M/S Stalwart Alloys India Pvt Ltd vs Union Of India And Ors on 28 August, 2024

1. Outcome

The writ petitions were allowed. The Court quashed the orders/letters dated 08.07.2020 and 15.03.2022 by which the State Tax Officer had transferred the proceedings against the petitioner to the Directorate General of GST Intelligence (DGGI), Meerut Zonal Unit.

The Court directed the State Tax Officer (Excise & Taxation Officer-cum-proper officer, Shahbad) to continue and conclude the proceedings initiated under Section 74(1) of the HGST Act. This includes examining all aspects of alleged tax evasion or wrongful ITC availment, even for periods after the initial notice (i.e., after 22.07.2019).

2. Core Issue

The central legal question was whether a GST proceeding, once initiated by a State Tax authority against a taxpayer, can be transferred to a Central Tax authority (like the DGGI). Further, whether the Central authority is barred from initiating a parallel proceeding against the same taxpayer for a different period but on the same "subject matter" (i.e., fraudulent ITC availment), in light of Section 6(2)(b) of the CGST/HGST Acts.

3. Key Facts

• The petitioner, M/s Stalwart Alloys India Pvt Ltd, is a manufacturer based in Haryana.
• The Haryana State Tax Department initiated an inquiry into wrongful availment of Input Tax Credit (ITC). Following a court order against multiple parallel inquiries, the State authority was designated to conduct proceedings for the period 01.07.2017 to 31.12.2018.
• Subsequently, the DGGI, Meerut, acting on intelligence about a large racket involving fake firms created by one Anant Rastogi, also began an investigation. This investigation alleged that the petitioner was a beneficiary of fraudulent ITC amounting to crores for the period from September 2019 to February 2021.
• The State Tax Officer, vide a letter dated 15.03.2022, transferred all proceedings pertaining to the petitioner to the DGGI, Meerut Zonal Unit.
• The petitioner challenged this transfer, arguing it was illegal and in violation of the statutory bar on parallel proceedings.

4. Arguments

Petitioner's Arguments:

• Jurisdictional Bar under Section 6(2)(b): Once the State Tax authority (the "proper officer") has initiated proceedings on a subject matter, no other proper officer (including a Central authority) can initiate proceedings on the same subject matter.
• No Power of Transfer: The CGST and HGST Acts do not contain any provision that empowers an authority to transfer an ongoing case to another authority, unlike other statutes like the Income Tax Act (Section 127) or the Central Excise Act.
• Multiplicity of Proceedings: Allowing the DGGI to take over or run a parallel investigation leads to an illegal multiplicity of proceedings, which the law seeks to prevent. The State Tax Officer who initiated the action is the only one with jurisdiction to conclude it.

Respondents' (Union of India/DGGI) Arguments:

• Pan-India Investigation: The investigation involves a complex, multi-state racket of fake firms and fraudulent ITC. The DGGI, with its pan-India jurisdiction, is better equipped to conduct a comprehensive investigation than a State-level authority.
• Different Time Periods: The State authority's investigation was for an earlier period (up to July 2019), whereas the DGGI's investigation concerns a subsequent period (July 2019 to March 2022). Therefore, they are not proceedings on the "same subject matter."
• Efficiency and Justice: Centralizing the investigation with the DGGI would be in the interest of justice to effectively uncover the entire fraudulent chain.

5. Court’s Reasoning

The High Court accepted the petitioner's arguments and reasoned as follows:

• Interpretation of "Subject Matter": The Court held that the term "subject matter" in Section 6(2)(b) refers to the nature of the proceedings (e.g., wrongful availment of ITC by fraudulent means), not just the specific tax period. Therefore, since the State authority had already initiated proceedings on fraudulent ITC, the DGGI could not initiate another proceeding on the same issue, even for a different period.
• Nature of Proceedings: GST proceedings under Section 70 are deemed to be "judicial proceedings." Such proceedings cannot be transferred through a mere administrative action, especially without a specific statutory provision enabling such a transfer.
• Absence of Transfer Provision: The Court highlighted that the GST framework consciously omits a provision for the transfer of cases, unlike other tax laws. This implies a legislative intent to bar such transfers. Consequently, the State Tax Officer had no jurisdiction to transfer the case.
• Role of Central and State Authorities: The Court clarified that while Central authorities (like DGGI) can assist in an investigation (e.g., gathering pan-India intelligence), they cannot take over the proceeding. Their findings must be submitted to the State Tax Officer who initiated the original proceeding.
• Federal Structure: The Court emphasized that in India's federal structure, Central and State tax authorities must act in tandem and support each other. Once one authority initiates a proceeding, the other must provide necessary inputs rather than starting a parallel action or usurping jurisdiction. The CBIC circular dated 05.10.2018 also supports the view that the authority that initiates an action is empowered to complete it.

6. Statutory References

• Central Goods and Services Tax Act, 2017 (CGST Act): Sections 6, 6(1), 6(2)(b), 54, 55, 67, 69, 70, 71, 72, 132.
• Haryana Goods and Services Tax Act, 2017 (HGST Act): Sections 6(2)(b), 70, 72, 74, 74(1), 74(2).
• Income Tax Act, 1961: Section 127.
• Central Excise Act, 1944: Sections 32C, 35P.
• Customs Act, 1962: Section 131B.
• Central Sales Tax Act, 1956: Section 25.
• Companies Act, 2013: Section 434.
• Other Statutes: Code of Civil Procedure, 1908; Indian Penal Code, 1860 (Sections 193, 228).

7. Precedents Cited

• Relied upon by Petitioner:
  • RCI Industries & Technologies Limited vs Commissioner DGST, Delhi and others (2021, Delhi HC)
  • Ideal Unique Realtors (P) Limited and another vs Union of India and others (2023, Calcutta HC)
  • Vipulchandra Pursottamdas Mahant Prop of Vaibhavi Construction vs Assistant Commissioner of State Taxes (2023, Gujarat HC)
  • Vivek Narsaria vs State of Jharkhand (2024, Jharkhand HC)
• Relied upon by Respondents (and noted by the Court as taking a different approach):
  • Indo International Tobacco Limited vs Vivek Prasad, Additional Director General, DGGI and others (2022, Delhi HC)