2023 (9) TMI 697 - HC - GST

GST authorities must coordinate investigations and consider documents already possessed by other agencies before demanding same records

Madras HC disposed of petition challenging validity of parallel proceedings by two GST agencies against appellant. Court found that while Directorate ... Validity of proceedings initiated by the respondent - parallel proceedings initiated against the appellant by two different agencies - HELD THAT:- During March 2020, there was an inspection conducted by the officials of the Directorate General of GST Intelligence and pursuant to such inspection, investigation has been going on for about two years. It is also an admitted fact that the documents relating to the financial transaction for the period from July 2017 to March 2021 have been handed over by the appellant to the officials of the Directorate General of GST Intelligence for their verification. While so, the respondent, invoking the provisions contained under Section 65 of the CGST Act, initiated proceedings and demanded the appellant to furnish the documents. There are exchange of communications between the appellant and the respondent, which make it clear that the documents sought for by the respondent were already seized and are in custody of the Directorate General of GST Intelligence. The fact remains that the documents required to be produced by the respondent were already seized by other authority viz., the Directorate General of Goods and Services Tax Intelligence, Chennai Zonal Unit, during their search on 13.03.2020 and 16.03.2020 and that, those copies were not available with the appellant - this court is of the opinion that the respondent shall consider the documents, which are in possession of the other authority as well as in the custody of the respondent and also based on the replies submitted by the appellant on 10.09.2022 and 29.11.2022 and thereafter, pass appropriate orders, on merits and in accordance with law. Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether initiation of proceedings/audit under Section 65 of the Central Goods and Services Tax Act concurrently with show cause proceedings under Section 74 for the same period and subject-matter, while another investigating authority (DGGI) has already investigated and taken custody of documents, is impermissible as resulting in impermissible parallel proceedings or prejudice. 2. Whether issuance of a show cause notice under Section 74 after initiation of audit under Section 65 (and after inspection) is legally impermissible as a matter of law or is barred by chronology. 3. Whether the respondent's demand for production of documents under Section 65 is vitiated by non-furnishing of voluminous documents relied upon in a Section 74 notice, thereby infringing principles of natural justice and requiring quashing. ISSUE-WISE DETAILED ANALYSIS Issue 1: Permissibility of concurrent/parallel proceedings (Section 65 audit vs Section 74 show cause proceedings) where DGGI has possession of documents Legal framework: Section 65 provides for audit of accounts of registered persons by tax authorities; Section 74 contemplates recovery/penalty proceedings where tax has not been paid or has been short-paid; separate statutory powers may be exercised by different authorities within the CGST scheme. The principles governing interference by a writ court with show cause notices are also relevant. Precedent Treatment: The learned Judge noted that the case laws relied upon by the writ petitioner were factually distinguishable and did not assist; the appellate Court followed that approach and did not overrule existing authority but treated precedents as inapplicable on facts. Interpretation and reasoning: The Court examined the chronology - inspection in March 2020 by DGGI, documents seized and investigation ongoing for about two years; notice under Section 65 issued on 30.08.2022 (audit), and the Section 74 show cause notice issued thereafter. The Court reasoned that initiation of audit (Section 65) antecedent to the Section 74 notice undermines the primary contention that concurrent proceedings are impermissible. The Court accepted the respondent's submission that the scope of inquiry by the respondent and the DGGI differed, and that mere multiplicity of proceedings does not render the respondent's action without authority of law. The Court also observed that documents sought by the respondent were already in custody of DGGI and directed the respondent to consider those documents and replies already filed when passing further orders. Ratio vs. Obiter: Ratio - It is not impermissible, as a matter of law, for the tax authority to initiate show cause proceedings under Section 74 after an audit under Section 65 has commenced, where the audit notice preceded the show cause notice and where scope of proceedings may differ; mere parallel proceedings, without demonstrated illegality or prejudice, do not warrant quashing. Obiter - Observations that the Court does not find it necessary to dilate on general principles of writ interference with show cause notices beyond the chronicle of events. Conclusions: Parallel/overlapping proceedings are not per se impermissible; fact-specific chronology and scope determine permissibility. Where an audit under Section 65 preceded a Section 74 notice, the subsequent show cause notice is not automatically illegal. The authority must, however, consider documents in custody of another agency and the replies already filed before passing orders. Issue 2: Effect of chronology - whether Section 65 leads to or bars Section 74 proceedings Legal framework: Relationship between audit (Section 65) and recovery/penalty proceedings (Section 74); temporal sequence of statutory steps may affect admissibility of subsequent actions but does not necessarily prohibit subsequent action unless law so provides. Precedent Treatment: The Court treated precedent arguments as factually distinguishable and did not adopt a rule that Section 65 precludes subsequent Section 74 action in all cases. Interpretation and reasoning: The Court emphasized the chronological sequence - inspection (March 2020) ? notice under Section 65 (30.08.2022) ? Section 74 show cause notice (18.10.2022). On that basis the Court held the argument that 'Section 65 leads to Section 74' (i.e., that Section 65 use precludes Section 74) did not advance the petitioner's case. The Court concluded that the chronology demonstrates the audit preceded the show cause notice and therefore there is no legal bar to the subsequent issuance of the Section 74 notice. Ratio vs. Obiter: Ratio - Chronology matters: where audit/inspection and notice under Section 65 precede a Section 74 show cause notice, the mere sequence does not render the latter impermissible. Obiter - Broader submissions that Section 65 subsection 7 or other provisions categorically prevent subsequent Section 74 action were rejected as not applicable on the facts. Conclusions: The mere existence of an audit under Section 65 does not preclude subsequent Section 74 proceedings if the audit notice precedes the show cause notice and no specific statutory bar is shown. Chronology is a relevant factual consideration in assessing alleged impermissibility. Issue 3: Alleged violation of principles of natural justice by failure to furnish relied-upon documents and the effect of documents being in custody of another authority Legal framework: Principles of natural justice require that a party be given an opportunity to know the case against it and to make effective representation; statutory procedure under CGST/Rules requires service of notices and fair opportunity to respond; when documents are seized by another authority, availability of documents and ability to produce becomes relevant. Precedent Treatment: The Court found the petitioner's cited authorities distinguishable on facts; it did not hold that non-furnishing of documents automatically vitiates proceedings where documents are in custody of another agency and the party has communicated that fact. Interpretation and reasoning: The Court noted admissions and communications on record that the relevant documents had been seized by DGGI and were not available with the appellant. The appellant had informed the respondent of both the parallel DGGI investigation and the seizure/production of documents to DGGI, and had requested time and disclosure of voluminous documents relied upon. The Court found nothing in record showing prejudice or illegality arising from the respondent's actions; rather, the Court directed respondent to consider documents in possession of DGGI and the appellant's replies when passing orders, thereby preserving the petitioner's ability to defend while ensuring procedural fairness. Ratio vs. Obiter: Ratio - Failure to produce documents that are in custody of another investigating authority does not ipso facto vitiate audit or show cause proceedings; fairness requires the authority to consider seized documents and the representations already made and to afford an opportunity before passing orders. Obiter - The Court declined to elaborate exhaustively on writ interference principles applicable to show cause notices given the factual conclusion. Conclusions: Principles of natural justice require that the authority consider the seized documents and replies already filed and then proceed on merits; absence of immediate production because documents are in custody of another authority does not automatically invalidate proceedings, but the authority must account for that factual situation and avoid prejudice. Cross-reference and operative direction Cross-reference: Issues 1-3 are interlinked: the permissibility of concurrent proceedings (Issue 1) depends on chronology (Issue 2) and on whether procedural fairness has been accorded in relation to document production (Issue 3). Operative conclusion: The Court dismissed the challenge to the impugned notices but directed the tax authority to consider the documents in possession of the other investigating authority and the appellant's replies (dated 10.09.2022 and 29.11.2022) and thereafter pass appropriate orders on merits and in accordance with law. No order as to costs.