Patna High Court Affirms State GST Officer's Authority to Issue Notices for Fraudulent Input Tax Credit Claims

In a significant ruling, the Patna High Court upheld the authority of State GST officers to issue notices under Section 74(1) of the Central Goods and Services Tax (CGST) and Bihar Goods and Services Tax (BGST) Acts, 2017, in cases where input tax credit (ITC) has been wrongfully availed or utilized due to fraud or suppression of facts. This decision was rendered in the case of CTS Industries Limited v. State of Bihar, where the petitioner challenged an assessment order passed by the Assistant Commissioner of State Tax, Begusarai Circle, under Section 74(9) of the BGST Act.

The petitioner contended that the matter was already under investigation by the Directorate General of GST Intelligence (DGGI), a central agency, and thus, the State authority's action was barred under Section 6(2)(b) of the CGST Act and a CBIC circular dated 5 October 2018. They argued that the State GST officer lacked jurisdiction to initiate proceedings when the central authority was already seized of the matter.

However, the Division Bench comprising Justice Rajeev Ranjan Prasad and Justice Sourendra Pandey rejected this contention. The Court observed that Section 74(1) of the CGST/BGST Act empowers the Proper Officer to issue a notice when it appears that ITC has been wrongfully availed or utilized due to fraud, willful misstatement, or suppression of facts to evade tax. The provision mandates that the officer shall serve notice on the person chargeable with tax, requiring them to show cause as to why they should not pay the amount specified in the notice, along with applicable interest and penalty.

The Court emphasized that the language of Section 74(1) is clear and unambiguous, granting authority to the Proper Officer to act independently upon detecting fraudulent ITC claims. It held that the existence of a central investigation does not preclude the State GST officer from exercising jurisdiction under Section 74(1). The Bench noted that the CBIC circular relied upon by the petitioner does not override the statutory provisions of the CGST/BGST Acts.

Furthermore, the Court highlighted that the petitioner's claim of lack of jurisdiction was unfounded, as the State GST officer had sufficient grounds to initiate proceedings based on the evidence gathered during the investigation. The Court found that the officer had acted within the scope of his authority, and the issuance of the notice under Section 74(1) was justified.

In conclusion, the Patna High Court's ruling reinforces the authority of State GST officers to take action against fraudulent ITC claims without awaiting the outcome of central investigations. This decision underscores the importance of prompt and decisive action by tax authorities to safeguard revenue and uphold the integrity of the GST system.