The Madras High Court has ruled that the GST Intelligence Wing Officers have the authority to issue pre-show cause notices, affirming the CBIC ( Central Board of Indirect Taxes and Customs ) circular.
Justice B. Pugalendhi rejected the assessee’s argument that the GST proceedings were initiated by an incompetent authority, citing the CBIC Circular dated February 9, 2018, which grants Director General of GST ( Intelligence ) officers the power to issue such notices.
The bench stated that “As per the Circular dated 09.02.2018 issued by the Central Board of Indirect Taxes and Customs, Central Government of India, the officers of Director General of G.S.T. (Intelligence) shall exercise the power to issue show cause notice. Therefore, this Court is not inclined to accept the submission of the petitioner that the impugned proceedings has been issued by the incompetent authority.”
In this case, Femina Shopping Mall, the assessee challenged the GST demand issued by the Deputy Director of GST Intelligence, which required payment of Rs. 47,41,748/- along with interest and penalties under Section 74(5) of the GST legislation.
The assessee contended that the proceedings were invalid as they were not issued by the proper adjudicating authority under Sections 73 and 74 of the CGST Act, as per Circular No. 23/2021 dated October 4, 2021, issued by the Commissioner of Commercial Tax, Tamil Nadu.
The assessee’s counsel argued that the search and seizure operations conducted at their premises led to the issuance of the impugned proceedings, by an authority not designated as the proper officer. They relied on the state-issued Circular No. 23/2021, which specified that only jurisdictional proper officers can issue show cause notices.
However, the respondent’s counsel clarified that the inspection on June 6, 2019, and August 20, 2019, revealed that the petitioner was selling goods in their own packaged containers without discharging the GST liability. A subsequent summon was issued on June 26, 2019, which was challenged by the petitioner. Following a court directive to conduct an inquiry and issue a show cause notice, the pre-show cause notice in Form GST DRC-01A was issued on October 12, 2021.
It was further argued that the state circular is not binding on central tax officers and highlighted the CBIC Circular No. 31/05/2018-GST, which authorises central officers to issue show cause notices. They emphasised that the pre-show cause notice aims to provide the assessee an opportunity to resolve the dispute by paying the tax and interest at an early stage, thereby reducing litigation.
Considering the submissions, the court noted that during the inspection, it was found that the petitioner had supplied taxable goods without paying appropriate GST and did not meet the conditions for exemption under Notification No. 27/2017-Central Tax ( Rate ).
The bench also noted that according to the CBIC Circular dated February 9, 2018, officers of the Director General of GST ( Intelligence ) are authorised to issue show cause notices. Consequently, the court did not accept the assessee’s submission that the impugned proceedings were issued by an incompetent authority.
As the impugned proceedings is only a pre-show cause notice. Therefore, the writ petition was dismissed by the high court, with liberty to the petitioner to offer his explanation, if any, before the second respondent.
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