The High Court of Delhi: GST Search of Advocate’s Office Upheld; Advocate-Client Privilege Not an Absolute Bar to Investigation into Advocate’s Own Conduct, 18-09-2026

ISSUE: Whether the search conducted on 25.07.2025 at the premises of Bass Legal LLP, including the cabin used by the Petitioner-Advocate, and the consequential seizure of documents and CPU under Section 67(2) of the CGST Act were unauthorized or illegal on account of advocate-client privilege; and whether production of investigative material in sealed cover, absence of an SCN against MTPL, alleged change in the Respondents’ stand, non-compliance with departmental instructions, and absence of requisite reasons to believe vitiated the search and seizure.

FACTS: The Petitioner, an Advocate who had provided professional services to M/s Matkarma Technology Pvt. Ltd. (MTPL), challenged the search conducted by the GST Department on 25.07.2025 at the premises of Bass Legal LLP, where his cabin was situated, and the seizure of his CPU and documents. The search was authorized under Section 67(2) of the CGST Act. The Petitioner claimed that the CPU contained privileged and confidential information concerning MTPL and other clients. The Respondents alleged, on the basis of statements and other investigative material, that the Petitioner was not merely acting as legal counsel but was actively involved in MTPL’s business and affairs and was allegedly receiving financial benefits from its operations. The Court had earlier imposed safeguards for examination and cloning of the CPU to protect third-party client confidentiality. The Court also examined the reasons to believe recorded for the search and the material produced by the Respondents in sealed cover.

HELD: The Court held in favour of the Revenue/Respondents and dismissed the writ petition. It found that the search of Bass Legal LLP, including the Petitioner’s cabin, was validly authorized under Section 67(2) of the CGST Act and was not rendered unauthorized merely because the cabin was used by an Advocate. Advocate-client privilege protects confidential professional communications but does not create an absolute bar against investigation into the Advocate’s own conduct where prima facie material indicates involvement beyond the role of legal adviser. The absence of an SCN against MTPL, alleged change in the Respondents’ stand, and deviations from administrative instructions did not invalidate the search. The Court also declined to direct disclosure of the investigative material produced in sealed cover at that stage. The safeguards protecting privileged communications and unrelated third-party client data were continued, while the Respondents were permitted to proceed with the investigation using the cloned data, confined to material relevant to MTPL and the investigation.

The High Court of Delhi: Dismisses Writ Against DGGI GST Demand, Holds Section 6(2)(b) Not Attracted Merely by Overlapping ITC Proceedings and Directs Petitioner to Statutory Appeal

ISSUE: Whether the writ petition challenging the DGGI Show Cause Notice dated 29.07.2024 and the consequential Order-in-Original dated 31.01.2025 was maintainable, particularly on the grounds that the DGGI proceedings were barred by Section 6(2)(b) of the CGST Act due to earlier State GST proceedings on the alleged wrongful availment of ITC, and that a consolidated Show Cause Notice covering multiple financial years was impermissible.

FACTS: The Petitioner, engaged in export of readymade garments, faced State GST proceedings under Section 73 of the DGST Act for FY 2017-18 and FY 2018-19 concerning alleged ineligible ITC from cancelled/non-existent suppliers, which culminated in orders confirming demands. Subsequently, the DGGI issued a Show Cause Notice dated 29.07.2024 under Section 74 of the CGST Act covering FY 2017-18 to FY 2019-20, alleging fraudulent availment and utilisation of ITC from fictitious entities and consequential IGST refunds, proposing recovery of Rs.7,81,78,980/- with interest and penalties. The proceedings culminated in an Order-in-Original dated 31.01.2025 confirming the demand and penalties. The Petitioner challenged the proceedings under Section 6(2)(b), while the Respondents relied upon the alternative appellate remedy under Section 107 and contended that the State and DGGI proceedings concerned distinct liabilities and contraventions.

HELD: The High Court dismissed the writ petition, holding that once the Show Cause Notice had culminated in an Order-in-Original, the Petitioner had an efficacious statutory remedy of appeal under Section 107 of the CGST Act, and the issues raised involved examination of facts, evidence and the alleged overlap between the proceedings. The Court further held that Section 6(2)(b) is attracted only where the Central and State proceedings concern the same subject matter, which cannot be established merely because the proceedings relate to the same assessee, overlapping periods or ITC. Applying the principles in M/s Armour Security (India) Ltd., the Court found that the State proceedings and DGGI proceedings arose from materially different allegations and liabilities. The Court also held that issuance of a consolidated Show Cause Notice covering multiple financial years is not, by itself, impermissible under Section 74. Accordingly, the writ petition was dismissed, while leaving all permissible grounds open to the Petitioner in the statutory appeal.

The High Court of Delhi: Section 6(2)(b) Bar Not Applicable Where Subsequent Section 74 Proceedings Involve Distinct Alleged Fraudulent ITC Transactions

ISSUE: Whether proceedings initiated by the Central GST authorities under Section 74 of the CGST Act are barred by Section 6(2)(b) where State GST authorities had earlier initiated proceedings under Section 73 concerning ITC allegedly availed from M.R. Enterprises.

FACTS: The Petitioner, a proprietorship concern, had availed ITC of Rs.6,12,000/- from M.R. Enterprises. State GST authorities had earlier initiated proceedings under Section 73 for FY 2017-18, culminating in an order dated 29.07.2024 after re-adjudication. Subsequently, the DGGI and Central GST authorities issued Show Cause Notices dated 02.08.2024 and 04.08.2024 under Section 74 alleging fraudulent availment of ITC through invoices not accompanied by actual supply of goods, and confirmed demands of Rs.6,12,000/- with interest and penalty. The Petitioner contended that the subsequent proceedings were barred under Section 6(2)(b), besides alleging violation of natural justice and non-consideration of its reply and relied-upon documents.

HELD: Central GST proceedings under Section 74 not barred by Section 6(2)(b) where subsequent proceedings concern distinct alleged fraud and bogus transactions; writ petition dismissed with liberty to pursue statutory appeal. The Court held that the expression "same subject matter" depends upon identity of the liability or contravention and not merely upon the same assessee, financial year or quantum of ITC. The State proceedings under Section 73 did not establish that the specific allegation of fraudulent availment of ITC through invoices without actual supply had already been adjudicated. The difference in GSTINs of M.R. Enterprises in the two Central proceedings was also a relevant circumstance. Consequently, the Petitioner failed to establish the statutory bar under Section 6(2)(b). The remaining issues concerning genuineness of transactions, actual receipt of goods, fraud, non-supply of documents and consideration of the reply were held to be matters appropriately examinable in the statutory appeal under Section 107. The Writ Petition was accordingly dismissed, while liberty was granted to the Petitioner to avail the appellate remedy.

The High Court of Delhi: Dismisses Writ Petition Against DGGI Order, Directs Petitioner to Avail Statutory Appeal under Section 107

ISSUE: Whether the writ petition challenging the DGGI Show Cause Notice and consequential Order-in-Original is maintainable when the Order-in-Original dated 31.01.2025 has already been passed and the petitioner has an efficacious statutory remedy of appeal under Section 107 of the CGST Act, particularly where the petitioner raises an objection under Section 6(2)(b) alleging parallel proceedings by the State GST and Central GST authorities on the same subject matter.

FACTS: The petitioner, a partnership concern engaged in manufacture and supply of printed materials, challenged the DGGI Show Cause Notice dated 03.08.2024 proposing recovery of allegedly inadmissible ITC under Section 74 of the CGST Act. The petitioner contended that State GST authorities had already initiated proceedings concerning wrongful availment of ITC for overlapping periods and, therefore, the subsequent DGGI proceedings were barred by Section 6(2)(b). During pendency of the writ petition, the adjudicating authority passed Order-in-Original dated 31.01.2025 confirming allegedly ineligible ITC of Rs.5,71,00,237/-, along with applicable interest and penalty. The respondents disputed that both proceedings concerned the same subject matter and contended that the DGGI proceedings arose from an independent investigation into fraudulent ITC based on invoices without actual supply of goods.

HELD: Writ petition dismissed; petitioner relegated to statutory appellate remedy. The Court held that after passing of the Order-in-Original, the petitioner had an efficacious remedy of appeal under Section 107 of the CGST Act. The question whether the State GST and DGGI proceedings concerned the “same subject matter” under Section 6(2)(b) required examination of their respective allegations, transactions, liabilities and evidentiary foundations, and the Court declined to undertake such examination under Article 226. The objection under Section 6(2)(b), the alleged overlap between the proceedings, and all challenges to the demand were left open for consideration by the appellate authority. Thus, the writ petition was dismissed in favour of the Revenue, without expressing any opinion on the merits of the Section 6(2)(b) objection or the confirmed demand.

GSTAT Ghaziabad: Departmental GST Appeal Below Rs. 20 Lakh Dismissed at Threshold for Failure to Establish Exception to Monetary Limit

ISSUE: Whether the departmental appeal involving disputed revenue of Rs. 1,90,080, being below the prescribed monetary limit of Rs. 20,00,000 for departmental appeals before GSTAT, could be admitted when the Revenue failed to establish any recognised exception to the monetary threshold or a specific, reasoned exercise of the Commissioner’s power under Section 112(3) of the UPGST Act.

FACTS: The State Tax Department preferred an appeal against the order of the First Appellate Authority whereby the penalty of Rs. 1,90,080 imposed under the IGST head under Section 129(3) of the UPGST Act was set aside. At the stage of admission, the Tribunal examined Circular No. 2425008 dated 05.07.2024 prescribing a monetary limit of Rs. 20,00,000 for departmental appeals before GSTAT, as well as the subsequent Circular No. 252/2026-27/State Tax dated 22.05.2026. Since the disputed amount was only Rs. 1,90,080, the appeal fell below the prescribed threshold. The Revenue failed to specifically plead or establish that the case fell within any of the recognised exceptions, including a recurring question of law, an ultra vires challenge, adverse comments or costs, or a specific and reasoned opinion of the Commissioner requiring the appeal to be pursued in the interest of justice or revenue.

HELD: Departmental appeal involving disputed revenue below Rs. 20,00,000 dismissed at threshold for failure to establish an applicable exception to the monetary limit. The Tribunal held that the right of appeal is a statutory right and its exercise is subject to the conditions governing departmental litigation. Mere administrative approval or authorisation of the Commissioner to file an appeal does not, by itself, constitute an exception to the prescribed monetary limit. Where reliance is placed on the Commissioner’s residual power under Section 112(3), the record must disclose that the Commissioner specifically formed the requisite opinion in the particular case and the basis for such opinion must be discernible. Since no recognised exception was established, the appeal was held not maintainable and was dismissed at the threshold without examining the merits of the tax dispute. Held in favour of the Assessee/Respondent and against the Revenue.

GSTAT Ghaziabad: Departmental GST Appeal Dismissed at Threshold for Tax Demand Below Rs. 20 Lakh

ISSUE: Whether the departmental appeal involving tax demand of Rs. 6,29,505, along with interest and penalty, was maintainable before the GST Appellate Tribunal in view of the prescribed monetary limit of Rs. 20,00,000, where the Revenue failed to establish any recognised exception to the monetary-limit policy.

FACTS: The State Tax Department preferred an appeal against the order of the First Appellate Authority whereby the demand raised under Section 74 of the UPGST Act for 2018-19 was set aside. The disputed demand comprised tax of Rs. 6,29,505, interest and penalty, with the total demand being approximately Rs. 20,10,010. Under the applicable departmental circular, while determining the monetary threshold in a dispute involving tax, interest and penalty, only the disputed tax amount is to be considered. Thus, the relevant tax amount of Rs. 6,29,505 was below the prescribed threshold of Rs. 20,00,000. The Revenue relied upon filing under Section 112(3) of the UPGST Act but failed to specifically plead or establish that the case fell within any of the recognised exceptions to the monetary limit, including any recurring question of law, ultra vires challenge, adverse order or a specific reasoned exercise of the Commissioner’s residual power.

HELD: The Tribunal held that the departmental appeal could not be admitted where the disputed tax amount was below Rs. 20,00,000 and the Revenue failed to establish any applicable exception to the monetary-limit policy. Mere administrative approval or authorisation by the Commissioner was held insufficient to constitute a statutory exception; the record must disclose the particular exception invoked and, where reliance is placed on the Commissioner’s opinion in the interest of justice or revenue, the specific and reasoned exercise of that power. The appeal was therefore dismissed at the threshold on the ground of the prescribed monetary limit and non-establishment of any applicable exception, without examining the merits of the tax dispute. The decision was thus in favour of the assessee/respondent.

GSTAT: Dismisses Departmental Appeal at Threshold Where Disputed Tax of Rs. 1.89 Lakh Falls Below Rs. 20 Lakh Monetary Limit and No Exception Is Established

ISSUE: Whether the departmental appeal involving disputed IGST of Rs. 1,89,000, being below the prescribed monetary limit of Rs. 20,00,000 for departmental appeals before GSTAT, was maintainable in the absence of the Revenue establishing any recognised exception to the monetary threshold or a specific and reasoned exercise of the Commissioner’s power under Section 112(3) of the UPGST Act.

FACTS: The State Tax Department challenged the First Appellate Authority’s order whereby the demand raised under Section 74 of the CGST/UPGST Act in respect of alleged excess availment and utilisation of ITC was set aside. The disputed liability comprised IGST of Rs. 1,89,000, interest of Rs. 50,082 and penalty of Rs. 1,89,000. Under the applicable departmental circular prescribing a monetary limit of Rs. 20,00,000 for departmental appeals before GSTAT, only the disputed tax amount was required to be considered where the dispute concerned tax demand along with interest and penalty. The Tribunal found that the relevant disputed tax was only Rs. 1,89,000. The Revenue failed to establish that the appeal fell within any recognised exception to the monetary limit, or that the Commissioner had recorded a specific and reasoned opinion under Section 112(3) warranting the appeal despite the threshold.

HELD: Departmental appeal dismissed at threshold for being below prescribed monetary limit and for failure to establish any applicable exception. The Tribunal held that the right of appeal is a statutory right and must be exercised subject to the conditions governing its invocation. Since the disputed tax of Rs. 1,89,000 was below the Rs. 20,00,000 threshold and no recognised exception was established, the appeal was not maintainable. Mere administrative approval or authorisation to file an appeal could not substitute compliance with the monetary-limit regime or establish an exception under Section 112(3). The Tribunal accordingly dismissed the appeal at the threshold without examining the merits of the tax dispute.

GSTAT Ghaziabad: Departmental GST Appeal Below Monetary at Threshold for Breaching Rs. 20 Lakh Monetary Limit — Dismissed at Admission Stage

GST — Departmental appeal — Monetary limit — Maintainability — Exception to monetary threshold — Commissioner’s approval — Penalty of Rs. 88,074 — UPGST Act, 2017, Sections 112(3) and 120 — Departmental Circular prescribing Rs. 20,00,000 monetary limit for appeals before GSTAT — Whether departmental appeal involving penalty below prescribed threshold could be admitted.

ISSUE: Whether the departmental appeal involving penalty of Rs. 88,074 could be admitted and adjudicated on merits when the prescribed monetary limit for departmental appeals before GSTAT was Rs. 20,00,000, and whether the Revenue had established any recognised exception to the monetary-limit restriction.

FACTS: The appeal was preferred by the State Tax Department against the order of the First Appellate Authority in relation to a dispute concerning IGST and penalty arising from alleged violation of Rule 138 read with Section 68 of the GST Act. The disputed amount was a penalty of Rs. 88,074, which was admittedly below the prescribed monetary threshold of Rs. 20,00,000 under the departmental litigation policy. The Revenue had not specifically pleaded or established that the case fell within any of the recognised exceptions to the monetary limit. In particular, there was no material showing that the matter involved an ultra vires challenge, a recurring question requiring authoritative determination, adverse comments or costs against the Department, or a specific and reasoned exercise of the Commissioner's residual power to contest the matter in the interest of justice or revenue.

HELD: The Tribunal held in favour of the assessee that the departmental appeal could not be admitted for adjudication on merits. The mere approval or authorisation of the Commissioner to file an appeal does not, by itself, constitute an exception to the prescribed monetary limit; the Revenue must establish the specific exception relied upon and demonstrate the basis on which it applies. Since the disputed penalty of Rs. 88,074 was below Rs. 20,00,000 and no applicable exception was established, the appeal was dismissed at the threshold on the ground of the prescribed monetary limit and non-establishment of any applicable exception. The Tribunal expressly clarified that it had not examined or adjudicated the merits of the underlying tax dispute.

GSTAT: Departmental Appeal Below Rs. 20 Lakh Dismissed at Threshold as Revenue Failed to Establish Exception to Monetary Limit

ISSUE: Whether the departmental appeal involving disputed tax of Rs. 1,98,806 is maintainable before the GST Appellate Tribunal when the prescribed monetary threshold for departmental appeals is Rs. 20,00,000, and whether the Revenue established any recognised exception permitting the appeal to be filed below the prescribed limit.

FACTS: The State Tax Department filed the appeal under Section 112(3) of the UPGST Act, challenging the appellate order whereby the demand of tax and interest under IGST, CGST and SGST amounting to Rs. 1,98,806 was set aside. The applicable departmental litigation policy prescribed a monetary limit of Rs. 20,00,000 for departmental appeals before GSTAT, subject to specified exceptions. Although the Revenue relied upon the Commissioner’s approval/authorisation for filing the appeal, it did not specifically plead or establish that the case fell within any of the recognised exceptions, nor did the record demonstrate a specific and reasoned exercise of the Commissioner’s residual power to contest the matter notwithstanding the monetary limit.

HELD: Departmental Appeal Below Rs. 20 Lakh Dismissed at Threshold for Failure to Establish Exception to Monetary Limit. The Tribunal held that the right of appeal is a statutory right and must be exercised subject to the conditions governing its exercise. Since the disputed tax of Rs. 1,98,806 was substantially below the prescribed threshold of Rs. 20,00,000 and the Revenue failed to establish any applicable exception, the appeal was not maintainable. Mere administrative approval or authorisation to file an appeal could not be treated as permission to disregard the monetary limit. The appeal was accordingly dismissed at the threshold on the ground of the prescribed monetary limit and non-establishment of any applicable exception, without examining the merits of the tax dispute.

Writ Petitions Dismissed; Petitioners Relegated to Statutory Appeal under Section 107 of CGST Act

ISSUE: Whether the Petitioners could bypass the statutory appellate remedy under Section 107 of the CGST Act and invoke writ jurisdiction to challenge the common adjudication order on the grounds of non-consideration of their reply, lack of DGGI jurisdiction, improper allocation of adjudication to Delhi North, and applicability of Circular No. 171/03/2022-GST.

FACTS: DGGI investigated an alleged chain of invoices without corresponding supplies and confirmed ITC demands against the Petitioner's Karnataka, Tamil Nadu and Telangana registrations aggregating to substantial amounts, along with interest and penalties. The Petitioners contended that the underlying construction work and subcontracting transactions were genuine and relied upon work orders, invoices, ledgers, bank records and other documents. They challenged the adjudication order on the ground that their reply and documents were not properly considered, that DGGI lacked jurisdiction over State-administered registrations, that adjudication should have been transferred to Chennai or Rangareddy, and that Circular No. 171/03/2022-GST precluded recovery under Section 74.

HELD: The Court held in favour of the Revenue by declining to interfere in writ jurisdiction and relegating the Petitioners to the statutory remedy of appeal under Section 107 of the CGST Act. The Court held that DGGI had jurisdiction throughout India and that Delhi North was the designated adjudicating Commissionerate under the applicable notifications and circulars. The grievances regarding appreciation of the Petitioners' documents, applicability of Circular No. 171/03/2022-GST, ITC entitlement, interest and penalties involved factual and appellate examination and therefore did not justify bypassing the statutory remedy. The Petitioners were permitted to file appeals with the requisite pre-deposit within four weeks, which would be entertained on merits without objection on limitation; interim protection was continued for four weeks.

GST Writ Petitions Dismissed; Common Adjudicating Authority Held to Have Valid Jurisdiction and Impugned Circular Upheld

ISSUE: Whether the Common Adjudicating Authority had valid jurisdiction to adjudicate the composite SCN issued to multiple noticees across different Commissionerates, and whether Circular Nos. 169/2022-GST and 239/2024-GST, prescribing the “highest amount of demand” criterion for selecting the Common Adjudicating Authority, were legally valid.

FACTS: The eight Petitioners, comprising exporters/end-users and L-1 suppliers, challenged the SCNs and consequential OIO arising from an alleged fraudulent ITC and IGST refund racket involving goods-less invoices. They also challenged the Impugned Circulars on the ground that jurisdiction could not be conferred through a circular and that the “highest amount of demand” criterion was arbitrary. The Respondents contended that pan-India jurisdiction had already been conferred upon specified Additional/Joint Commissioners through Notification No. 2/2022, while the Impugned Circular merely provided an administrative mechanism to select one competent officer for common adjudication.

HELD: The Court held in favour of the Revenue and dismissed the writ petitions. It held that Notifications Nos. 2/2017 and 2/2022 validly conferred jurisdiction, while the Impugned Circular merely allocated a composite SCN amongst officers who were already competent to adjudicate and did not itself confer jurisdiction. The “highest amount of demand” criterion was held to be objective, quantifiable and rationally connected with securing consistent adjudication. The challenge to the jurisdiction and vires of the Impugned Circular therefore failed. The Petitioners were left at liberty to pursue statutory appeals under Section 107 against the OIO and raise their remaining contentions on merits.

GSTAT Bengaluru: Penalty under Section 129 upheld for transporting goods without invoice and e-way bill; subsequent generation of documents cannot cure the contravention

ISSUE: Whether the revisional proceedings under Section 108(2)(b) of the KGST Act were barred by limitation, and whether the Revisional Authority was justified in reversing the Appellate Authority's order and restoring the penalty imposed under Section 129(1) for transportation of goods without the requisite tax invoice and e-way bill.

FACTS: The appellant, M/s. Heramb Enterprises, received plywood which, at the time of interception, was being unloaded at REC Flow Technology LLP, Belagavi. Although an invoice and e-way bill existed for transportation from Intercon Wood Industries, Kerala to the appellant's address, no invoice or e-way bill was available for the actual delivery to REC Flow Technology LLP. The proper officer consequently imposed tax and penalty under Section 129(1). The Appellate Authority reduced the penalty to Rs. 500 each under the CGST and KGST Acts, holding that the transaction was genuine and there was no intention to evade tax. The Revisional Authority reversed that order and restored the original penalty. The appellant also challenged the revisional order as time-barred under Section 108(2)(b).

HELD: The Tribunal held that the revisional proceedings were not barred by limitation, since the period from 15.03.2020 to 28.02.2022 excluded by the Supreme Court in Cognizance for Extension of Limitation was applicable to departmental proceedings as well, as subsequently confirmed in G.R. Infra Projects Ltd. v. State of Madhya Pradesh. On merits, the Tribunal held that the goods were being transported/unloaded without the requisite invoice and e-way bill at the time of interception, contrary to Section 68 and Rule 138. The appellant failed to substantiate its claim of technical glitches, and the e-way bill generated after interception was held to be an afterthought. The absence of statutory documents in the circumstances was treated as a wilful contravention with intention to evade payment of tax. Accordingly, the penalty under Section 129(1) was held to be legal and valid, the revisional order was confirmed, and the appeal was dismissed. Decision: in favour of Revenue.

GSTAT Bengaluru: GSTR-3B and GSTR-2A Mismatch Alone Cannot Justify Section 74 Penalty; 100% Penalty Set Aside in Favour of Assessee

ISSUE: Whether invocation of Section 74 of the CGST Act and imposition of 100% penalty was justified where excess ITC arose from mismatch between GSTR-3B and GSTR-2A and the entire tax along with interest was paid before issuance of the show cause notice.

FACTS: The appellants had availed excess ITC of Rs. 2,74,20,293/- for July 2017 to November 2021, which was detected during verification by the Anti-Evasion Wing. The appellants paid the entire tax along with interest on 18.01.2022, before issuance of the show cause notice. The adjudicating authority nevertheless invoked Section 74 and imposed penalty equal to 100% of the tax, holding that the excess ITC constituted suppression of facts. The Commissioner (Appeals) upheld the order. The appellants contended that there was no fraud, wilful mis-statement or intention to evade tax and that the mismatch was attributable to third-party supplier defaults.

HELD: The Tribunal held that mere mismatch between GSTR-3B and GSTR-2A does not by itself establish fraud, wilful mis-statement or suppression so as to attract Section 74. Relying upon the Supreme Court's decision in Tata Steel Ltd. v. Union of India and other decisions, it held that the department must establish a clear link between the mismatch and the alleged fraud, wilful mis-statement or suppression. Since the authorities failed to establish such a link, and the excess ITC with interest had been paid before issuance of the show cause notice, the case was governed by Section 73 rather than Section 74. Accordingly, the order-in-appeal was set aside and the 100% penalty under Section 74 was held invalid and unjustified, in favour of the assessee.

GSTAT Kolkata: Refund of Unutilised ITC Allowable on Inverted Tax Structure Where Inputs and Agarbati Outputs Are Distinct; CBIC Circular Not Binding on Tribunal

ISSUE: Whether the taxpayer was entitled to refund of unutilised ITC under Section 54(3)(ii) of the CGST Act, 2017 on account of an inverted tax structure where GST on inputs such as perfumes, fragrances, chemicals and packaging materials was higher than the 5% GST applicable to outward supplies of Agarbati, and whether paragraph 3.2 of CBIC Circular No. 135/05/2020-GST, as substituted by Circular No. 173/05/2022-GST, barred such refund.

FACTS: The adjudicating authority sanctioned a refund of Rs. 4,00,000/- to the taxpayer for April 2022 to March 2023, holding that the taxpayer had accumulated unutilised ITC because inputs were taxed at 12% to 18%, whereas Agarbati manufactured and supplied by the taxpayer was taxed at 5%. The revenue challenged the sanction contending that, in view of CBIC Circular No. 135/05/2020-GST and Circular No. 173/05/2022-GST, the refund was not admissible. The first appellate authority rejected the revenue’s appeal. Before the Tribunal, the taxpayer contended that the inward inputs and outward Agarbati were commercially distinct goods and therefore the clarification concerning the same input and output goods had no application. The Tribunal also considered the Supreme Court’s decision in VKC Footsteps India Pvt. Ltd. concerning the statutory restriction under Section 54(3).

HELD: Refund of accumulated ITC allowed in favour of the taxpayer; revenue’s appeal dismissed. The Tribunal held that the taxpayer had established an inverted duty structure within the meaning of Section 54(3)(ii), since the rate of GST on the inputs was higher than the rate applicable to the distinct outward supply of Agarbati. Paragraph 3.2 of Circular No. 135/05/2020-GST was held inapplicable because it concerned cases where the input and output supplies were the same goods. The Tribunal further held that CBIC circulars bind departmental officers but do not have a binding effect on the Tribunal, though they may have persuasive value. Accordingly, the concurrent findings of the adjudicating and first appellate authorities were upheld and the revenue’s appeal was dismissed.

GSTAT Ernakulum: Holds Belated Section 129(3) Order Void Ab Initio; Appeal Allowed in Favour of Assessee

ISSUE: Whether the proceedings under Section 129(3) of the KGST/CGST Act were valid when the notice was issued on 16.08.2021, but the order confirming tax and penalty was passed only on 04.11.2022, beyond the prescribed seven-day period.

FACTS: M/s GMG Electric, engaged in trading electrical line materials and hardware in Kerala, had its goods intercepted on 16.08.2021 on the ground that the e-way bills had expired on 15.08.2021. A notice under Section 129(3) was issued on 16.08.2021, but the order confirming the demand of tax and penalty was passed only on 04.11.2022, i.e. 445 days after issuance of the notice. The Appellate Authority upheld the order, leading to the present appeal before the GSTAT.

HELD: GSTAT allowed the appeal in favour of the assessee, holding that the order passed under Section 129(3) after expiry of the mandatory seven-day statutory period was void ab initio and a nullity in law. Since the adjudicating authority failed to comply with the mandatory timeline prescribed under Section 129(3), the original order could not be sustained. Consequently, the Order-in-Appeal was set aside with consequential relief. The Tribunal also relied upon the consistent view taken by various High Courts and the GSTAT, Thiruvananthapuram Bench, that non-compliance with the statutory timeline under Section 129(3) vitiates the proceedings.

The High Court of Rajasthan: Unsigned GST Notices and Orders Held Non Est; Recovery and Bank Attachment Quashed

ISSUE: Whether a show cause notice and an adjudication order under the CGST Act, bearing neither a physical nor a digital signature, can be sustained in law, and whether consequential recovery proceedings can survive.

FACTS: The petitioner, a real estate developer, challenged the show cause notice dated 23.09.2023 and Order-in-Original dated 19.12.2023, along with the recovery notice dated 27.03.2024 issued under Section 79 of the CGST Act. The impugned documents uploaded on the GST portal contained reference numbers but no physical or digital signatures. The respondents contended that uploading documents through the departmental portal itself established authentication because the officer had logged in using a digital signature. The petitioner contended that Rule 26(3) of the CGST Rules mandatorily requires notices and orders to be authenticated by digital signature, e-signature, or another notified mode of verification.

HELD: The High Court held in favour of the assessee that Rule 26(3) is mandatory and that electronic generation or uploading of a document does not substitute for authentication by signature. Login to the portal authenticates access by the officer but does not authenticate the contents of the document. An unsigned show cause notice and adjudication order are therefore non est in law, and the defect is jurisdictional rather than a curable procedural irregularity. Consequently, the show cause notice dated 23.09.2023 and Order-in-Original dated 19.12.2023 were quashed, along with the Section 79 recovery notice and consequential bank attachment. The competent authority was granted liberty to initiate fresh proceedings in accordance with law, subject to proper physical or digital authentication under Rule 26(3).

Notice under Section 73(2) CGST/AGST Act dated 29.11.2024 held within limitation where three full calendar months remained before the statutory deadline

ISSUE: Whether the show cause notice dated 29.11.2024 issued under Section 73(1) of the CGST/AGST Act for FY 2020-21 was barred by Section 73(2), on the ground that it was not issued at least three months before the expiry of the period prescribed under Section 73(10), which expired on 28.02.2025.

FACTS: The appellant, a registered taxable person engaged in wholesale/distribution of cellular phones, was issued a show cause notice dated 29.11.2024 proposing a demand of Rs. 33,03,968/- along with interest and penalty on allegations including wrongful/excess availment of ITC from cancelled dealers, return defaulters and non-taxpayers. The appellant contended that since the order under Section 73(9) could be issued up to 28.02.2025, the notice ought to have been issued by 28.11.2024. The Revenue contended that, excluding the date of issuance, the notice left the calendar months of December 2024, January 2025 and February 2025 available and was therefore within time.

HELD: The appeal was dismissed and the notice dated 29.11.2024 was held to be within the period contemplated by Section 73(2). The Court held that “month” means a calendar month and that, on excluding the date of issuance, the appellant had the full intervening calendar months of December, January and February before the terminal date of 28.02.2025. Section 73(2) prescribes a minimum interval between initiation of proceedings and their culmination under Section 73(10), rather than an independent limitation period based on a corresponding date calculated backwards. Accordingly, the Single Judge was justified in holding the notice to be valid. However, since the order dated 28.02.2025 had been passed during pendency of the writ proceedings, the Court interfered with that order to give the appellant an opportunity to contest the notice. The appellant was permitted to file a reply within four weeks, after which the proceedings were to be completed within three months; failing such reply, the order dated 28.02.2025 would revive.

The High Court of Jharkhand: Orders Passed Against Deceased Proprietor Quashed — Matter Held in Favour of Assessee

ISSUE: Whether orders passed against the earlier proprietor of the petitioner, who had expired before such orders were passed, could be sustained.

FACTS: The petitioner challenged orders dated 27.12.2021, 26.07.2022 and 28.08.2024. The parties agreed that the issue was covered by the Court’s earlier order dated 11.06.2026 in W.P.(T) No. 3862 of 2026 involving the same petitioner and identical reliefs.

HELD: Following its earlier decision, the Court quashed and set aside the impugned orders since they had been passed against Shibu Prasad Das, the erstwhile proprietor, after his death on 15.09.2020. However, liberty was granted to the respondents to pursue their claims against the petitioner in accordance with law. The writ petition was accordingly disposed of and the rule made absolute, in favour of the assessee.

Ex Parte GST Order Set Aside for Violation of Principles of Natural Justice; Matter Remanded for Personal Hearing

ISSUE: Whether the order dated 13.02.2025 passed under Section 73(9) of the Uttar Pradesh Goods and Service Tax Act, 2017 for FY 2020-21 could be sustained when the order was passed ex parte without being passed on the date fixed for hearing and without communicating the subsequent date of hearing to the petitioner.

FACTS: The petitioner challenged the ex parte order dated 13.02.2025 passed by the Commercial Tax Officer, State Tax, Sector-21, Lucknow. The Court found from the record that although a date was fixed for hearing, the order was not passed on that date and no notice was given to the petitioner regarding the subsequent date. The petitioner relied upon the coordinate Bench judgment in M/s Shubham Steel Traders v. State of U.P. and Another, (2024) 74 TLC (GST) 154, wherein it was held that where an authority fixes a date for hearing, it must either pass the order on that date or fix another date and communicate the same to the assessee.

HELD: Ex Parte GST Order Quashed for Violation of Natural Justice; Fresh Order to be Passed After Personal Hearing. The Court held that the facts were similar to M/s Shubham Steel Traders and that the assessing authority, by failing to pass the order on the date fixed and by not communicating the subsequent hearing date, had caused the proceedings to become ex parte. Accordingly, the impugned order dated 13.02.2025 was quashed and set aside in favour of the assessee, with a direction to the concerned authority to provide the petitioner an opportunity of personal hearing and thereafter pass a reasoned order in accordance with law. The writ petition was accordingly disposed of.

GSTAT Bengaluru: Section 74 Penalties Unsustainable in Absence of Positive Proof of Deliberate Suppression

ISSUE: Whether the First Appellate Authority was justified in imposing penalties under Section 74 of the CGST Act on Issues 1 and 3, despite the absence of positive evidence of fraud, wilful misstatement or suppression of facts with intent to evade tax, and despite the tax and interest having been paid before issuance of the SCN.

FACTS: The appellant had voluntarily deposited the agreed tax of Rs. 7,78,693 and applicable interest through Form GST DRC-03 before issuance of the SCN. The Adjudicating Authority confirmed the tax liabilities but dropped the Section 74 penalty on Issues 1 and 3, finding no deliberate suppression. However, the First Appellate Authority reversed these findings and imposed Section 74 penalties. The Tribunal noted that the relevant records, including GSTR-3B, GSTR-2A and TRAN-1, were available on the departmental portal and that no positive act of deliberate suppression or intentional misstatement had been established.

HELD: The appeal was allowed in favour of the assessee. The Tribunal held that Section 74 could not be invoked mechanically on the basis of audit discrepancies or mere recitation of statutory expressions such as “suppression” or “wilful misstatement”. In the absence of foundational facts establishing deliberate intent to evade tax, the Section 74 penalties imposed on Issues 1 and 3 were unsustainable. The impugned Order-in-Appeal dated 01.10.2024 was accordingly set aside, and the payments relating to Issues 1 and 3 were treated as payments under Section 73(5) of the CGST Act.

The High Court of Madras: Impugned Service Tax Order Set Aside for Breach of Natural Justice; Matter Remanded After Verification of Tax Payment

ISSUE: Whether the service tax order dated 27.09.2023 imposing service tax, interest and penalty was liable to be set aside on the ground of violation of principles of natural justice, particularly when the petitioner claimed that the entire tax demand had already been discharged in instalments and was suffering from cancer.

FACTS: The petitioner challenged the impugned order on the ground that there was a breach of principles of natural justice. The petitioner produced multiple receipts evidencing payment towards the service tax demand and contended that the entire demand of Rs.33,47,623/- had been discharged in instalments. The respondent submitted that the petitioner had neither responded to the show cause notice nor participated in the proceedings. The petitioner also placed medical records on record showing that she was suffering from cancer.

HELD: The Court held that, subject to verification and confirmation that the entire tax demand of Rs.33,47,623/- had been discharged, the interest of justice required that the petitioner be given an opportunity to contest the matter on merits. Considering the prima facie medical evidence regarding the petitioner's cancer, the impugned order was set aside and the matter was remanded for reconsideration after providing a reasonable opportunity to the petitioner. A fresh order was directed to be passed within four months from the date of confirmation of the recovery. Subject to verification of the full payment, the bank attachment relating to the impugned order was directed to be raised. The writ petition was accordingly disposed of with no order as to costs.

The High Court of Calcutta: Omitted Rule 96(10) Cannot Sustain Pending Proceedings; Show Cause Notice and Consequential Orders Quashed.

ISSUE: Whether proceedings initiated under Rule 96(10) of the CGST/WBGST Rules, 2017 could be initiated or continued after the unconditional omission of the said Rule with effect from 8 October 2024, in the absence of any saving clause.

FACTS: The petitioners challenged the show cause notice dated 09.01.2024 issued under Section 74 of the CGST Act, 2017 for the period July 2017 to March 2021 and the consequential orders dated 30.01.2025, contending that the proceedings were founded solely upon Rule 96(10), which had subsequently been omitted without any saving clause. The petitioners relied upon the judgment of the Hon’ble Supreme Court in M/s Goodluck India Limited & Anr. v. Union of India & Ors., wherein, following the Constitution Bench decision in Kolhapur Canesugar Works Ltd. v. Union of India, it was held that an omitted provision ceases to exist unless there is a saving provision or legal fiction permitting continuation of proceedings. The Court also took judicial notice of the CBIC Office Memorandum dated 24.08.2026 directing field formations not to initiate or pursue proceedings based on the omitted Rule 96(10).

HELD: Following the law declared by the Hon’ble Supreme Court in M/s Goodluck India Limited & Anr., the High Court held that proceedings founded solely upon the omitted Rule 96(10) could not be sustained in the absence of a saving clause. Accordingly, the show cause notice dated 09.01.2024 and the consequential orders dated 30.01.2025 were quashed and set aside, and the writ petition was disposed of in favour of the assessee/petitioners.

The High Court of Allahabad: Penalty Exceeding Statutory Maximum Limit Quashed Where Taxpayer Had Filed Return and Paid Late Fees

ISSUE: Whether penalty of Rs.50,000/- imposed under Section 125 of the CGST Act, 2017 and the corresponding provisions of the UPGST Act, 2017, along with the consequential recovery proceedings through FORM GST DRC-13, was legally sustainable when the petitioner had already filed the return and paid the applicable late fees.

FACTS: The petitioner challenged the penalty order dated 21.11.2024, whereby penalty of Rs.25,000/- under the CGST Act and Rs.25,000/- under the UPGST Act, aggregating to Rs.50,000/-, was imposed. The petitioner had already filed his return and paid the late fees in accordance with law. The petitioner also challenged FORM GST DRC-13 dated 02.07.2025 issued to his bank for recovery of the said Rs.50,000/-. It was contended that the penalty imposed exceeded the maximum limit prescribed under the U.P. GST Act, 2017.

HELD: The High Court held that since the petitioner had already filed the return and paid the applicable late fees, and the penalty of Rs.50,000/- exceeded the maximum statutory limit prescribed under the U.P. GST Act, 2017, the impugned proceedings could not be sustained. Accordingly, the impugned show cause notice and penalty order were quashed and set aside, and the writ petition was disposed of in favour of the assessee.

The High Court of Rajasthan: Continued Incarceration Unwarranted Where Investigation Complete and No Custodial Interrogation Required; Bail Granted in Favour of Assessee/Accused

ISSUE: Whether the accused-petitioner, arrested under Section 69 of the CGST Act, 2017 for alleged offences under Section 132 involving wrongful availment and passing on of Input Tax Credit of approximately Rs.13.21 Crores, is entitled to bail under Section 483 of BNSS when the material evidence has already been seized, investigation has substantially progressed, no further custodial interrogation or recovery is required, and the alleged tax liability has not yet been finally adjudicated.

FACTS: The petitioner was arrested on 02.07.2026 in connection with an investigation conducted by the CGST Commissionerate, Alwar, following searches at M/s Bhagwati Trading Company and M/s Kanha Metal Industries. The Department alleged wrongful availment and passing on of Input Tax Credit and irregular refund under the inverted duty structure. Documentary and electronic records, including a mobile phone, had already been seized and examined, and the petitioner had been interrogated. The petitioner had no criminal antecedents, had cooperated with the investigation, and no Show Cause Notice or adjudication determining the alleged liability had been issued. The Department opposed bail on the ground of the seriousness of the GST offences.

HELD: Bail granted in favour of the assessee/accused as continued incarceration was held unwarranted where the petitioner had no criminal antecedents, the material investigation was substantially complete, relevant documentary and electronic evidence was already in the Department's possession, and no further custodial interrogation or recovery was required. The Court held that gravity of the allegation or quantum involved cannot by itself justify denial of bail, particularly when there was no demonstrated apprehension of absconding, tampering with evidence or influencing witnesses. The alleged pecuniary liability could be recovered through the statutory machinery after adjudication, and pre-trial detention could not be used to secure such liability. Considering that the offence carried a maximum sentence of five years and was triable by a Magistrate, the petitioner was directed to be released on bail on furnishing a personal bond of Rs.50,000/- with two sureties of Rs.25,000/- each.

Delhi High Court Grants GST Assessee Opportunity to Restore Registration Subject to Payment of Dues and Filing of Returns

ISSUE: Whether the cancellation of the Petitioner’s GST registration for failure to file returns could be set aside where the Petitioner, citing business difficulties during COVID-19, was willing to file the pending returns and pay all tax liabilities, penalty and interest, despite the Respondent’s objection regarding delay in approaching the Court.

FACT: The Petitioner, a proprietorship concern, had his GST registration cancelled by an order dated 17.04.2023 on the ground of non-filing of returns. The Petitioner submitted that he could not continue his business during the COVID-19 period and expressed his readiness to file the pending returns and discharge all tax liabilities along with applicable penalty and interest if an opportunity was granted. The Revenue opposed the petition on the ground that it had been filed after a considerable delay. The Court noted that the Petitioner was willing to comply with his tax obligations and intended to resume his business.

HELD: The Delhi High Court set aside the order dated 17.04.2023 cancelling the GST registration, subject to the condition that the Petitioner files the pending returns within one month and pays all tax liabilities along with applicable penalty and interest. The Court observed that during COVID-19 everyone suffered, particularly businessmen, and found no sufficient reason to deny the Petitioner an opportunity to regularise his position. The petition was accordingly disposed of, while clarifying that the order would not prevent the Revenue from initiating proceedings against the Petitioner for any other default. Held in favour of the assessee.