2022 (5) TMI 1238 - HC - GST

Demand and Recovery u/s 74 - Cross state adjustment of unutilized input tax credit - input service distributor (ISD) - modality in claiming adjustment of unutilized input tax credit is objected to by the Revenue on the premise that such a device to facilitate other units of JSW Steel Ltd. located in other States to claim input tax credit arising in the State of Odisha is contrary to the statutory mandate - HELD THAT - It is apparent that JSW Steel Ltd., public limited company, has units located in different States including the State of Odisha with its Head Office at Mumbai. The Head Office at Mumbai is registered as ISD bearing GSTIN 27AAACJ4323N2ZF. It is also registered as normal taxpayer being GSTIN 27AAACJ4323N3ZE in the State of Maharashtra. No doubt JSW-Company from its Head Office at Bombay had applied and participated in the tender process, however it cannot be lost sight of that its JSW-Company, and not Head Office, Bombay, which has been granted the mining lease for the four Iron mines situated within the State of Odisha. The Company to undertake the process of mining had to get itself registered in State of Odisha as per the statutory provisions of CGST/OGST to undertake the execution of the mining lease - the excess input tax credit has been sought to be utilized by raising tax invoices in favour of JSW Steel Ltd. in the State of Maharashtra, declared ISD, in the garb of support service. That apart, it is not clear at all as to what is support service which has been provided by JSW Steel Ltd.(Odisha) to JSW Steel Ltd.- ISD at Mumbai, much less any common services which could be utilized by other units located in other parts of the country. It also emerges that JSW Steel Ltd. in Odisha has utilized JSW Steel Ltd.- ISD Mumbai as wrongful conduit and facilitated the utilization of input tax credit by other units of JSW Steel Ltd., which in this manner have availed input tax credit twice, i.e. , once on the strength of the purchase invoices of supply of iron ore and the other on the strength of the tax invoices for alleged services issued by JSW Steel Ltd.-ISD at Mumbai. It is pertinent to notice that in view of definition of Input Service Distributor contained in Section 2(61), it is necessary that the ISD as an office is required to receive tax invoices towards inward supply. Since no such supply being shown to have been made by JSW Steel Ltd. of Odisha to JSW Steel Ltd. of Maharashtra, no prima facie case is made out by the Petitioner. Thus transactions in question prima facie amount to siphoning of tax amounts, therefore, apparently warrant invocation of proceeding under Section 74 of the OGST/CGST Act - List this matter on 12th August, 2022.

Summary

Issues Involved:
1. Jurisdiction and validity of the order under Section 74 of the OGST/CGST Act.
2. Legality of the transfer and distribution of unutilized input tax credit (ITC).
3. Competence of the Revenue Authorities in Odisha to disallow transactions.
4. Appropriateness of initiating proceedings under Section 74 after initially invoking Section 73.
5. Allegation of double taxation.
6. Imposition of penalty.
7. Maintainability of the writ petition despite the availability of statutory remedy.

Detailed Analysis:

1. Jurisdiction and Validity of the Order under Section 74 of the OGST/CGST Act:
The petitioner challenged the order dated 28th March 2022, issued by the Deputy Commissioner of State Tax, CT & GST Enforcement Unit, Barbil, under Section 74 of the OGST/CGST Act. The petitioner argued that the order was arbitrary and without jurisdiction, contending that the Revenue Authority in Odisha acted beyond its jurisdiction in rejecting the transaction of distribution of unutilized ITC from Odisha to Maharashtra through an Input Service Distributor (ISD).

2. Legality of the Transfer and Distribution of Unutilized ITC:
The petitioner claimed that the transfer of unutilized ITC from JSW Steel Ltd. in Odisha to JSW Steel Ltd. in Maharashtra (ISD) was lawful, as it facilitated other units of JSW Steel Ltd. in different states to claim ITC. The petitioner argued that the transactions were not sham and were in compliance with the statutory provisions. However, the Revenue objected, arguing that such a device to facilitate ITC claims in other states was contrary to the statutory mandate, leading to a demand of Rs. 901,48,27,137/-.

3. Competence of the Revenue Authorities in Odisha to Disallow Transactions:
The petitioner contended that the Revenue Authorities in Odisha were incompetent to disallow the transactions depicted in the accounts and returns of units in other states. The Revenue, however, argued that JSW Steel Ltd. in Odisha was not registered as an ISD, and thus, the transfer of unutilized ITC to Mumbai ISD was not in consonance with the statutory provisions, particularly Rule 8 of the OGST Rules.

4. Appropriateness of Initiating Proceedings under Section 74 after Initially Invoking Section 73:
The petitioner argued that the Revenue Authority initially issued a notice under Section 73 of the OGST/CGST Act and could not have switched to initiate fresh proceedings under Section 74 after the petitioner submitted a reply. The court, however, did not find merit in this argument, considering the prima facie case of siphoning tax amounts.

5. Allegation of Double Taxation:
The petitioner contended that raising a demand of tax under the OGST/CGST Act would result in double taxation, as IGST was already paid on the transactions. The court did not find this argument persuasive, as the transactions in question were deemed to be sham and wrongful.

6. Imposition of Penalty:
The petitioner argued that the imposition of a penalty was draconian and unjustified. The court, however, found that the transactions prima facie amounted to siphoning of tax amounts, warranting the invocation of proceedings under Section 74 of the OGST/CGST Act.

7. Maintainability of the Writ Petition Despite the Availability of Statutory Remedy:
The petitioner argued that the writ petition was maintainable despite the availability of a statutory remedy, citing the Supreme Court's judgment in Raza Textiles Ltd. v. ITO. The court, while issuing notice in the writ petition, declined to restrain the opposite parties from effecting recoveries of the demand, emphasizing the equitable jurisdiction under Article 226 of the Constitution of India.

Conclusion:
The court declined to restrain the opposite parties from effecting recoveries of the demand, issued notice in the writ petition, and directed the parties to file counter affidavits and objections. The matter was listed for further hearing on 12th August 2022.