The Tripura High Court has ruled that GST authorities cannot invoke Section 74 of the Central Goods and Services Tax (CGST) Act beyond the statutory limitation period, while also reiterating that parallel proceedings by CGST authorities on the same subject matter already taken up by State GST (SGST) authorities are barred under Section 6(2)(b) of the Act. 

The bench of  Chief Justice M.S. Ramachandra Rao and Justice Biswajit Palit set aside the impugned demand-cum-show cause notice and Order-in-Original, remanding the matter for fresh adjudication only on issues that were legally maintainable. 

A writ petition was filed challenging a demand-cum-show cause notice dated July 22, 2024, issued under Section 74(1) of the CGST Act for the financial years 2017-18, 2018-19, 2019-20, and 2020-21, along with the consequential Order-in-Original dated February 3, 2025. The petitioner argued that the proceedings were either barred by limitation or hit by the statutory prohibition against parallel proceedings. 

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The principal issue before the Court was whether the show cause notice relating to FY 2017-18 had been issued within the limitation prescribed under Section 74(10) of the CGST Act. The petitioner contended that the notice was issued after the expiry of five years from the due date for filing the annual return for FY 2017-18 and was therefore without jurisdiction. 

Rejecting the department’s reliance on Notification No. 06/2020 issued under Section 168A of the CGST Act, the High Court held that the notification merely extended the due date for filing annual returns for taxpayers and could not be interpreted as extending the limitation available to tax authorities for initiating proceedings under Section 74. The Court observed that no notification extending the statutory limitation for Section 74 proceedings had been placed before it. Consequently, the Court held that proceedings initiated for FY 2017-18 were time-barred and without jurisdiction. 

The Bench also rejected the department’s argument that an earlier communication issued in March 2021 amounted to initiation of proceedings. It clarified that the communication was merely a scrutiny notice and not a show cause notice commencing adjudicatory proceedings under Section 74. The Court further noted that allegations of fraud or suppression, which are prerequisites for invoking Section 74, were absent in the earlier communication and appeared for the first time only in the July 2024 show cause notice. 

For FYs 2018-19 and 2019-20, the Court examined whether the CGST authorities could proceed on allegations relating to excess availment of Input Tax Credit (ITC) when the SGST authorities had already initiated proceedings on the same issue. The Court noted that the SGST authorities had previously issued notices concerning ITC mismatches, although those proceedings were later dropped. It held that Section 6(2)(b) of the CGST Act prohibits parallel adjudicatory proceedings by another tax administration on the same subject matter once proceedings have already been initiated. 

While reaching this conclusion, the High Court relied upon the Supreme Court’s decision in Armour Security (India) Ltd. v. Commissioner, CGST, which clarified that the expression “initiation of any proceedings” refers to the commencement of adjudicatory proceedings through a show cause notice and that the bar under Section 6(2)(b) applies where both proceedings concern the same tax liability or contravention. 

Applying these principles, the Court held that the CGST authorities lacked jurisdiction to proceed against the petitioner regarding excess ITC availment for FYs 2018-19 and 2019-20 because the same issue had already been the subject matter of SGST proceedings. However, it clarified that allegations relating to short payment of GST for those years were distinct and could continue since they were not covered by the earlier SGST proceedings. Likewise, for FY 2020-21, the Court found that the SGST proceedings dealt with mismatch of tax liability in GST returns, whereas the CGST notice concerned different issues, and therefore the statutory bar was not attracted. 

In its final directions, the High Court set aside the July 22, 2024 show cause notice to the extent it suffered from lack of jurisdiction and quashed the entire Order-in-Original dated February 3, 2025. The matter was remanded to the Joint Commissioner, CGST, Agartala, for passing a fresh order within three months, confined only to those issues that could legally be adjudicated in accordance with the Court’s findings. 

The petitioner was also granted liberty to file an additional reply challenging the invocation of Section 74 within six weeks. All consequential actions and orders were also set aside.

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