2024 (12) TMI 1224 - HC - GST

Validity of SCN issued u/s 74 and 122 of Central Goods and Services Tax Act, 2017 - notice u/s 74(1) of CGST Act, 2017 issued beyond the period of limitation specified in Section 74(2) and 74(10) of the CGST Act, 2017 - generation of fake ITC - HELD THAT - The search was conducted initially in the premises of M/s Panjon Limited and the material collected from the premises revealed that as many as 5 firms are involved in circular trading with a common object to inflate their turnover, increase of valuation of the company in order to take benefit of higher loans from the bank or financial corporation and to avail fake input tax credit. The total period during which these fake ITCs were generated is from 2017 to 2022, therefore, a joint assessment is liable to be conducted of six companies / noticee in the aforesaid period. In such type of circular trading matters, the assessment can be done by calling all the firm / companies involved in trading in the relevant years by the proper office. This matter cannot be proceeded individually in a given facts and circumstances under Section 74 of CGST Act, 2017. Except petitioner, remaining 4 companies have not approached this Court challenging the show-cause notice. In order to prove the circular trading as explained by way of diagram in the page 20 of the common show-cause notice, said notice has rightly been issued and the joint assessment proceedings are liable to be undertaken u/s 74 of the CGST Act, 2017 by the proper officer. Hence, the petitioners cannot be singled out from this assessment proceedings by entertaining this writ petition. This Writ Petition being devoid of merit and substance stands dismissed.

Summary

Issues:
Validity of show-cause notice under CGST Act, 2017. Challenge to the show-cause notice based on limitation period. Maintainability of the writ petition challenging the show-cause notice. Joint assessment of multiple companies involved in circular trading under Section 74 of CGST Act, 2017.

Validity of Show-Cause Notice:
The petitioners challenged the validity of the show-cause notice issued under Section 74 and 122 of the CGST Act, 2017. The notice alleged circular trading among various companies to inflate turnover, increase valuation for loan benefits, and avail fake input tax credit. The petitioners contended that the notice was uploaded beyond the limitation period specified in the Act. The respondents argued that technical glitches causing delay in uploading should not invalidate the notice. The High Court examined the evidence of circular trading and upheld the validity of the notice, dismissing the challenge.

Challenge Based on Limitation Period:
The petitioners argued that the show-cause notice was uploaded after the limitation period specified in the CGST Act, 2017. The respondents contended that delay due to technical issues should not affect the validity of the notice. The Court considered the timeline of events and concluded that the notice was validly issued within the statutory framework, rejecting the challenge based on the limitation period.

Maintainability of Writ Petition:
The respondents contended that the writ petition challenging the show-cause notice was not maintainable as adjudication was pending before the tax authority. The petitioners relied on judgments from other High Courts to support their argument that separate notices should be issued for each assessment year. The Court noted the involvement of multiple companies in circular trading and held that a joint assessment of all companies involved was appropriate under Section 74 of the CGST Act, 2017. The Court dismissed the writ petition for lack of merit.

Joint Assessment of Multiple Companies:
The Court found that multiple companies were engaged in circular trading to generate fake input tax credits over several years. The Court determined that a joint assessment of all companies involved in the trading scheme was necessary to address the complex nature of the transactions. The Court emphasized the need for a comprehensive assessment involving all relevant parties to address the circular trading issue effectively. The Court dismissed the petitioners' attempt to single themselves out from the joint assessment proceedings, upholding the validity of the joint assessment under Section 74 of the CGST Act, 2017.