M/S Kundlas Log Udyog vs. State Of Hp And Another

Held

The Court held that the action of Respondent No. 2 in issuing summons and blocking the Input Tax Credit (ITC) was without jurisdiction and contrary to the provisions of Section 6(2)(b) of the CGST Act. The Court reasoned that Section 6(2)(b) clearly stipulates that if a proper officer under the State Goods and Services Tax Act has initiated proceedings on a subject matter, no proceedings shall be initiated by the proper officer under the CGST Act on the same subject matter. In this case, Respondent No. 1 (State authority) had already issued summons and initiated proceedings concerning the petitioner's suppliers. Therefore, Respondent No. 2, a central authority, could not initiate parallel proceedings on the same subject matter. The Court interpreted the term "subject-matter" in Section 6(2)(b) to mean "the nature of proceedings." Consequently, the Court found merit in the petition and quashed and set aside the Blocked Credit Ledger dated May 16, 2024, and the summons dated March 16, 2024, issued by Respondent No. 2. No issue was expressly left undecided.

Facts

The petitioner, M/s Kundlas Loh Udyog, a manufacturer and distributor of iron and steel, filed a petition challenging the blocking of its Input Tax Credit (ITC) and summons issued by Respondent No. 2, the Director General of Goods and Service Tax Intelligence. The petitioner had been issued summons by Respondent No. 1 (State of H.P.) on February 14, 2024, seeking documents related to its suppliers for the period April 1, 2019, to December 31, 2023. The petitioner submitted the requested documents on March 12, 2024. Subsequently, on March 16, 2024, Respondent No. 2 issued summons regarding supplies from five specific suppliers. The petitioner informed Respondent No. 2 via email on March 20, 2024, that proceedings concerning these suppliers were already initiated by Respondent No. 1. Despite this, Respondent No. 2 blocked the petitioner's ITC on May 16, 2024, which appeared on the portal on May 20, 2024, citing alleged involvement in availing ineligible ITC on fake invoices.

Key Issues

1. Whether the action of Respondent No. 2 in blocking the petitioner's Input Tax Credit (ITC) and issuing summons is without jurisdiction and violative of Article 14 of the Constitution of India, considering that Respondent No. 1 had already initiated proceedings on the same subject matter? Petitioner's Arguments: The petitioner contended that Respondent No. 2 acted without jurisdiction by initiating fresh proceedings when Respondent No. 1 had already commenced an inquiry concerning the same suppliers and subject matter. They argued that Section 6(2)(b) of the CGST Act prohibits initiation of proceedings by one officer if proceedings on the same subject matter have already been initiated by another. The petitioner relied on the judgment of the Gauhati High Court in National Plasto Moulding vs. State of Assam & Anr. to support the contention that the acts of suppliers cannot be burdened on the petitioner unless the transactions are proven to be non-bonafide. Revenue/State's Arguments: Respondent No. 1 argued that the petitioner was estopped from filing the petition due to its own acts and acquiescence. Respondent No. 2 contended that it acted based on intelligence received and that the petitioner had not approached the court with clean hands. Respondent No. 2 justified the blocking of ITC under Rule 86A of the CGST Rules, 2017, to safeguard government revenue, and claimed that the petitioner was afforded an opportunity of hearing before the blocking order was passed.