2025 (5) TMI 1429 - HC - GST

Simultaneous Proceedings by Central GST Authority u/s 70 and State GST authorities u/s 74 - Same subject matter - Entitlement to avail Input Tax Credit in the light of the Circular No. 211/5/2024-GST - valuation for the purpose of payment of taxes plus interest is covered by Circular No.210/4/2024-GST - availement of the benefit of Amnesty scheme under Section 128A of the CGST Act - Challenged the impugned SCN - HELD THAT - A perusal of the material on record will indicate that it is an undisputed fact that in November 2022 respondent No. 3 had initiated proceedings / intimation under Section 70 of the CGST Act by issuing letter on 28.11.2022 which is followed by the Show Cause Notices dated 27.09.2023. Meanwhile despite having initiated proceedings on 28.11.2022 respondent No. 4 State authorities who has issued the impugned Show Cause Notice at Annexures A. In this context it is pertinent to note that the said issue is answered by this Court in M/s. Toyota Kirloskar Motor Pvt. Ltd. Vs. Union of India and others 2024 (10) TMI 1240 - KARNATAKA HIGH COURT As held in the aforesaid judgment in view of Section 6 (2) (b) of the CGST Act Annexure A deserve to be quashed. Insofar as challenge to the impugned Notice at Annexure A1 coupled with the contention that the petitioner would be entitled to avail Input Tax Credit under Section 16 (4) of the CGST / KGST Act is concerned in the light of the aforesaid judgment of this Court petitioner is to be relegated back to respondent No. 3 for consideration of its claim in accordance with law in the light of the said decisions and the Circular No. 211/5/2024-GST dated 26.06.2024. Insofar as the valuation regarding payment of tax and interests are concerned in view of Circular No.210/4/2024-GST dated 26.06.2024 even this issue would necessarily have to be decided by respondent No. 3 in accordance with law and the decision of Delhi High Court in Thales India Private Limited Vs. Additional Commissioner of CGST Audit II Delhi Another 2025 (2) TMI 245 - DELHI HIGH COURT In the result I pass the following (i) The petition is hereby allowed. (ii) The impugned Show Cause Notice at Annexure A dated 26.09.2023 issued by respondent No. 4 is hereby quashed. (iii) Petitioner is relegated to the stage of filing reply to the Show Cause Notice at Annexure A1 dated 27.09.2023 before respondent No. 3. (iv) Liberty is reserved in favour of the petitioner to file its reply pleadings documents etc. before respondent No. 3 who shall consider the same and pass appropriate orders in accordance with law bearing in mind the judgment of above Courts ; Circular No. 211/5/2024-GST dated 26.06.2024 and Circular No. 210/4/2024-GST dated 26.06.2024.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court include:

(a) Whether the impugned Show Cause Notice issued by the State GST authorities (Respondent No. 4) is valid or barred under Section 6(2)(b) of the KGST Act, 2017, given that proceedings had already been initiated by the Central GST authorities (Respondent No. 3) on the same subject matter;

(b) Whether the petitioner was rightly denied Input Tax Credit (ITC) for integrated tax paid under reverse charge mechanism on manpower supply services for the period July 2017 to October 2022;

(c) The applicability and interpretation of Circulars No. 210/4/2024-GST and 211/5/2024-GST dated 26.06.2024, and relevant judicial precedents, in relation to valuation of tax and entitlement to ITC;

(d) Whether proceedings initiated under Section 74(1) of the CGST/KGST Act can be treated as proceedings under Section 73 to enable the petitioner to avail the Amnesty scheme under Section 128A of the CGST Act;

(e) The appropriate course of action regarding the impugned notices and the petitioner's claims, including remittance for reconsideration in accordance with law.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of Show Cause Notice issued by State GST authorities under Section 6(2)(b) of KGST Act

Legal Framework and Precedents: Section 6(2)(b) of the KGST Act prohibits State GST authorities from initiating proceedings if the Central GST authorities have already initiated proceedings on the same subject matter. The Court relied on its prior judgment in M/s. Toyota Kirloskar Motor Pvt. Ltd. Vs. Union of India and others (W.P.No.22952/2023 dated 21.08.2024), which held that the State GST authorities' issuance of Show Cause Notices after initiation by Central GST authorities is barred and illegal.

Court's Interpretation and Reasoning: The Court observed that the Central GST authorities had initiated proceedings in November 2022, prior to the State GST authorities issuing the impugned Show Cause Notice dated 26.09.2023. Therefore, the issuance of the Show Cause Notice by the State authorities was in direct contravention of Section 6(2)(b) of the KGST Act.

Key Evidence and Findings: The material on record showed that proceedings under Section 70 of the CGST Act were initiated by Respondent No. 3 on 28.11.2022, predating the State's notice. The Court found no justification for the State authorities' subsequent issuance of the notice.

Application of Law to Facts: The Court applied the statutory bar under Section 6(2)(b) strictly and held the impugned Show Cause Notice by Respondent No. 4 as illegal, arbitrary, and without jurisdiction.

Treatment of Competing Arguments: The petitioner's contention that the State notice was barred was accepted, while the respondents' opposition was rejected for lack of merit.

Conclusion: The impugned Show Cause Notice dated 26.09.2023 by Respondent No. 4 was quashed.

Issue (b): Denial of Input Tax Credit (ITC) for integrated tax paid under reverse charge mechanism

Legal Framework and Precedents: Section 16(4) of the CGST/KGST Act governs the entitlement to ITC. Circular No. 211/5/2024-GST dated 26.06.2024 provides clarifications on ITC claims. The Court also referred to its earlier judgment in M/s. Toyota Kirloskar Motor Pvt. Ltd. and the decision of the Delhi High Court in Thales India Private Limited Vs. Additional Commissioner of CGST, Audit - II, Delhi & Another (2025 (2) TMI 245).

Court's Interpretation and Reasoning: The Court noted that the denial of ITC for the period July 2017 to October 2022 was challenged as illegal and arbitrary. It observed that the petitioner's entitlement to ITC required reconsideration by the Central GST authorities in light of the latest Circular and judicial pronouncements.

Key Evidence and Findings: The petitioner's claim of ITC amounting to Rs. 9,62,12,431/- was supported by records of integrated tax paid under reverse charge on manpower supply services. The Court found no conclusive evidence to deny ITC outright without fresh consideration.

Application of Law to Facts: The Court directed that the petitioner's claim be reconsidered afresh by Respondent No. 3, applying the Circular and relevant case law.

Treatment of Competing Arguments: The petitioner's arguments for ITC entitlement were accepted for reconsideration, while the respondents' denial was not upheld without fresh examination.

Conclusion: The petitioner was relegated to file a reply to the Show Cause Notice dated 27.09.2023 before Respondent No. 3, who shall reconsider the ITC claim in accordance with law.

Issue (c): Valuation for payment of tax and interest

Legal Framework and Precedents: Circular No. 210/4/2024-GST dated 26.06.2024 addresses valuation issues for tax and interest calculation. The Delhi High Court decision in Thales India Private Limited (supra) was cited for guidance.

Court's Interpretation and Reasoning: The Court held that valuation disputes must be decided by the Central GST authorities in accordance with the Circular and judicial precedent.

Key Evidence and Findings: The Court did not make a final determination on valuation but emphasized the need for lawful and reasoned orders by Respondent No. 3.

Application of Law to Facts: The matter was remitted to Respondent No. 3 for adjudication on valuation and interest, applying the Circular and case law.

Treatment of Competing Arguments: The Court kept all rival contentions open, refraining from expressing any opinion on valuation merits.

Conclusion: Valuation and interest issues are to be decided afresh by Respondent No. 3.

Issue (d): Treatment of proceedings under Section 74(1) as proceedings under Section 73 for availing Amnesty scheme

Legal Framework: Section 74(1) relates to proceedings for tax evasion, while Section 73 deals with non-tax payment due to other reasons. Section 128A provides an Amnesty scheme for certain cases.

Court's Interpretation and Reasoning: The Court allowed the petitioner liberty to request conversion of proceedings from Section 74 to Section 73 to avail the Amnesty scheme under Section 128A.

Key Evidence and Findings: The petitioner's submission for such conversion was accepted as a procedural relief.

Application of Law to Facts: Respondent No. 3 was directed to consider any such request in accordance with law.

Treatment of Competing Arguments: No opposition to this procedural relief was noted.

Conclusion: Liberty granted to petitioner to seek Amnesty scheme by conversion of proceedings.

Issue (e): Appropriate relief and remittance for reconsideration

Court's Reasoning: The Court quashed the State GST authority's Show Cause Notice and remitted the matter to Central GST authorities for fresh consideration of ITC claims, valuation, and other aspects in accordance with law and relevant circulars and precedents.

Conclusion: The petition was allowed with directions for reconsideration and liberty to the petitioner to file replies and seek Amnesty scheme benefits.

3. SIGNIFICANT HOLDINGS

"Prior to the State GST Authorities issuing the impugned Show Cause Notices at Annexures - A, A1, A2 is concerned, the Central GST Authorities had already initiated proceedings as against the petitioner and consequently, in the light of Section 6 (2) (b) of the KGST Act, 2017 which contemplates a complete bar / embargo on the State GST Authorities to initiate proceedings in a situation where the Central GST Authorities had already initiated proceedings as against the petitioner in respect of the same subject matter. I am of the considered view that the impugned Show Cause Notices at Annexures - A, A1 and A2 are clearly illegal, arbitrary and without jurisdiction or authority of law and contrary to the aforesaid statutory provisions and the same deserve to be quashed."

Core principles established include:

- The statutory bar under Section 6(2)(b) of the KGST Act prevents simultaneous proceedings by State GST authorities where Central GST authorities have already initiated action on the same subject matter.

- Input Tax Credit claims must be adjudicated in accordance with Section 16(4) of the CGST/KGST Act, relevant Circulars, and judicial precedents.

- Valuation and interest issues require lawful adjudication guided by Circular No. 210/4/2024-GST and relevant case law.

- Proceedings initiated under Section 74(1) may be converted to Section 73 to enable availing Amnesty scheme under Section 128A, subject to statutory provisions.

- Courts may remit matters for fresh consideration by competent authorities with liberty to parties to file replies and pleadings.

Final determinations:

- The Show Cause Notice issued by the State GST authorities was quashed as barred by Section 6(2)(b) of the KGST Act.

- The petitioner's claim for Input Tax Credit was not denied outright but remitted for fresh consideration by Central GST authorities.

- Valuation and interest issues remain open for adjudication by the authorities.

- The petitioner was granted liberty to seek Amnesty scheme benefits by converting proceedings.