Prior Inspection by State GST Authorities Not a Bar for Concluding an Ongoing Investigation by CGST Officers: Delhi HC [Read Order]

The Delhi High Court has ruled that the prior inspection by state Goods and Service Tax (GST) authorities is not a bar for concluding an ongoing investigation by Central Goods and Service Tax (CGST) officers. 

The issue to be decided was whether, in the aforesaid facts, the inspection carried out by the respondent authorities is illegal for want of reasons to believe that the conditions as set out in Section 67(1) (a) of the CGST Act are satisfied.

The petitioner challenges a search at their business premises (3460/1, Jai Mata Market, Tri Nagar, Delhi-110035) under CGST Act Section 67, conducted based on FORM GST INS-01 authorization dated 11.11.2022. Alleging an illegal collection of ₹10,00,000/- (₹5,00,000/- each under CGST Act and Delhi Goods & Services Tax Act, 2017), the petitioner seeks directions for a refund and the provision of FORM GST INS-01, highlighting the need for transparency. The petition raises crucial legal and procedural concerns, demanding a thorough examination and resolution.

The petitioner's counsel A. K. Babbar &  Surender Kuma argued that, on November 14, 2022, the petitioner requested the respondents to halt proceedings, citing Section 6(b)(2) of the CGST Act. It is asserted that the petitioner sought to retract a statement forcibly recorded on the same date, yet the petitioner has not received a copy of the statement. The petitioner seeks various reliefs, including declaring the search and statement as improper, quashing the proceedings, and demanding a refund of illegally collected funds. Additionally, compensation and a stay on parallel proceedings are requested, emphasizing procedural irregularities and seeking court intervention.

A counter affidavit has been submitted by respondents. Aditya Singla, Arushi Sharma, and Asheesh Jain, represented the Commissioner CGST, The affidavit affirms that, upon data analysis, anomalies were discovered in e-way bills issued by registered firms and taxpayers in March and April 2022. Subsequent investigations revealed cancellations or suspensions of GSTINs for some entities found non-existent during physical verification at their main establishments. M/s Sai Polymers, registered on 14.03.2022, is highlighted as an example, with its registration canceled suo motu. Summons issued under Section 70 of the CGST Act were reportedly returned, indicating the absence of the mentioned firm or person at the registered address.

A concerning revelation emerged as M/s Hari Om Chemicals was discovered to have purportedly procured goods from M/s Sai Polymers and claimed Input Tax Credit (ITC) for these transactions. On verification on 24.08.2022, M/s Hari Om Chemicals was not found at its registered location, and the issued summons went unanswered. The registration of M/s Hari Om Chemicals was subsequently canceled, with no representative participating in the investigation. Authorities inferred that both firms were involved in illegitimate practices of claiming fake ITC.

In a significant revelation, it has been uncovered that M/s Mahan Polymers, a sole proprietorship linked to the petitioner, allegedly claimed Input Tax Credit (ITC) amounting to ₹47,38,189/- for purchases totaling ₹2,63,23,270/- from M/s Hari Om Chemicals. The authorities have raised concerns, asserting that the petitioner may have improperly availed the ITC, given that the supplier, M/s Hari Om Chemicals, was determined to be non-existent. This discovery has prompted further scrutiny into potential irregularities in the claimed ITC by M/s Mahan Polymers.

The Delhi High Court a Division Bench of Justice Vibhu Bakharu and Amit Mahajan observed that which supplies a rational basis for forming a belief that the conditions as stipulated under Section 67(1) of the CGST Act are satisfied, the search or inspection authorized under the said section cannot be faulted. 

To Read the full text of the Order CLICK HERE

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