M/S S.R Traders v. The Additional Director General - Kerala High Court, 9 Jun 2023

Judgment

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE C.S.DIAS FRIDAY, THE 9TH DAY OF JUNE 2023 / 19TH JYAISHTA, 1945 WP(C) NO. 12519 OF 2023 PETITIONER:

M/S S.R TRADERS, AGED 34 YEARS, A PARTNERSHIP FIRM FORMED AND REGISTERED UNDER , THE INDIAN PARTNERSHIP ACT, 1931, HAVING ITS REGISTERED OFFICE, AT 222/1, KULAPPULLY ROAD, KAYILIAD, PALAKKAD- 679122 REPRESENTED BY ITS MANAGING PARTNER SAFEEK K.

BY ADVS.

ASWIN GOPAKUMAR JIKKU SEBAN GEORGE DEEPTI SUSAN GEORGE ADITYA VENUGOPALAN NIKITHA SUSAN PAULSON MAHESH CHANDRAN AVINASH KURUNGOT GAUTHAM KRISHNA E.J.

SHALLET K. SAM RESPONDENTS:

1 THE ADDITIONAL DIRECTOR GENERAL, DIRECTORATE GENERAL OF GST INTELLIGENCE, KOCHI ZONAL UNIT, CENTRAL EXCISE BHAVAN, KATHRIKADAVU, KALOOR P.O., KOCHI-682017 2 THE STATE TAX OFFICER, SQUAD NO.VI, OFFICE OF THE DEPUTY COMMISSIONER OF STATE TAX (INTELLIGENCE), STATE GOODS AND SERVICES TAX DEPARTMENT, PALAKKAD -678001.

BY ADV.SREELAL.N.WARRIER, SC FOR R1 ADV.SMT PARVATHY.K.GOVT.PLEADER FOR R2 THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 06.06.2023, THE COURT ON 9.6.2023 DELIVERED THE FOLLOWING:

W.P © 12519 of 2023 2 C.S.DIAS, J.

================== W.P (C) No.12519 of 2023 ================== Dated this the 9th June, 2023 JUDGMENT The writ petition is filed to quash Ext.P6 orders passed by the first respondent.

The concise facts leading to Ext.P6 orders are as follows:

(i) The petitioner is a partnership firm carrying on business in the trade of scrap goods falling under the subheading 7404, 3915 and 7204 of the First Schedule of the Customs Tariff Act, 1975. The petitioner is registered under the Central Goods and Services Tax Act, 2017 ( in short ' the CGST Act') and other GST Laws.

(ii) In November, 2020, the officers attached to the first respondent conducted a search at the petitioner's business premises and

W.P © 12519 of 2023 3 arrested the Managing Partner of the firm invoking the provisions of the CGST Act. The petitioner has reason to believe that the search and arrest were motivated at the behest of the petitioner's rivals in business.

(iii) The second respondent issued Exts.P1 and P2 show cause notices under Section 74(1) of the KGST Act alleging that the petitioner had purchased goods from two 'non-existing' units in Tamil Nadu and is involved in issuing 'fake invoices', without actual supply of goods for the purpose of passing on 'fraudulent' input tax credit.

The petitioner has submitted Exts.P3 and P4 replies to the above show cause notices.

(iv) As the petitioner was unable to access the electronic portal of the respondents, they approached this Court and filed W.P(C) No.20342/2022. During the pendency of the writ

W.P © 12519 of 2023 4 petition, the respondents cancelled the petitioner's GST registration. By Ext.P5 judgment, this Court set aside the cancellation order and directed the matter to be re-considered.

(v) Matters remaining so, to the utter shock and surprise of the petitioner, the first respondent issued Ext.P6 orders (thirteen in number) under Section 83 of the CGST Act read with Rule 159(1) of the CGST Rules, attaching the immovable properties and bank accounts of the petitioner.

(vi) The action of the respondents in passing Ext.P6 orders is arbitrary, unjustifiable and violative of the petitioner's fundamental right to carry on business. The respondents have passed the impugned orders without any application of mind and in flagrant violation of the settled provisions of law. Hence, the writ

W.P © 12519 of 2023 5 petition.

3. The first respondent has filed a counter affidavit refuting the allegations in the writ petition. It is, inter alia, contended that the CGST Act and the CGST Rules framed thereunder is a self-contained code, which has an inbuilt mechanism for redressal of grievances. There is a specific provision under Rule 159 (5) of the Rules, enabling the petitioner to challenge Ext.P6 orders.

It is without invoking the statutory remedy that the petitioner has rushed to this Court. Hence, the writ petition may be dismissed on the said preliminary ground. It is further contended that on the basis of complaints and information received by the Intelligence Wing of the respondents, they learnt that many fake invoice supplies have rampantly infested the market in respect of supply of scrap materials. In the

W.P © 12519 of 2023 6 investigation conducted by the respondents under Section 67 of the CGST Act, it was revealed that the petitioner was availing 'input tax credit' (ITC), running to several crores of rupees, to fictitious and non-operational suppliers. On the basis of the said information, Exts.P1 and P2 show cause notices were issued under Section 74(1) of the CGST Act and later, the petitioner's registration was cancelled. The investigation unveiled that the petitioner had availed ITC to the tune of Rs.32/- crore till March, 2021, in the name of non-existent suppliers, using forged documents. Even after the cancellation of the registration, the Managing Partner of the petitioner has conducted business using the registration of his family members. In the search conducted by the respondents, it is revealed that a severe fraud has been committed by the petitioner. The potential liability of the

W.P © 12519 of 2023 7 petitioner runs into crores of rupees. The first respondent has provisionally attached the properties and bank accounts of the petitioner invoking Section 83 of the CGST Act, in the light of the powers conferred on him by Ext.R1(a) notification. There is no mala fides in passing Ext.P6 orders as alleged, which are passed to protect the interest of the Government revenue.

The writ petition is devoid of any merits and is only to be dismissed.

4. Heard; Sri.Aswin Gopakumar, the learned counsel

appearing

for

the

petitioner, Sreelal.N.Warrier, the learned standing counsel appearing for the first respondent and the learned Government Pleader appearing for the second respondent.

5. Sri.Aswin Gopakumar argued that Ext.P6 orders are vitiated and smacked with mala-fides.

W.P © 12519 of 2023 8 It was his argument that the respondents can at the maximum impose penalty under Chapter XIX of the Act, going by the allegations in Exts.P1 and P2. Therefore, passing of Ext.P6 orders under Section 83 of the Act is untenable and wrong because the said provision can be invoked only after the initiation of any proceedings under the Chapters XII, XIV or XV of the CGST Act. In addition to the above contention, though not specifically pleaded in the writ petition, the learned counsel argued that the first respondent does not have the powers to issue Ext.P6 orders.

He drew the attention of this Court to Section 2(24) of the CGST Act and contended that only the Commissioner is invested with the power to pass an order under Section 83 of the Act. He placed reliance on the decision of the High Court of Bombay in Praful Nanji Satra v State of

W.P © 12519 of 2023 9 Maharashtra and others (MANU/MH/0978/2021) to drive home his contention that the first respondent is not empowered to issue an order under Section 83 of the Act. Hence, he prayed that the writ petition may be allowed.

Sri.Sreelal

N.Warrier

vehemently countenanced the above submissions by contending that Exts.P1 and P2 show cause notices undoubtedly substantiate that proceedings have been initiated against the petitioner under Section 74 of the Act for perpetrating fraud on the Government by evading tax to the tune of crores of rupees. Section 74 squarely falls within Chapter XV of the Act, which in turn is covered by Section 83 of the CGST Act. Thus, the contention of the petitioner is only to be perfunctorily rejected. He further argued that, it is without a foundation in the pleading that the learned counsel for the

W.P © 12519 of 2023 10 petitioner has raised the contention regarding the lack of authority and power for the first respondent to pass Ext.P6 orders. Nonetheless, he drew the attention of this Court to Ext.R1(a) notification issued by the Government of India, investing powers on the Additional Director General. He further urged that it is without exhausting the statutory remedy provided under Rule 159(5) of the Rules that the petitioner has approached this Court. Hence, the writ petition is to be dismissed with exemplary costs.

7. On an appreciation of the pleadings and materials on record, it is evident that the respondents have issued Exts.P1 and P2 show cause notices against the petitioner, alleging that the petitioner has not paid/short paid/erroneously refunded input tax credit by perpetrating fraud on the Government, that too by suppression and

8. The counter affidavit filed by the first respondent demonstrates that the investigation is in progress and the respondents are prima facie found that the petitioner has indulged in fraudulent activities. Thus, the first respondent has deemed it fit to invoke Section 83 of the CGST Act and pass Ext.P6 orders, to protect the revenue of the Government.

9. Rule 159(5) of the CGST Rules specifically provides a person whose property has been provisionally attached under Section 83 of the CGST Act, to move the Commissioner for lifting of the attachment.

10. It is without exhausting the above statutory remedy that the petitioner has filed the writ petition invoking the plenary powers of this Court under Article 226 of the Constitution of India.

It is well-settled that the writ jurisdiction of this Court is only to be exercised in extra-ordinary circumstances, especially when there is an alternative and efficacious statutory remedy. The principles have been well enunciated by the Hon'ble Supreme Court in M/s. Radha Krishan Industries v. State of Himachal Pradesh and others [AIR 2021 SC 2114].

12. The contention that the first respondent is not empowered and competent to pass Ext.P6 orders does not hold good in view of the express delegation of powers by Ext.R1(a) read with Sections 3 and 5 of the CGST Act.

13. Even going by the decision relied on by the learned counsel for the petitioner, it is evident that the Bombay High Court has rendered the decision for the reason that there was nothing on record to disclose any authorisation by the

14. In the instant case, the matter stands on a different footing because of the investment of power on the first respondent. Thus, I have no doubt in my mind that the first respondent is empowered to pass orders in the nature of Ext.P6 under Section 83 of the CGST Act. The writ petition is meritless and is only liable to be dismissed.

Resultantly, the writ petition is dismissed, without prejudice to the right of the petitioner, if so advised, to invoke the statutory remedy.

Sd/- C.S.DIAS JUDGE ma/7.6.2023

W.P © 12519 of 2023 14 APPENDIX OF WP(C) 12519/2023 PETITIONER EXHIBITS Exhibit P1 A TRUE COPY OF THE SHOW CAUSE NOTICE DATED 27.05.2022 Exhibit P2 A TRUE COPY OF THE SHOW CAUSE NOTICE DATED 27.05.2022 Exhibit P3 TRUE COPIES OF THE REPLY SUBMITTED BY THE PETITIONER TO EXT. P1 NOTICE DATED 10/06/2022 Exhibit P4 TRUE COPIES OF THE REPLY SUBMITTED BY THE PETITIONER TO EXT. P1 NOTICE DATED 10/06/2022 Exhibit P5 A TRUE COPY OF JUDGEMENT IN WP(C) NO. 25271/2022 DATED 05.08.2022 PASSED BY THIS HON'BLE COURT.

Exhibit P6 TRUE COPIES OF ORDERS ISSUED BY RESPONDENT NO.1 TO THE PETITIONER U/S 83 OF CGST ACT R/W RULE 159(1) OF CGST RULES RESPONDENT ANNEXURES EXT R1(a) True copy of Notification No.

14/2017 - Central Tax dated 01.07.2017