Punjab & Haryana High Court Affirms CGST Officer's Authority to Issue Multi-State Tax Notice, Dismisses Jurisdictional Challenge

On September 20, 2024, the Punjab and Haryana High Court dismissed a writ petition filed by M/s Ethos Limited in CWP No. 23062 of 2024. The case involved a challenge to the jurisdiction of the CGST officer in Chandigarh to issue a show cause notice under Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act), relating to tax evasion and fraudulent Input Tax Credit (ITC) claims across multiple states. The Court held that the Chandigarh CGST officer had proper jurisdiction and dismissed the petition, deeming it premature since the petitioner had yet to respond to the show cause notice.

The petitioner, M/s Ethos Limited, challenged a show cause notice dated August 3, 2024, issued by the Additional Commissioner, CGST Audit, Chandigarh. The notice alleged tax evasion and fraudulent ITC claims based on an audit conducted for financial years 2017-18, 2018-19, and 2019-20 under Section 65 of the CGST Act. The petitioner argued that the transactions in question involved supplies and registrations across various states, including Assam, Gujarat, Haryana, Maharashtra, Tamil Nadu, and others, and thus the Chandigarh CGST officer had no jurisdiction to issue the notice.

The petitioner further contended that under Section 22(1) of the CGST Act, suppliers are required to register in the states where supplies are made. Therefore, any demand for tax or penalties should be limited to the state where the supplies occurred.

The primary legal question was whether the Chandigarh CGST officer had jurisdiction under Section 74 of the CGST Act to issue a show cause notice involving transactions across multiple states. The petitioner contended that the officer lacked jurisdiction because the transactions were not confined to Chandigarh but extended to other states where the company was duly registered and had discharged its tax obligations.

The Court rejected the petitioner’s argument, holding that the CGST officer in Chandigarh was fully empowered to issue the show cause notice. The Bench referred to Section 6(2)(b) of the CGST Act, which states that once a proper officer initiates proceedings under Section 74, no other officer can initiate proceedings on the same subject matter. The Court emphasized that:

"The officer at Chandigarh has jurisdiction to issue the show cause notice even concerning supplies made in other states."

The powers vested under Sections 4, 5, and 6 of the CGST Act enable the CGST officer to act on transactions across state lines when an audit reveals discrepancies, as was the case here.

The High Court held that the show cause notice was validly issued based on the audit findings for the relevant financial years. The petitioner’s assertion of wrongful assumption of jurisdiction was found to be misconceived. The Court stated that the powers conferred on CGST officers under Sections 4, 5, and 6 of the Act were broad enough to authorize the issuance of such notices even when the transactions span multiple states. It also referenced a recent case, M/s Stalwart Alloys India Private Limited vs Union of India and Others, where the court held that once a State GST officer initiates proceedings, no other officer can do so on the same matter.

Additionally, the Court underscored that the petitioner had not yet replied to the show cause notice, rendering the petition premature. The Court advised the petitioner to submit a reply, allowing the proper forum to decide the merits of the case.

"Once the officer initiates proceedings under Section 74 of the CGST Act, no other officer is allowed to initiate proceedings on the same subject matter, as per Section 6(2)(b)."

This provision ensures that jurisdictional conflicts do not arise once a proceeding is underway, and the officer first issuing the notice retains authority over the matter.

The Punjab and Haryana High Court dismissed the writ petition as premature, allowing M/s Ethos Limited to raise all its arguments in response to the show cause notice before the proper authority. The Court reiterated that if the petitioner remains aggrieved by the final order, it could seek redress through the appropriate legal forums as per the provisions of the CGST Act.

Date of Decision: September 20, 2024