SGST authority order set aside, matter remanded for fresh consideration under Section 6(2)(b) CGST Act

Delhi HC set aside SGST authority's order dated 27th February, 2025 and related SCN dated 27th November, 2024. Court held that DGST Department must reconsider these orders in light of appellate authority's order dated 3rd April, 2025, considering Section 6(2)(b) of CGST Act regarding jurisdictional requirements. Matter remanded to DGST Department for fresh consideration after reviewing Commissioner (Appeals-I) CGST's order. Petition disposed of with directions for departmental reconsideration.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court include:

• Whether the State Goods and Services Tax (SGST) authority (DGST Department) has jurisdiction to initiate and adjudicate proceedings on the same subject matter on which the Central Goods and Services Tax (CGST) authority has already initiated or adjudicated proceedings, in light of Section 6(2)(b) of the CGST Act, 2017.
• Whether the demand of tax and penalty raised by the DGST Department in respect of certain transactions involving the Petitioner and two companies is sustainable, given that the CGST Department had already adjudicated on the same transactions.
• The applicability and interpretation of Section 6(2)(b) of the CGST Act, 2017, which prohibits multiple proceedings by central and state tax authorities on the same subject matter.
• The extent to which the DGST Department is bound to consider the appellate order passed by the Commissioner (Appeals-I), CGST, and whether the DGST Department can proceed independently without regard to that order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Jurisdiction of SGST Authority to Initiate Proceedings on the Same Subject Matter as CGST Authority

Relevant legal framework and precedents: Section 6(2)(b) of the CGST Act, 2017 states that where a proper officer under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act has initiated any proceedings on a subject matter, no proceedings shall be initiated by the proper officer under the CGST Act on the same subject matter, and vice versa. This provision is designed to avoid overlapping or parallel proceedings by central and state tax authorities.

The Court referred to its earlier decision in W.P. (C) 8625/2022 (Amit Gupta v. Union of India & Ors.), which extensively interpreted Section 6(2)(b). It was held that the provision aims to ensure that taxpayers are not subjected to multiple proceedings by central and state tax officers on the same subject matter. The Court emphasized that the provision does not prohibit transfer of investigations or proceedings but prohibits initiation of parallel proceedings on the same subject matter.

Court's interpretation and reasoning: The Court reasoned that the object of Section 6(2)(b) is to prevent multiplicity of proceedings, which could cause harassment and confusion for taxpayers. The provision must be read purposively to avoid overlapping jurisdiction. The Court found that since the CGST Department had already initiated and adjudicated proceedings on the subject matter, the DGST Department's initiation of separate proceedings on the same transactions was impermissible unless the DGST Department considered the earlier adjudication.

Key evidence and findings: The Petitioner submitted a detailed table showing overlapping proceedings initiated by both CGST and SGST authorities, involving the same suppliers and customers, the same financial year (2020-21), and the same transactions. The CGST Department had imposed penalties and tax demands for issuance of invoices without supply and for utilization of Input Tax Credit (ITC) from cancelled dealers. The DGST Department had issued a show cause notice and order demanding tax and penalty for the same transactions, resulting in overlapping demands.

Application of law to facts: The Court applied Section 6(2)(b) to the facts, concluding that the DGST Department was required to consider the CGST appellate order dated 3rd April, 2025 before proceeding. Since the CGST Department had adjudicated the matter and the appeal had been decided, the DGST Department could not proceed independently without regard to that adjudication.

Treatment of competing arguments: The Petitioner argued that the DGST Department's proceedings were not sustainable due to the prior CGST adjudication. The Respondents contended that the DGST Department had independent jurisdiction. The Court rejected the Respondents' position, emphasizing the statutory bar on multiple proceedings on the same subject matter under Section 6(2)(b).

Conclusions: The DGST Department's show cause notice and impugned order were set aside, and the DGST Department was directed to reconsider the matter in light of the CGST appellate order, affording the Petitioner a personal hearing.

Issue 2: Validity of Tax and Penalty Demands Raised by DGST Department

Relevant legal framework and precedents: The demands raised by the DGST Department related to tax and penalty under various provisions of the CGST Act, including Section 122(1)(ii) and Section 122(1)(vii), for issuance of invoices without actual supply and for utilization of ITC without receipt of goods or from cancelled dealers.

Court's interpretation and reasoning: The Court observed that these demands overlapped with those already adjudicated by the CGST Department. The CGST Department had imposed penalties for similar violations involving the same suppliers and customers. The Court noted that both demands pertained to the same transactions and the same financial year, thus triggering the applicability of Section 6(2)(b).

Key evidence and findings: The Petitioner demonstrated that the tax and penalty demands by both authorities related to the same transactions and that the CGST Department's demand had been paid or challenged in appeal. The DGST Department's demands were therefore duplicative.

Application of law to facts: Given the statutory prohibition on multiple proceedings on the same subject matter, the DGST Department's demands could not be sustained independently. The DGST Department was required to consider the CGST appellate order and re-examine its demand.

Treatment of competing arguments: The Petitioner contended that the DGST demand was untenable. The Respondents maintained the validity of their demand. The Court sided with the Petitioner, emphasizing the need to avoid double jeopardy and multiplicity of proceedings.

Conclusions: The Court set aside the DGST Department's impugned order and directed reconsideration in light of the prior adjudication.

Issue 3: Obligation of DGST Department to Consider CGST Appellate Order

Relevant legal framework and precedents: Section 6(2)(b) and principles of administrative law require that when overlapping proceedings exist, the authority initiating subsequent proceedings must consider prior adjudications to avoid conflicting decisions and harassment.

Court's interpretation and reasoning: The Court held that the DGST Department is obligated to consider the appellate order passed by the Commissioner (Appeals-I), CGST, dated 3rd April, 2025 before proceeding further. This ensures consistency and respects the finality of adjudications.

Key evidence and findings: The CGST appellate order had imposed penalty on the Petitioner and had been passed prior to the DGST impugned order. The DGST Department had not considered this order.

Application of law to facts: The Court directed the DGST Department to place the CGST appellate order on record and afford the Petitioner a personal hearing before reconsidering the matter.

Treatment of competing arguments: The Petitioner urged consideration of the appellate order; the DGST Department had proceeded without such consideration. The Court mandated compliance with the statutory scheme.

Conclusions: The DGST Department must reconsider its order in light of the CGST appellate order, ensuring procedural fairness and statutory compliance.

3. SIGNIFICANT HOLDINGS

The Court held:

"The object of Section 6 (2) (b) of the Act is to ensure that cross empowerment of officers of central tax and state tax do not result in the taxpayers being subjected to parallel proceedings."

"Where a proper officer under the CGST Act had initiated proceedings on a subject matter, no proceedings would be initiated by proper officer authorized under the SGST Act or UGST Act on the same subject matter."

"The DGST Department shall be required to consider the order dated 3rd April, 2025 passed by the appellate authority and shall accordingly reconsider as to whether the SCN dated 27th November, 2024 as also the consequent impugned order dated 27th February, 2025 will sustain in view of Section 6 (2) (b) of the CGST Act."

Core principles established include:

• The prohibition on multiple, overlapping proceedings by central and state GST authorities on the same subject matter under Section 6(2)(b) of the CGST Act.
• The requirement that subsequent authorities must consider prior adjudications to avoid multiplicity of proceedings and ensure consistency.
• The entitlement of the taxpayer to a personal hearing before any fresh decision is taken by the DGST Department in light of prior adjudications.

Final determinations on each issue:

• The DGST Department's show cause notice and impugned order were set aside for non-compliance with Section 6(2)(b).
• The DGST Department was directed to reconsider the matter afresh after considering the CGST appellate order dated 3rd April, 2025.
• The Petitioner must be afforded a personal hearing before any further proceedings.

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