Court Grants Extension to Respond to Tax Notice Under CGST Act, Delays Decision Pending Further Proceedings.

The HC addressed a jurisdictional challenge to a show cause notice under Section 74 of the CGST Act, 2017, concerning alleged non-payment of tax for inter-branch supplies without consideration. The petitioner cited a CBIC Circular clarifying input tax credit issues, arguing the notice lacked justification. The Court allowed the petitioner more time to respond and directed the respondent to file an affidavit-in-opposition. It granted limited interim protection, requiring any decision on the notice to await the Court's approval. The matter was set for further proceedings post-affidavit exchange, with all parties instructed to act per the server copy of the order.

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Issues:
Challenging show cause notice under Section 74 of the CGST Act, 2017 for tax periods 2017-18 to 2021-22.

Analysis:
The petitioners challenged a show cause notice dated 30th July, 2024, issued under Section 74 of the Central /West Bengal Goods and Services Tax Act, 2017. The notice was based on the alleged non-payment of tax for supplies between distinct persons as per Section 25(4) & 25(5) of the CGST Act, 2017, without consideration as per Section 7(1)(c) of the CGST Act, 2017 read with Schedule 1. The petitioner, a registered taxpayer with branch offices in multiple states, claimed to transfer services received at the head office to its branch offices. The petitioner distributed Input Tax Credit of input services to its units based on turnover, and expenses directly attributable to a unit were booked using the ISD mechanism. The petitioner contended that as an Input Service distributor, it could not issue invoices apart from ISD through the GSTIN.

The petitioner referred to a Circular dated 17th July, 2023, by the Central Board of Indirect Taxes and Customs, which clarified that if full input tax credit is available to the recipient, and the head office had not issued a tax invoice to the branch office for certain services, the value of such services could be deemed nil and open market value under the CGST Rules. The petitioner argued that the show cause notice lacked justification in light of this clarification and sought its quashing.

The respondents, represented by learned advocates, stated that they considered the Circular dated 17th July, 2023, and identified ISD and non-ISD expenses incurred by the head office to issue the show cause notice. They opposed interference since the notice had already been issued.

After hearing arguments from both sides and considering the materials on record, the Court found that the writ petition raised a jurisdictional issue requiring a hearing. The Court directed the respondent to file an affidavit-in-opposition within six weeks and allowed the petitioner to respond to the show cause notice, extending the response time by three weeks. The respondents were granted liberty to decide on the show cause notice after considering the petitioner's response, with a condition that any order passed should not be implemented without the Court's permission.

The Court granted limited protection to the petitioners based on a prima facie case and the clarification from the Central Board of Indirect Taxes and Customs. It allowed mentioning for inclusion in the list after the exchange of affidavits and directed all parties to act based on the server copy of the order downloaded from the official website of the Court.

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