather than from any administrative scrutiny by way of audit of accounts or returns.”

On the issue of the Joint Commissioner’s competence, the Bench stated: “Under Section 5(2) of the CGST Act, the central tax officer is empowered to exercise the powers of a subordinate officer… the fixation of monetary limits is only an administrative measure for optimal distribution of work… and does not affect jurisdiction.”

Also Read: J&K High Court Quashes NDPS Preventive Detention | Raps Srinagar SSP for ‘Contemptuous’ Remarks Against Judiciary in Dossier

Addressing the question of bunching notices for multiple years, the Court noted: “Section 74… does not prima facie prohibit issuance of a show-cause notice for evasions that have taken place in more than one financial year… the question is left open to be determined in appropriate proceedings.”

The Court concluded: “For all these reasons, we find no merit in these petitions and the same are, accordingly, dismissed.”

“We would, however, like to clarify that other than our conclusions on the interpretation of Section 6 of CGST Act, 2017 given hereinabove, the other views are only a reflection of prima facie opinion and, therefore, shall not prejudice the petitioners from raising the same issues before the authority issuing the show cause notices.”

Advocates Representing the Parties

For the Petitioners: Mr. Jatin Mahajan, Advocate

For the Respondents: Mr. Jagpaul Singh, Central Government Standing Counsel

Case Title: R.K. Ispat Ltd. & Others v. Union of India & Others
Case Number: WP(C ) No. 1074/2024 & other connected matters
Bench: Justice Sanjeev Kumar and Justice Sanjay Parihar