Goods & Services Tax (GST) in IndiaDGGI and State Tax Authority are vested with equal powers under CGST Act

The Jharkhand High Court in Vivek Narsaria Vs State of Jharkhand [W.P(T) NO. 4491 of 2023, dated 15/01/2024], held that the Central Authority i.e. DGGI as well as the State Authority i.e. State Tax are vested with equal powers and neither can supersede another. Moreover, bank attachment cannot be done before adjudication of a demand against the taxpayer.

FACTS

Mr. Vivek Narsaria ( hereinafter referred to as “the Petitioner”) was  the sole proprietor of M/s. Manish Trading Company,  and was engaged in the business of trading Iron & Steel and Cement. On 16.03.2023, an inspection was conducted by the Intelligence Bureau of the State Goods & Services Tax (hereinafter referred to as “DGGI”), and directed the Petitioner to furnish the requisite documents. The Petitioner submitted that from Rs. 34 lakhs deposited in the Cash Ledger, Rs. 6 lakhs were deposited from wife’s firm.

Further, another notice on 10.04.2023 was served upon by the Preventive Branch of Central Goods & Services Tax, Ranchi (“hereinafter referred to as the “State Tax”) directing the Petitioner to reverse the Input Tax Credit (hereinafter referred to as the “ITC”) along with interest and penalty. Hence, simultaneous proceedings were initiated by DGGI and State Tax.

DGGI conducted a search on 06.06.2023 along with seizure and panchnama alongwith issuance of multiple summons in connection to the same. Further, the State Tax also issued various notices and summons to the Petitioner during the same time period. In connection to the summons issued by the DGGI and State Tax, the Petitioner made reversal of ITC on different dated vide Form DRC-03 total amounting to Rs.3.42 Crores.

Hence, being aggrieved by the Impugned Actions of the DGGI and State Tax regarding the simultaneous search and proceedings has filed the present petition seeking a declaration that the authority that initiated the investigation priorly shall conduct the further proceedings against the Petitioner.

ISSUES BEFORE THE JHARKHAND HIGH COURT

1. Whether the DGGI as well as State Tax can simultaneously conduct investigation and further proceedings against the Petitioner?
2. Whether the DGGI or the State Tax has the jurisdiction to conduct the investigation against the Petitioner?
3. Whether the DGGI had the jurisdiction to attach the bank accounts of the Petitioner before the determination of demand?

CONTENTIONS OF THE PARTIES

The Petitioner relied upon Notification No. 39/2017-Central Tax dated 13.10.2017  and Clarification bearing D.O.F. No. CBEC/20/43/01/2017- GST(Pt.) dated 5.10.2018  and F. No. CBEC-20/10/07/2019-GST by the GST Wing dated 22.06.2020, contended that only the authority who has initiated the investigation was empowered to conduct further proceedings against the Petitioner.

It was also argued that the bank attachment carried out under Section 83 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the “CGST Act”) was in conflict with the procedure prescribed under the CGST Act and Notifications and Guidelines. Hence, bank attachment itself is bad and perverse in law as no demand was determined by any of the officers.

It was also submitted that the Petitioner had suo-moto  deposited an amount of Rs.40 Lakhs and reversed ITC of Rs.3.42 Crores, which itself reflects the bonafide of the Petitioner.

The Respondents submitted that there was no overlap in the proceedings conducted by the DGGI and State Tax. Therefore, the petition itself lacks merit.

DECISION AND FINDINGS

The Jharkhand High Court considered the arguments and documentary evidence placed on record by both parties. The High Court observed that Section 6(2)(b) of the CGST Act clearly denoted that the investigation by DGGI and State Tax was interrelated. It was observed that DGGI did not enjoy any privilege over the State Tax and were vested with equal power and authority.

The High Court held that as the State Tax had initiated the investigation pursuant to the wrong or illegal availment of ITC, the State Tax had the jurisdiction to continue with the same. Further, illegal bank attachment without determination of demand was regarded as an “arm twisting method”.

The High Court directed the DGGI to de-freeze the bank accounts of the Petitioner and directed the State Tax to carry out further investigation and allowed the present petition.

AMLEGALS REMARKS

The High Court has upheld that two authorities i.e. State and Center cannot simultaneously conduct proceedings against a Petitioner in connection to the same subject matter. Further, the authority who had priorly initiated the investigation shall be the only authority to carry out the further proceedings.

It was also upheld that both the wings i.e. the Central wing and the State wing both have equal powers and neither supercedes the other. Moreover, bank attachment cannot be done mechanically at the premature stage when the demand has not been raised against the Petitioner.

– Team AMLEGALS assisted by Ms. Nandini Tripathi