The Delhi High Court has held that subsequent proceedings initiated by Central GST department under Section 74 of the Central Goods and Services Tax Act, 2017 cannot be treated as barred under Section 6(2)(b) merely because State GST department had earlier initiated proceedings concerning the same assessee, financial year and Input Tax Credit (ITC).

The Bench of Justice Anil Khetarpal and Justice Shail Jain challenged two Section 74 show cause notices and the consequential orders confirming ITC demands, holding that the petitioner had failed to establish that the Central GST proceedings concerned the “same subject matter” as the earlier State GST proceedings for the purpose of Section 6(2)(b) of the CGST Act. 

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The petitioner/assessee is a proprietorship concern of Mohan Lal engaged in the manufacture of plastic products. It was registered under both the CGST Act and the Delhi GST Act and operated from Bawana, Delhi. 

The dispute arose from ITC allegedly availed by the petitioner on invoices issued by M.R. Enterprises.

According to the Central GST authorities, an investigation by the Directorate General of GST Intelligence (DGGI) revealed that M.R. Enterprises had allegedly passed on inadmissible ITC to various recipients without actual supply of goods. Shri Krishna Industries was among the recipients against whom proceedings were subsequently initiated. 

Before the Central GST proceedings were initiated, State GST authorities had already commenced proceedings against the petitioner for Financial Year 2017-18.

A show cause notice dated September 23, 2023, was issued proposing, among other things, a demand concerning ITC claimed from M.R. Enterprises. The petitioner filed its reply along with supporting documents.

An order was initially passed on December 28, 2023. The petitioner thereafter approached the High Court, which on March 5, 2024, directed the proper officer to undertake fresh adjudication after providing an opportunity of personal hearing and to pass a speaking order in accordance with law. 

Following the High Court’s directions, the State GST authority passed a fresh order on July 29, 2024.

The petitioner contended that since the State GST authorities had already dealt with the ITC claimed from M.R. Enterprises, the Central GST authorities could not subsequently initiate proceedings concerning the same ITC.

The DGGI issued a show cause notice dated August 2, 2024, under Section 74 of the CGST Act concerning alleged inadmissible ITC availed from M.R. Enterprises.

The notice was based on investigation and intelligence material concerning alleged availment and passing on of inadmissible ITC through invoices which, according to the Department, were not accompanied by actual supply of goods.

A further show cause notice dated August 4, 2024, was issued by CGST Delhi North under Section 74 concerning alleged ineligible ITC availed from another entity bearing the same trade name, M.R. Enterprises, but a different GSTIN. 

The petitioner submitted a reply dated August 31, 2024, disputing the allegations and specifically drawing attention to the earlier State GST proceedings. It also asserted that the transactions were genuine, that goods had actually been received and that there was no fraud, wilful misstatement or suppression of facts warranting invocation of Section 74. 

The Section 74 proceedings resulted in two separate orders.

The proceedings arising from the August 4, 2024 notice culminated in an order dated January 10, 2025, confirming a demand of Rs. 6.12 lakh towards allegedly ineligible ITC, along with applicable interest and penalty.

Similarly, the proceedings arising from the August 2, 2024 notice resulted in an order dated January 31, 2025, confirming a demand of Rs. 6.12 lakh towards alleged inadmissible ITC, together with applicable interest and penalty. 

The petitioner challenged both the show cause notices as well as the adjudication orders before the High Court.

The principal argument before the High Court was that Section 6(2)(b) of the CGST Act prohibits initiation of proceedings by one tax authority where proceedings on the same subject matter have already been initiated by another tax authority.

The petitioner argued that the State GST proceedings had already considered the ITC claimed from M.R. Enterprises and had culminated in the July 29, 2024 order.

It was further argued that the Central GST proceedings concerned the same assessee, the same financial year and the same alleged ITC amount of Rs. 6.12 lakh. According to the petitioner, merely invoking Section 74 instead of Section 73 could not permit the Department to initiate another proceeding concerning the same subject matter. 

The petitioner also raised several procedural and natural justice objections, including non-consideration of its reply, non-supply of relied-upon documents and alleged non-application of mind by the adjudicating authorities. 

The Department opposed the petition, contending that the expression “same subject matter” under Section 6(2)(b) could not be determined merely by looking at the assessee, financial year or amount involved.

According to the Department, the earlier State proceedings under Section 73 and the subsequent Central proceedings under Section 74 were materially different.

The Central proceedings were founded on DGGI intelligence and investigation allegedly revealing fraudulent availment of ITC through transactions where invoices were not accompanied by actual supply of goods. The Department argued that the State proceedings had not adjudicated this particular allegation. 

The Department also pointed out that the two Central proceedings themselves referred to M.R. Enterprises bearing different GSTINs and arose from separate investigative proceedings. 

The High Court noted that Section 6(2)(b) is intended to prevent initiation of proceedings by one tax authority where proceedings concerning the same subject matter have already been initiated by another tax authority.

The Court relied upon the Supreme Court’s decision in Armour Security (India) Ltd. v. Commissioner, CGST, Delhi East Commissionerate & Anr., observing that the expression “same subject matter” has to be examined with reference to the particular liability, deficiency or contravention sought to be adjudicated.

Thus, where proceedings concern the same liability or contravention, the statutory bar may operate. However, distinct infractions do not become the same subject matter merely because they involve the same assessee, period or a similar tax liability. 

The Court found a material distinction between the two sets of proceedings.

The State proceedings were initiated under Section 73 for FY 2017-18 and involved ITC claimed from M.R. Enterprises.

The subsequent Central proceedings under Section 74, however, were based on investigation and intelligence concerning alleged fraudulent availment of ITC through invoices which, according to the Department, were not accompanied by actual supply of goods. 

The High Court held that although there was a factual connection between the two proceedings, that connection alone was insufficient.

The fact that both proceedings related to ITC claimed from an entity described as M.R. Enterprises did not establish that the State authority had adjudicated the same contravention which formed the foundation of the subsequent Section 74 proceedings. 

An important aspect of the ruling is the Court’s observation that the same financial year and the same ITC amount do not, by themselves, establish the identity of the subject matter.

The petitioner had relied on the fact that both proceedings concerned FY 2017-18 and involved ITC of Rs. 6.12 lakh.

The Court held that for Section 6(2)(b) to apply, it must be established that the liability or contravention forming the subject matter of the two proceedings is identical. 

The Court nevertheless clarified that the Department cannot simply circumvent Section 6(2)(b) by changing the statutory provision invoked. However, applicability of the provision cannot be determined merely by comparing whether proceedings were initiated under Section 73 or Section 74. The underlying liability and alleged contravention must be examined. 

The Court observed that the subsequent Section 74 proceedings were founded upon allegations of bogus transactions and fraudulent ITC availment without actual supply of goods.

However, the petitioner had not placed sufficient material before the Court to establish that this very contravention had already been adjudicated upon by the State GST authority in the proceedings culminating in the July 29, 2024 order. 

Consequently, the High Court held that the Central GST proceedings were not shown, on the material before it, to be ex facie barred by Section 6(2)(b).

The petitioner had also alleged that its reply dated August 31, 2024 was not considered, that relied-upon investigation material was not supplied and that the adjudication orders were non-speaking.

The High Court did not finally determine these issues in the writ proceedings.

It held that these objections required examination of the adjudication record. The petitioner could raise them before the statutory appellate authority along with its supporting documents. 

Similarly, the petitioner’s assertions that the transactions were genuine, goods were actually received and there was no fraud, wilful misstatement or suppression of facts were treated as matters going to the merits of the adjudication.

The Court noted that the impugned orders dated January 10, 2025 and January 31, 2025 were appealable under Section 107 of the CGST Act.

Although the existence of an alternative statutory remedy does not automatically make a writ petition non-maintainable, the High Court observed that where the dispute requires examination of factual material and the correctness of adjudication findings, the extraordinary jurisdiction under Article 226 would ordinarily not be exercised as a substitute for the statutory appellate mechanism. 

In the present case, the Court found no exceptional circumstance warranting interference at the writ stage.

The petitioner had additionally alleged duplication between the two Central GST proceedings.

The High Court noted that the two proceedings referred to M.R. Enterprises bearing different GSTINs and that the Department claimed that they arose from separate investigative material.

Whether the proceedings actually involved identical transactions or resulted in duplicated liability would require examination of the respective show cause notices and adjudication records.

The Court therefore left the petitioner free to raise this issue before the appellate authority. 

The High Court expressly clarified that its judgment was confined to the question of whether interference was warranted in exercise of its extraordinary writ jurisdiction.

It did not express any final opinion on the merits of the demand, genuineness of the transactions, actual receipt of goods, applicability of Section 16 of the CGST Act, existence of fraud, wilful misstatement or suppression, consideration of the petitioner’s reply, supply of relied-upon documents, or correctness of the tax, interest or penalty amount. 

The Delhi High Court ultimately dismissed the writ petition.

However, the petitioner was given liberty to avail the statutory remedy of appeal under Section 107 against the orders dated January 10, 2025 and January 31, 2025.

The Court further clarified that all contentions available to the petitioner in law would remain open before the appellate authority, including the Section 6(2)(b) objection, alleged overlapping proceedings, consideration of the reply, non-supply of relied-upon documents, invocation of Section 74 and the merits of the demand, interest and penalty.

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