Karnataka HC quashes three GST show cause notices for lack of jurisdiction under Section 6(2)(b) KGST Act 2017

The Karnataka HC partially allowed the petition challenging show cause notices demanding input tax credit reversal with interest and penalty for IGST paid on manpower supply services during 2017-2022. The court quashed three show cause notices issued by State GST authorities, finding them illegal and without jurisdiction under Section 6(2)(b) of KGST Act, 2017, as Central GST authorities had already initiated proceedings on the same matter. The court directed the petitioner to respond to the remaining Central GST notice, with authorities to proceed according to law considering relevant statutory provisions and circulars.

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Issues:
Challenge to show cause notices demanding input tax credit availed, jurisdiction of State GST Authorities, denial of input tax credit, liability to pay interest on GST, applicability of Circular No. 211/5/24-GST, parallel proceedings by Central and State GST Authorities.

Analysis:
1. The petitioner sought writs to quash show cause notices demanding input tax credit availed along with interest and penalty. The petitioner was engaged in business related to vehicles and registered under CGST Act, with respondents being CGST and State GST Authorities. The petitioner challenged show cause notices issued by both Central and State GST Authorities.

2. The petitioner argued that State GST Authorities initiated proceedings after Central GST Authorities, violating Section 6(2)(b) of KGST Act, which bars State GST Authorities from parallel proceedings. The court found the State GST Authorities' notices illegal, arbitrary, and lacking jurisdiction, ordering their quashing.

3. Regarding the show cause notice by Central GST Authorities denying input tax credit, the petitioner contended that denial under Section 16(4) of CGST Act was against Circular No. 211/5/24-GST and a previous court judgment. The court referenced Circular provisions allowing ITC and rejecting interest liability on belated claims, directing the petitioner to reply to the notice.

4. The court highlighted the Circular's relevance and the court judgment, emphasizing the petitioner's entitlement to ITC and absence of interest liability for delayed claims. It directed Central GST Authorities to consider the petitioner's reply, ensuring compliance with statutory provisions and Circular guidelines.

5. Ultimately, the court partially allowed the petition, quashing the impugned show cause notices by State and Central GST Authorities. It granted the petitioner the opportunity to respond to the Central GST Authorities' notice, directing them to consider the reply and make decisions within four weeks, adhering to legal provisions, Circulars, and court judgments.

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