Month: May 2024

Counterpart Department cannot initiate proceedings where one Department is assigned to the assessee

In the case of:

Ram Agencies Vs. Assistant Commissioner of Central Tax, 

W.P. (MD) No. 8674 of 2024,

[2024] 162 taxmann.com 240 (Madras),

Hon’ble High Court of Madras has held that when an assessee has been allocated either to Central Tax Authorities or State Tax Authorities, considering the decision on the case of Tvl Vardhan Infrastructure Vs. The Special Secretary, [2024] 160 taxmann.com 771 (Madras), in the absence of notification for cross empowerment, the Authorities from the counterpart Department cannot initiate proceedings, i.e., where the assessee is assigned to CGST Authorities, then SGST authorities cannot initiate proceedings and vice versa.

In the above decision of Tvl.Vardhan Infrastructure v. The Special Secretary, [2024] 160 taxmann.com 771 (Madras), it was observed that:

  1. We need to take note of whether the State tax authorities and the Central tax authorities enjoy concurrent jurisdiction, the issue of cross-empowerment of the State tax authorities and the Central tax authorities. 
  2. GST Council, in its meeting held during January 2017, has decided that both the Central and State tax administrations have the power to take intelligence-based enforcement action in respect of the entire value chain.
  3. Based on such decision of the GST Council, the CBEC issued clarification dated 05.10.2018. It is clear from the said clarification that if an intelligence-based enforcement action is taken against a taxpayer, which is assigned to State tax authority, the Central tax authority is entitled to proceed with the matter and take it to the logical conclusions and the same principle is applicable vice versa.

Note 1 – Section 6(2)(b) of CGST Act:

Provisions of Section 6(2)(b) of CGST Act are relevant in this regard, which provide that:

If a Proper officer under SGST/UTGST Acts has initiated a proceeding on a subject matter, then no proceedings shall be initiated by Proper officer under CGST Act on the same subject matter.

Note 2 – Circular dated 05.10.2018:

The Circular as referred to above, i.e., Circular No. 68/42/2018-GST dated 05.10.2018 states at Para 4 that (Relevant for Cross-empowerment):

Notification No. 16/2017 – Central Tax (Rate) dated 28.06.2017 shall be applicable for the purpose of Refund of Compensation Cess to UN and specified international organizations, foreign diplomatic missions or consular posts in India or diplomatic agents or career consular offices posted therein.

Order passed holding SCN reply as “Not Satisfactory” is Set Aside

In the case of:

Decolene Fibers (P.) Ltd. Vs. Commissioner, Directorate General of GST

High Court of Delhi

W.P. (C) No. 5429 of 2024

Facts of the Case:

An Order dated 30.12.2023 has been passed under Section 73 of CGST Act, against a detailed reply dated 17.10.2023 to the Show Cause Notice (SCN) dated 24.09.2023

SCN contains separate headings viz, Excess Claim of ITC, scrutiny of ITC availed on Reverse charge, ITC to be reversed on non-business transactions & exempt supplies and under declaration of Ineligible ITC, to which the petitioner has submitted detailed reply giving disclosures under each head

However, the order simply states that “And whereas, in response to the DRC-01, the Taxpayer submitted his reply in DRC-06 and the reply of the registered person, as well as data available on GST Portal has been checked / examined and the reply / submission of the taxpayer is not found to be satisfactory“.

Findings of the Court:

  1. The observation in the impugned order dated 30.12.2023 is not sustainable for the reasons that the reply dated 17.10.2023 filed by the Petitioner is a detailed reply with supporting documents. Proper Officer had to at least consider the reply on merits and then form an opinion. He merely held that the reply is unsatisfactory, which ex-facie shows that Proper Officer has not applied his mind to the reply submitted by the petitioner.
  2. Further, if the Proper Officer was of the view that any further details were required, the same could have been specifically sought from the Petitioner. However, the record does not reflect that any such opportunity was given to the Petitioner to clarify its reply or furnish further documents/details.

Held that:

  1. The Impugned order dated 30.12.2023 cannot be sustained and is set aside and the matter is liable to be remitted back to the proper officer for Re-Adjudication.
  2. This court has neither considered nor commented upon the merits of the contentions of either party.

Order cannot be passed for inserting Negative balance in Electronic Credit Ledger

In the case of:

Laxmi Fine Chem Vs. Assistant Commissioner

High Court of Telangana

Writ Petition No. 5256 of 2024

[2024] 161 taxmann.com 270 (Telangana)

Facts of the Case:

Vide Order dated 01.06.2024, Input Credit of Rs. 50,06,000 for the period 01.02.2024 to 13.02.2024 has been blocked by way of Negative Balance in the Electronic Credit Ledger

Petition has been filed on the grounds of:
  1. Blocking the ITC without the issue of Show Cause Notice and
  2. Blocking is in contravention of Rule 86A of CGST Rules, 2017, i.e., blocking cannot be made by way making negative Credit

Decision referred to by the Court:

Hon’ble High Court of Telangana has referred to the paras 38 to 44 of the decision of Gujarat High Court, in the case of Samay Alloys India Pvt Ltd. Vs. State of Gujarat C/SCA/18059/2021 [2022] 135 taxmann.com 243 (Gujarat), extract of which is as below:

  1. Once the input tax credit is claimed in electronic credit ledger, the credit becomes part of one fungible pool and the credit cannot be separately identified. Having regard to the same, the rule provides for restriction on an equivalent amount and not the credit itself. However, the rule presupposes existence of such credit in the electronic credit ledger.
  2. Rule 86A is not the only measure available with the Government. The Government can certainly initiate proceedings under the provisions of section 73 or section 74, as the case may be, for recovery of credit wrongly claimed. Further, the Government in an appropriate case may initiate proceeding for Cancellation of registration (either of the supplier of the recipient or both) under Section 29 of CGST Act. Furthermore, the Government can C/SCA/18059/2021 JUDGMENT DATED: 03/02/2022 also provisionally attach any property, including bank account, belonging to the taxable person under Section 83 of CGST Act.
  3. Accordingly, the fact or possibility of registered person availing and utilising the fraudulent credit persistently and continuously cannot be the basis to invoke Rule 86A.
  4. The power to restrict debit from the electronic credit ledger is extremely harsh in nature. It should be governed strictly by specific statutory language which conditions the exercise of the power.
  5. The respondents are directed to withdraw negative block of the electronic credit ledger at the earliest. 

Findings of the Court:

Hon’ble High Court of Telangana has held that:

  1. Making negative credit of Rs.50,06,000/- in the electronic credit ledger of the petitioner which otherwise is not permissible and what is permissible is only blocking the availing of the input tax credit to whatever is in credit of the petitioner.
  2. Taking into consideration the decision of the Division Bench of Gujarat High Court (as referred to above), we find that the action on the part of the respondents in passing an order of negative credit to be contrary to Rule 86A.
  3. In the event, if no input tax credit was available in the credit ledger, the rules do not provide for insertion of negative balance in the ledger. 
  4. If there is a credit balance available, then the authorities concerned in terms of provisions of Rule 86A may for reasons to be recorded in writing, not allow the credit of the said amount available equivalent to such credit. However, there is no power conferred upon the authorities for blocking of the credit to be availed by the petitioner in future.
  5. For the aforesaid reasons, we have no hesitation in holding that the action on the part of the respondents also is in contravention to Rule 86A. The action on the part of the respondents is also not sustainable for the reason that blocking of the input tax credit effectively deprived the petitioner of his valuable right to discharge his liability and realize the value in monitory terms. 
  6. The impugned order is set aside/quashed. The respondents are directed to immediately recall the order of blockage forthwith.