Star Traders Through Its Proprietor Mr. Atimukt Jain vs. Commissioner Of Central Goods And Service Tax And Another And Another

Facts

The petitioner, Star Traders, filed a writ petition challenging a show cause notice dated August 5, 2024, and an order dated January 30, 2025, issued under the CGST/DGST Act for the financial year 2017-18. The proceedings stemmed from an investigation initiated by the CGST Delhi West Commissionerate following a letter from the Delhi East Commissionerate. A search of the petitioner's premises on July 23, 2019, led to the seizure of Rs. 11,00,000 and the recording of a statement from the proprietor. The proprietor admitted to issuing invoices without supply of goods and engaging in such activities for a commission. The show cause notice alleged utilization of Input Tax Credit (ITC) of Rs. 3,53,40,345/- on inward supplies from non-existent or retrospectively cancelled suppliers and passing on ITC of Rs. 3,24,67,297/- by issuing invoices without supply. The total demand proposed was Rs. 6,78,07,642/- plus interest and penalties. The Adjudicating Authority confirmed these demands ex parte.

Held

The Court held that the proceedings were not non est. It reasoned that while Section 6(2)(b) bars parallel proceedings on the same subject matter, the proceedings initiated by Respondent No. 1 (CGST) and Respondent No. 2 (DGST) were based on different allegations and material. The CGST proceedings were based on intelligence and search, involving the utilization and passing on of ITC through invoices without supply, whereas the DGST proceedings related to reconciliation of turnover. Therefore, the subject matter was not the same, and the bar under Section 6(2)(b) was not attracted. Regarding the violation of natural justice, the Court found that the petitioner was sent multiple notices via speed post and email, but failed to appear or file a detailed reply, thus forfeiting their right to claim a violation. On the constitutional validity of Section 16(2)(c), the Court noted that the Gujarat High Court had upheld its validity in Maruti Enterprise v Union of India, and the Supreme Court had affirmed this view in Bhandari Scrap Traders v Union of India. Consequently, the Court found no reason to deviate from the settled position. The Court did not express any opinion on the merits of the demand.

Key Issues

1. Whether the proceedings culminating in the impugned order are non est in law, being barred by Section 6(2)(b) of the Central Goods and Services Tax Act, 2017, due to the initiation of parallel proceedings by another authority? 2. Whether the Adjudicating Authority violated the principle of natural justice while passing the impugned order? 3. Whether Section 16(2)(c) of the CGST Act, 2017, is ultra vires Article 14 of the Constitution, rendering the petitioner not liable for the non-deposit of tax by suppliers? Petitioner's arguments: The petitioner contended that proceedings were barred by Section 6(2)(b) as Respondent No. 2 had initiated proceedings earlier on the same subject matter. They also argued a violation of natural justice. Furthermore, they challenged the constitutional validity of Section 16(2)(c), asserting that they should not be held liable for suppliers' non-payment of tax. Revenue's arguments: The revenue argued that the subject matter of the two proceedings was different, thus Section 6(2)(b) was not attracted. They also contended that the petitioner was provided multiple opportunities to appear and respond, thus natural justice was not violated. Regarding Section 16(2)(c), they relied on existing judicial pronouncements.