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TMI Blog2025 (1) TMI 1247X X X X Extracts X X X X X X X X Extracts X X X X ..... llenging three show cause notices dated 16.03.2022 issued by respondent no. 1, the Additional Director, Directorate General of Goods and Service Tax Intelligence, Ahmedabad Zonal Unit proposing to impose penalty on the petitioners under section 122 (1) (i) (x) (xvii) (xviii) and (xix) of the Central Goods and Service Tax Act, 2017 (For short "the GST Act"). 4. It is the case of petitioner company that it is carrying on business in the State of Maharashtra and State of Uttar Pradesh in India. 5. The petitioners are served with three show cause notices for levy of penalty up on the petitioners for being beneficiaries for alleged evasion of tax by the three concerns namely M/s. Flora Naturale, M/s. Odochem Industries and M/s. Odosynth Inc. to whom the petitioner company has supplied the goods which was used as raw material for production of perfumery compounds and involved in clandestinely supplying perfumery compounds without payment of GST to M/s. Trimurti Fragrance Private Limited, Kanpur and M/s. Trimurti Fragrances and Flavours Private Limited, Kanpur for the unaccounted production and clandestine supplies/clearances of pan masala and scented tobacco/jarda. 6. It is the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was submitted that respondent no. 2 is not a "proper officer" for adjudication of the show cause notices qua the petitioners as respondent no. 2 does not have jurisdiction to adjudicate the impugned show. 14. It was submitted that the petitioners could not have been made answerable to authority which does not have jurisdiction and as such, the impugned notices are void and illegal qua the petitioners. 15. In support of his submissions, learned Senior Advocate Mr. Joshi referred to and relied upon Notification No. 02/2017-Central Tax dated 19.06.2017 issued in exercise of powers conferred under section 3 read with section 5 of the GST Act and section 3 of the IGST Act, 2017 showing the jurisdiction of the Notified Officer under the GST Act. It was pointed out that Table I of the said Notification No. 02/2017 provides for jurisdiction of the Principal Chief Commissioner/Chief Commissioner of Central Tax in terms of Principal Commissioners/ Commissioners of Central Tax, Commissioner of Central Tax (Appeals), Additional Commissioner of Central Tax (Appeals) and Commissioner of Central Tax (Audit) by dividing the GST Commissionerate into 21 zones. Reference was made to Serial No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner or Joint Commissioner under the Lucknow Central Tax Commissionerate shall adjudicate the show cause notices issued by the Directorate General of GST Intelligence. 21. Referring to the above notifications it was submitted that the principal place of the main Noticee in three show cause notices are situated in Uttar Pradesh and therefore, they are governed by the jurisdiction of Lucknow Commissionerate. 22. It was submitted that both Lucknow and Kanpur Commissionerate are separate and independent as per Notification No. 02/2017, and both falls under the Principal Chief Commissioner at Lucknow (Central Tax Zone) as per Serial No. 12 of Table I of Notification No. 02/2017 and the Additional/Joint Commissioner of Central Tax under the Principal Commissioner, Lucknow are appointed as the proper officers for adjudicating the show cause notices issued by the DGGI in terms of Serial No.9 of Table V of Notification No. 02/2017 and as such, respondent no. 2 shall not have any jurisdiction to adjudicate the impugned show cause notices. 23. It was further submitted that as per Serial No. 18 and 19 of the Table annexed to the Circular dated 12.03.2022, in case where the principal plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the acts of suppression of material facts from the department which resulted in evasion of huge GST by the buyers of petitioner no. 1 company. 29. It was submitted that penalty for aiding and abetting is covered under Section 122 (3) of the GST Act and hence, invocation of Section 122 (1) of the GST Act proposing to impose penalty equal to the tax evaded by the buyers of the petitioner no. 1 is not tenable and not sustainable in law and therefore, the impugned notices are without jurisdiction. 30. It was submitted that under Section 122 (3) of the GST Act, the maximum prescribed penalty cannot exceed Rs. 25,000/- and accordingly, the proposal to impose a penalty equal to the tax evaded by the buyers of the petitioner no. 1 is without jurisdiction. 31. In the alternative, it was submitted that penalty can be imposed only under section 127 of the GST Act as the proceedings against the petitioners is not covered under section 62 or section 63 or section 64 or section 73 or section 74 or section 129 or section 130 of the GST Act. 32. It was therefore, submitted that the proposal to impose penalty equal to the tax evaded by the buyers of petitioner no. 1 company which is a third p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37. It was submitted that the petitioner no. 2 who is an individual director of the petitioner no. 1 cannot be considered as "taxable" or "registered person" within the meaning and the purview of the GST Act so as to retain the benefits as per the provisions of section 122 (1) of the GST Act in absence of any allegation to that effect in the impugned show cause notices. 38. It was submitted that there is no allegation against the petitioner no. 1 for retaining benefit of transactions covered under the aforesaid clauses of Section 122 (1) of the GST Act as there is no demand raised towards any alleged non-payment/ short payment of tax and/ or erroneous availment of Input Tax Credit against the petitioner no. 1. 39. It was therefore, submitted that in the absence of basic elements to levy penalty, show cause notices issued to petitioner no. 2 would be rendered illegal for want of jurisdiction and further stands vitiated on the grounds of patent non-application of mind on behalf of the respondent no. 1. 40. It was further submitted in the alternative that provisions of section 122 (1A) of the GST Act is inserted with effect from 01.01.2021 by the Finance Act, 2020 whereas the peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the adjudicating authority and it is only the petitioners who would be prejudiced by further adjudication. 47. In support of his submissions, reliance was placed on the following decisions: (i) Shantanu Sanjay Hundekari v. union of India reported in (2024) 17 Centax 18 (Bom). (ii) Sakshi Bahl v. Principal Additional Director General, DGGI, Delhi reported in 2023 (73) GSTL 330 (Del). (iii) Veremax Technologie Services Ltd. Vs The Assistant Commissioner of Central Tax, Bengaluru, reported in 2024 (9) TMI 1347. (iv) Titan Company Ltd. Vs The Joint Commissioner of GST & Central Excise, reported in 2024 (1) TMI 619. (v) The State of Jammu and Kashmir and Ors Vs Caltex (India) Ltd., reported in (1966) (17) STC 612 - Supreme Court. (vi) Kesar Enterprises Ltd. Vs State of UP & Ors., reported in 2010 SCC OnLine All 1608-Allahabad High Court. 48. On the other hand, learned Senior Standing Counsel Ms. Hetvi Sancheti for the respondents raised the preliminary objection regarding maintainability of the writ petition under Article 226 of the Constitution of India. 49. It was submitted that except the petitioner all other co-noticee have appeared before the adjudicating aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereas other co-noticee have filed petitions being Writ Tax No. 1280 of 2023, Writ Tax No. 1286 of 2023 and Writ Tax No. 1290 of 2023 which have been dismissed by Hon'ble Allahabad High Court showing no indulgence. 53. It was submitted that contention of the petitioners challenging powers of respondent no. 2 to adjudicate upon the show cause notices relying upon circular No.31/2018 dated 09.02.2018 as amended by Circular No. 169/2022 dated 12.03.2022 is not tenable as there is a marked difference between levy and imposition of penalty under the GST Act. It was submitted that creation of a penal liability in form of a penalty is a function of the Parliament as a policy decision, whereas imposition of such penalty on a subject of tax upon certain action/omission is a function of the proper officer. 54. It was submitted that Chapter XIX of the GST Act provides for levy of penalty but provision for imposition of penalty falls under Chapter XV which provides for "Demands and Recovery", where operation of invocation of Section 73 and Section 74 of the GST Act come into play. 55. It was therefore submitted that Section 122 (1) of the GST Act does not mention any "proper officer" or "any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neously refunded or input tax credit of central tax wrongly availed or utilized for issuance of show cause notices and passing of orders under Sections 73 and 74 of CGST Act. It was pointed out that similarly column no. 4 and 5 also speaks of the tax amount for the ITC wrongly availed or utilized. 60. It was submitted that the assignment of proper officer is based on "demand of tax" and not "penalty". It was submitted that the impugned show cause notices have been issued under the head "Demand Cum Show Cause Notice Under Section 74 (1) Of the GST Act, 2017 read with Section 74 (1) Of the Uttar Pradesh GST Act, 2017 read with Section 20 Of the IGST Act, 2017". 61. It was submitted that all the three show cause notices have been issued as tax has been demanded under Section 74 of the GST Act from only one noticee in each show cause notice and therefore, all other co-noticee would fall within the jurisdiction of respondent no. 2 since tax is being demanded from a single noticee in all the three show cause notices. It was therefore submitted that the jurisdiction for the purpose of adjudication would be as per para no. 6 of Circular No. 169 of 2022 dated 12.03.2022 and hence the prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued under Sections 73 and 74 of the GST Act and section 20 of the IGST Act, upto the monetary limits as prescribed in columns no.(3), (4) and (5) respectively of the Table. It was therefore, submitted that even if tax is demanded from a noticee in the jurisdiction of the adjudicating authority and penalty proposed on a noticee in some other jurisdiction, then also the show cause notice has to be adjudicated by the officer who is empowered to determine the tax amount under section 73/74 as per the monetary limits. It was therefore, submitted that applying the same analogy in case of show cause notices issued by DGGI, the adjudicating authority to issue order under section 73/74 would be the officer who is empowered to determine the tax and interest. 66. It was submitted that a literal meaning of "Noticee/s" mentioned in para no. 7.1 of Circular no 169/2022 dated 12.03.2022 would create a situation where there is one interpretation for show cause notice issued by the officers of Executive Commissionerate and another interpretation for show cause notice issued by DGGI which cannot be permitted inasmuch as the machinery provisions of section 74 concerning issuance of show cause notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndment proposed goes to align the liability of master mind with a person who was taking fake input tax credit. 69. Reliance was placed on Memorandum explaining the Finance Bill, 2020, whereby amendment to section 122 was inserted to make the beneficiary of the transactions of passing on or availing fraudulent input tax credit liable for penalty similar to the penalty leviable on the person who commits such specified offences. It was therefore, submitted that the legislature in its wisdom has specifically chosen to use the word "Any Person" in section 122 (1A) instead of "taxable person" for levying of penalty upon any person who has received benefits of any fraudulent transaction. 70. It was submitted that any other interpretation is not possible as the same would defeat the purpose of such amendment and hence, strict interpretation is required to be given. It was submitted that the decision of the Hon'ble Bombay High Court in case of Shantanu Sanjay Hundekari and others v. Union of India and others reported in 2024 (17) Centax 18 is being challenged before the Hon'ble Apex Court. 71. It was submitted that word "Person" is defined under section 2(84) of GST Act whereas words "ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... others v. Coastal Container Transporters Association and others reported in (2019) 20 Supreme Court Cases 446 wherein Hon'ble Apex Court has held that when there is no lack of jurisdiction or violation of principles of natural justice, High Court ought not to have entertained the writ petition at the stage of show cause notice, more so, against the final order as under: "30. On the other hand, we find force in the contention of the learned senior counsel, Sri Radhakrishnan, appearing for the appellants that the High Court has committed error in entertaining the writ petition under Article 226 of Constitution of India at the stage of show cause notices. Though there is no bar as such for entertaining the writ petitions at the stage of show cause notice, but it is settled by number of decisions of this Court, where writ petitions can be entertained at the show cause notice stage. Neither it is a case of lack of jurisdiction nor any violation of principles of natural justice is alleged so as to entertain the writ petition at the stage of notice. High Court ought not to have entertained the writ petition, more so, when against the final orders appeal lies to this Court. 31. The jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (order dated 19.07.2024 rendered in Special Civil Application No.9921 of 2024) wherein challenge to the show cause notice was rejected on plea of lack of jurisdiction keeping all the issues raised by the petitioner open to be adjudicated before the competent authority directing the adjudicating authority to take an independent decision. 75. Having heard the learned advocates for the respective parties and considering the facts of the case, the main grievance of the petitioners is regarding the jurisdiction of the adjudicating authority of the impugned show cause notices. 76. The impugned show cause notices are issued by the Additional Director, Directorate General of Goods and Service Tax Intelligence, Zonal Unit, Ahmedabad against three main noticee/s namely, M/s. Flora Naturale, M/s. Odochem Industries and M/s. Odosynth Inc. which are family firms situated at Kannauj, Uttar Pradesh. It is alleged in the show cause notices that the aforesaid three firms were involved in clandestinely supplying perfumery compounds without payment of GST as it is to M/s. Trimurti Fragrance Private Limited, Kanpur and M/s. Trimurti Fragrances and Flavours Private Limited, Kanpur for the unaccounte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar Pradesh GST Act, 2017 and section 20 of the IGST Act,2017. 80. In view of facts stated in the show cause notices, the contention raised on behalf of the petitioners that the adjudication powers conferred upon the Commissionerate at Kanpur would not have jurisdiction in view of Notification No. 2 of 2017 dated 19.06.2017 read with Notification No. 2 of 2022 dated 11.03.2022 which provides for jurisdiction of the adjudicating authority and contention that only the Principal Chief Commissioner Lucknow would have the jurisdiction over the Commissionerate, Kanpur and Notification no. 2 of 2017 only provides for powers to Additional Commissioner or Joint Commissioner of Central Tax for passing the order or decision in respect of notices issued by the officers of Directorate General of Goods and Services Tax Intelligence and as per Table V, Serial no.9, Principal Commissioner, Lucknow shall have the powers to adjudicate such notices is therefore required to be analysed. 81. The contention of the petitioners can be summarized as that Commissionerate, Kanpur and Commissionerate, Lucknow would have separate jurisdiction in view of Serial Nos.54 and 61 of Table II of Notification No. 2 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Principal Additional Directors General of Central Tax, (d) Commissioners of Central Tax and Additional Directors General of Central Tax, (e) Additional Commissioners of Central Tax and Additional Directors of Central Tax, (f) Joint Commissioners of Central Tax and Joint Directors of Central Tax, (g) Deputy Commissioners of Central Tax and Deputy Directors of Central Tax, (h) Assistant Commissioners of Central Tax and Assistant Directors of Central Tax, (i) Commissioners of Central Tax (Audit), (j) Commissioners of Central Tax (Appeals), (k) Additional Commissioners of Central Tax (Appeals), [(l) Joint Commissioner of Central Tax (Appeals),] and the central tax officers subordinate to them as central tax officers and vests them with all the powers under both the said Acts and the rules made thereunder with respect to the jurisdiction specified in the Tables given below. 2. The Principal Chief Commissioners of Central Tax or the Chief Commissioners of Central Tax, as the case may be, specified in column (2) of Table I, are hereby vested with the territorial jurisdiction over the- (a) Principal Commissioners of Central Tax and Commissioners of Central Tax, as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner (Audit) 12 Principal Chief Commissioner Lucknow 12.3.1 Principal Commissioner Lucknow 12.4.1 Commissioner (Appeals) Lucknow and Additional Commissioner [or Joint Commissioner] (Appeals) Lucknow 12.5.1 Commissioner (Audit) Lucknow 12.3.2 Commissioner Agra 12.3.3 Commissioner Kanpur 12.4.2 Commissioner (Appeals) Allahabad and Additional Commissioner [or Joint Commissioner] (Appeals) Allahabad 12.5.2 Commissioner (Audit) Kanpur 12.3.4 Commissioner Allahabad 12.3.5 Commissioner Varanasi TABLE II TERRITORIAL JURISDICTION OF PRINCIPAL COMMISSIONER/COMMISSIONER OF CENTRAL TAX Sl.No. Principal Commissioner/ Commissioner Central Tax Territorial Jurisdiction 54 Kanpur Districts of Kanpur Nagar, Kanpur Dehat, Lalitpur, Jhansi, Mahoba, Hamirpur, Jalaun, Kannauj, Manipuri and Farrukhabad in the State of Uttar Pradesh Notification No.31 of 2018 "6. The central tax officers of Audit Commissionerates and Directorate General of Goods and Services Tax Intelligence (hereinafter referred to as "DGGSTI") shall exercise the powers only to issue show cause notices. A show cause notice issued by them shall be adjudicated by the competent central tax officer of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of adjudication of such show cause notices, Additional/Joint Commissioners of Central Tax of specified Commissionerates have been empowered with All India jurisdiction vide Notification No. 2/2022-Central Tax, dated 11th March, 2022. Such show cause notices may be adjudicated, irrespective of the amount involved in the show cause notice(s), by one of the Additional/Joint Commissioners of Central Tax empowered with All India jurisdiction vide Notification No. 2/2022-Central Tax, dated 11th March, 2022. Principal Commissioners/ Commissioners of the Central Tax Commissionerates specified in the said notification will allocate charge of Adjudication (DGGI cases) to one of the Additional Commissioners/Joint Commissioners posted in their Commissionerates. Where the location of principal place of business of the noticee, having the highest amount of demand of tax in the said show cause notice(s), falls under the jurisdiction of a Central Tax Zone mentioned in column 2 of the table below, the show cause notice(s) may be adjudicated by the Additional Commissioner/Joint Commissioner of Central Tax, holding the charge of Adjudication (DGGI cases), of the Central Tax Commissionerate m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ara no. 6 of the said circular provides that show cause notice issued by DGGI shall be adjudicated by the competent Central Tax Officer of the Executive Commissionerate in whose jurisdiction the noticee is registered. Therefore, it is necessary to refer to the main noticee/s who are situated at Kannauj and who would fall within the jurisdiction of Commissioner, Kanpur as per Entry No.54 of Table II of Notification No. 2 of 2017 and Principal Commissioner, Kanpur would have the territorial jurisdiction of District of Kannauj. Therefore, the respondent authorities have rightly directed the petitioners and other noticee/s to file their respective replies before the Additional/Joint Commissioner at Kanpur for adjudication of the impugned show cause notices. Moreover, the petitioners are the co-noticee/s for the purpose of levy of penalty whereas tax and interest are to be determined in case of main noticee/s i.e three entities who are liable for levy of GST for clandestine supply of material to M/s. Trimurti Fragrance Private Limited, Kanpur and M/s. Trimurti Fragrances and Flavours Private Limited, Kamnpur. 86. In case of Trimurti Fragrances and Flavours Pvt. Ltd and others v. Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the adjudicating authority. 88. With regard to the contention raised on behalf of the petitioners of invocation of provisions of section 122 and section 122 (1A) of the GST Act, the same pertains to the subject matter of show cause notices or adjudication of the show cause notices. The petitioners have also raised various disputed questions of fact regarding allegations made in the show cause notices. As observed here-in-above, prima-facie, it cannot be said that the petitioners are not at all involved in the clandestine supply of raw materials used by other co-noticee/s for clandestine supply of perfumery compounds being used by M/s. Trimurti Fragrance Private Limited, Kanpur and M/s. Trimurti Fragrances and Flavours Private Limited, Kanpur for the unaccounted production and clandestine supplies/clearances of Pan Masala and scented Tobacco/Jarda. It is pertinent to not that considering the magnitude of the evasion of GST described in the show cause notices which run into more than 400 pages levelling various allegations against the petitioners providing detailed reason for levy of tax, interest and penalty upon all the noticee/s, the respondent no. 2 would have the jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emises is a jurisdictional issue which can even be urged by the recipient of the notice and such issues also can be adjudicated by the authority issuing the very notice initially, before the aggrieved could approach the Court. Further, when the Court passes an interim order it should be careful to see that the statutory functionaries specially and specifically constituted for the purpose are not denuded of powers and authority to initially decide the matter and ensure that ultimate relief which may or may not be finally granted in the writ petition is accorded to the writ petitioner even at the threshold by the interim protection, granted." 92. Exposition of law spelt out from above discussion is that ordinarily under Article 226 of the Constitution, the Court should not interfere with a show cause notice unless the same is without jurisdiction or barred by law or suffers from any patent illegality. In the facts of the case, none of the conditions exist so as to entertain this writ petition and no interference in writ jurisdiction at this stage is called for. 93. It is made clear that dismissal of these petitions will not come in way of the petitioners in any manner and independe ..... 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