Once Input Tax Credit Is Wrongfully Availed Due To Fraud Or Suppression, State Officer Can Issue Notice Even Without Central Action: Patna HC

The Patna High Court has upheld a tax assessment order passed by the State GST Authority, clarifying that once a Proper Officer determines that input tax credit has been wrongfully availed or utilized due to fraud or suppression of facts, they are empowered to issue a notice under Section 74(1) of the CGST/BGST Act, 2017.

A Division Bench comprising Justice Rajeev Ranjan Prasad and Justice Sourendra Pandey held, “According to sub-section (1), wherever it appears to the Proper Officer that there is any wrongful availment of input tax credit or where the input tax credit has been utilized by reason of fraud or any willful statement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made or who has wrongly availed or utilized input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with the interest payable thereon under Section 50 and a penalty equivalent to the tax specified in the notice.”

This ruling was made in a Civil Writ Jurisdiction Case filed by CTS Industries Limited, a company incorporated under the Companies Act with its registered office in Begusarai, Bihar. The company had challenged an order dated 28.06.2022 passed by the Assistant Commissioner of State Tax, Begusarai Circle, under Section 74(9) of the BGST Act, on grounds that the matter was already under the purview of the Directorate General of GST Intelligence (DGGI), a Central agency. They argued that the State authority's action was thus barred under Section 6(2)(b) of the CGST Act and a CBIC circular dated 5 October 2018.

It was the case of the petitioner company that a search operation was carried out by the officers of the Directorate General of GST Intelligence, Patna in the premises of the petitioner company. Certain papers and documents including purchase invoices were found. A panchnama dated 06.07.2021 was prepared. Thereafter, a series of summons was issued by the Senior Intelligence Officer of the Directorate General of GST Intelligence. The petitoner company claimed that pursuant to the said summons, the petitioner appeared through its representative and submitted all the documents. By issuing yet another summon dated 31.08.2021, the Directorate of General called for some information. It is the stand of the petitioner that on the basis of a letter dated 08.12.2021, the Respondent No. 2 initiated scrutiny of returns under Section 61 of the Bihar Goods and Services Tax Act, 2005

Rejecting these contentions, the Court found that the State authority's action was based on an independent scrutiny under Section 61(1) of the Act, followed by a demand-cum-show cause notice under Section 74(1), and that the petitioner failed to respond despite multiple opportunities.

The Court noted, “So far as the challenge to the impugned order (Annexure- '5') is concerned, it is liable to fail for the reason that this order has not been passed during pendency of any proceeding on the same subject matter with the central agency. The order (Annexure- '5') has been passed upon scrutiny in terms of Section 61(1) of the CGST/BGST Act, 2017 read with Rule 99(1).”

The Court further noted, “The fact remains that service of the demand-cum-show cause notice under sub-section (1) of Section 74 has also not been questioned and contested by the petitioner. It is also evident that in the show cause notice issued under sub-section (1) of Section 74, the petitioner was duly informed that he may appear before the authority for personal hearing either in person or through authorized representative.”

The Court observed that a demand-cum-show cause notice was issued to the petitioner even at the stage of Section 74 but the petitioner did not respond to the said notice. The petitioner did not turn up on the date fixed in the matter for personal hearing.

“This being the position,” the Court opined, “there is no violation of principles of natural justice much less any violation of the statutory provisions as contained in sub-section (4) of Section 75 of the CGST/ BGST Act, 2017.”

While dismissing the writ petition, the Court concluded, “We find no jurisdictional error on the part of the State Authority (Respondent No. 2) in passing of the impugned order. The writ application is not fit to be entertained.”

Case Title: CTS Industries Limited vs. Directorate General of GST Intelligence

LL Citation: 2025 LiveLaw (Pat) 47

Case No. Case No.1898 of 2023

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