High Court upholds GST show-cause notice issued to Mangaluru transport firm

Bengaluru: The Karnataka High Court has observed that courts should not ordinarily interfere at the stage of issuing a show-cause notice in cases involving alleged Goods and Services Tax (GST) evasion. The court accordingly upheld the show-cause notice issued to Mangaluru-based Vighneshwara Transport Company.

The division bench comprising Justice S.G. Pandit and Justice K.V. Aravind passed the order while hearing an appeal filed by the Central Tax Department challenging an earlier decision of a single-judge bench. The single bench had quashed the show-cause notice issued to the company by the GST Commissionerate in Mangaluru.

Allowing the appeal, the division bench set aside the order of the single judge and restored the show-cause notice issued by the Central Tax authorities. The bench noted that proceedings under Section 74 of the GST Act, which deals with cases involving alleged tax evasion, are independent in nature and are not dependent on search or seizure actions conducted under Section 67 of the Act.

The court further observed that even if there were procedural lapses during search or seizure operations, the documents obtained during the investigation cannot be entirely discarded. If the allegations are genuine, the manner in which the evidence was collected cannot be the sole ground to invalidate the proceedings, the bench said.

The judges also clarified that proceedings under Section 74 are independent and there is no legal prohibition on using documents obtained during the investigation. Information collected by officers from other commissionerates can also be relied upon during the inquiry.

The court directed the company to submit its reply to the show-cause notice within 15 days. After receiving the response, the tax department may proceed further in accordance with law.

Background of the case: Vighneshwara Transport Company, based in Mangaluru, is engaged in goods transportation and was registered under the GST Act. Authorities had suspected the firm of GST evasion, manipulation of invoices and misuse of e-way bills.

During an investigation by the Mangaluru GST Commissionerate, officials suspected that goods had been transported without paying GST. It was also alleged that invoices and e-way bills were altered and that the same e-way bills were used multiple times to transport goods.

Based on the findings, the information was forwarded to the Bengaluru North-West Commissionerate, which issued a show-cause notice to the company on April 11, 2023.

The company had challenged the notice before the High Court, and a single-judge bench had quashed it, holding that the Mangaluru Commissionerate lacked jurisdiction to conduct the investigation. The court had also directed the authorities to return Rs. 50 lakh deposited by the company during the probe and to hand back the seized documents, while leaving room for fresh action under the law.

Challenging that order, the Central Tax Department filed an appeal before the division bench. During the hearing, government counsel argued that the investigation was conducted jointly by multiple units and that officials from the Bengaluru commissionerate had independently examined the case.

The department also informed the court that the company is suspected of evading GST amounting to around Rs. 27.56 crore. Investigators reportedly identified about 1,964 e-way bills during the probe and alleged that the same e-way bill had been used repeatedly for multiple consignments.