2024 (10) TMI 201 - HC - GST

Dual GST Penalty Proceedings Struck Down: Authorities Barred from Parallel Tax Enforcement Actions Under Sections 6 and 74

HC ruled that initiating parallel penalty proceedings under CGST and State GST Acts is legally impermissible. The court quashed the show cause notice, ... Bar on initiation of proceedings under the CGST Act where State GST proceedings on the same subject matter have been initiated - application of Section 6(2)(b) of the CGST Act preventing parallel/dual proceedings - consequence of initiation/conclusion of proceedings under Sections 73/74 on penalty proceedings under Section 122 - quashing of show cause notice as being without jurisdictionBar on initiation of proceedings under the CGST Act where State GST proceedings on the same subject matter have been initiated - application of Section 6(2)(b) of the CGST Act preventing parallel/dual proceedings - Whether the show cause notice issued under Section 122 of the CGST Act was barred by prior initiation and adjudication under the Karnataka GST Act on the same subject matter. - HELD THAT: - The material on record, including the show cause notice dated 15.09.2022 and the State adjudication order dated 09.11.2022, demonstrate that both proceedings relate to the same transactions between the petitioner and M/s Crystal Hardware. A plain reading of Section 6, in particular sub-section (2)(b), shows that where proceedings on a subject matter have been initiated under the State Goods and Services Tax Act, no proceedings on the same subject matter shall be initiated under the CGST Act. Applying that statutory prohibition, the Court concluded that the CGST authorities' initiation of parallel/dual penalty proceedings in respect of the same subject matter was impermissible and the impugned show cause notice was therefore liable to be quashed on this ground. [Paras 6, 8]The show cause notice issued under Section 122 of the CGST Act was barred by Section 6(2)(b) because State GST proceedings on the same subject matter had been initiated, and the notice was quashed on this ground.Consequence of initiation/conclusion of proceedings under Sections 73/74 on penalty proceedings under Section 122 - quashing of show cause notice as being without jurisdiction - Whether proceedings under Section 122 of the CGST Act are barred or deemed concluded once proceedings under Section 73 or Section 74 have been initiated or concluded. - HELD THAT: - Section 74(11) and its Explanation 1 were considered. Explanation 1 indicates that where proceedings under Section 73 or Section 74 are initiated, payment in accordance with Section 74(11) results in all proceedings in respect of that notice being deemed concluded for the purposes of Sections 73 and 74, and that such proceedings do not include certain other provisions only as specified. The Court held that, by virtue of these provisions, penalty proceedings under Section 122 in respect of the same notice are deemed to be concluded and that initiation of a separate Section 122 show cause notice in the circumstances was thereby illegal, arbitrary and without jurisdiction. [Paras 9, 10]Proceedings under Section 122 in respect of the same subject matter were barred/ deemed concluded by the initiation/conclusion of proceedings under Sections 73/74, rendering the impugned Section 122 show cause notice illegal and liable to be quashed.Final Conclusion: Writ petition allowed; the show cause notice dated 15.09.2022 issued under Section 122 of the CGST Act is quashed as barred by prior State GST proceedings under Section 6(2)(b) and by the effect of initiation/conclusion of proceedings under Sections 73/74. Issues:1. Bar on initiating penalty proceedings under CGST Act after proceedings initiated by State GST Authorities.2. Interpretation of Sections 6 and 74 of the CGST Act.3. Legality of the impugned show cause notice under Section 122 of the CGST Act.Analysis:The petitioner sought to set aside a show cause notice issued by the 1st respondent under Section 122 of the GST Act, arguing that the penalty proceedings initiated by the CGST authorities after proceedings by the Karnataka State GST Authorities are barred under Section 6 (2) (b) of the CGST Act and Section 74 of the CGST Act. The petitioner contended that the impugned notice and subsequent proceedings should be quashed. The respondent, however, argued that the proceedings by the two authorities are different and there is no merit in quashing the notice. The court examined the material on record and noted that both the show cause notice and the adjudication order related to the same subject matter involving transactions between the petitioner and another party.The court referred to Section 6 of the CGST Act, which authorizes officers appointed under the State GST Act as proper officers for the CGST Act. It specifically highlighted that when proceedings have been initiated under the State GST Act, parallel proceedings under the CGST Act are impermissible. The court emphasized that initiating dual proceedings under both Acts is legally barred. Additionally, the court referenced Section 74 (11) of the CGST Act, which states that once proceedings under Sections 73 or 74 are initiated, penalty proceedings under Section 122 are deemed concluded. The court found that the impugned show cause notice under Section 122 of the CGST Act was illegal, arbitrary, and without jurisdiction, warranting interference.In conclusion, the court allowed the writ petition and quashed the impugned show cause notice dated 15.09.2022 issued by the 1st respondent. The judgment highlighted the legal restrictions on initiating penalty proceedings under the CGST Act after proceedings initiated by State GST Authorities, the interpretation of Sections 6 and 74 of the CGST Act, and the legality of the impugned show cause notice under Section 122 of the CGST Act.