DGGI PRACTICES AND CHALLENGES IN GST IMPLEMENTATION

DGGI

1. Legal Challenges in GST Enforcement NATIONAL CONFERENCE OF ENFORCEMENT CHIEFS OF CENTRE AND STATE GST FORMATIONS – MONDAY, 4 TH MARCH, 2024 DGGI

2. LEGAL FRAMEWORK INVOLVING GST ENFORCEMENT Search Seizure of Cash Summon Arrest Cancellation of Registration Blocking of ITC Ledger Provisional attachment of Bank Accounts Show Cause Notice & Penalty Prosecution 2

3. SEARCH Section 67, Rule 139 JC/ADC can authorize inspection/search – Reason to believe TP suppressed any transaction relating to supply ; claimed ITC in excess ; Can seize any goods liable to confiscation or any documents/books/ things CBIC Instruction.No.01/2020-21 dt. 2.2.2021 3 Reason to Believe Material basis [AIR 1976 SC 1753] ‘Reason to believe’ not same as ‘Reason to Suspect’ [159 ITR 956SC]

4. SEIZURE OF CASH Smt. Kanishka Matta vs UOI & Ors (MP HC 2020) Expression 'things' in S. 67(2) would cover cash, Authorities seized cash rightly Arvind Goyal CA vs UOI & Ors (Delhi HC 2023 ) Cash – neither goods nor can be “thing” relevant to proceedings Shabu George vs ST Office (Kerala HC 2023) Department cant seize cash which doesn’t form part of Stock in Trade. Upheld by Hon’ble SC in SLP No.27670/2023 vide order 31.07.2023 SUGGESTIONS Provide for seizure of cash (on lines of Section 2(22), S.110, 121 in Customs Act, 1962), Section 132(1)(c)(3) of the IT Act, 1961 empowers for seizure of cash SOP for Cash Seizure . Above Court rulings make the legal interpretation w.r.t Cash Seizure during search challenging. 4

5. SUMMON Section 70 – Key words – ‘Necessary’; ‘Evidence’; ‘Documents’; ‘Inquiry’ Section 116 – Appearance by authorised representative. Exception - when required to appear personally for examination on oath or affirmation Vineet Kumar v. UOI ([2021] (P&H HC 2021) Assessee was allowed to be represented by authorised representative when he undertook to produce all material which revenue may require as per S.70 CBIC Inst. No. 03/2022-23 dt. 17.08.2022 Proper officer to exercise such power judiciously and with due consideration 5

6. ARREST CONSTITUTIONAL CHALLENGE TO POWER OF ARREST & SUMMON 1. P V Ramana Reddy V UOI & Ors . (Telangana HC 2019) Declined to give relief from arrest to the TP Hon’ble SC upheld same in SLP (CRL) No.4430/2019 vide Order dt. 27.05.2019 2. Sapna Jain & Others (SC of India 2019) dt. 29.05.2019 Bombay HC granted pre-arrest bail Hon’ble SC held that HCs to keep in mind that SC by order dated 27.05.2019 in SLP (CRL) No.4430/2019 had dismissed SLP against the judgment and order of Telangana HC in similar matter wherein the HC of Telangana declined to give relief from arrest to the TP. About 79 matters of DGGI related to Arrest, Summon, Prosecution stands admitted by H’ble SC, wherein, ‘No Coercive Action’ interim order has been passed. 6

7. LEARNINGS FROM LITIGATIONS – S. 29, S. 83, R.86A Quality of SCN [(Delhi HC 2024) in Satendra Vs Sup. Circle –152, CGST] Unreasoned Orders - Orders for cancellations passed on mere basis that no response was received, rather than discussing any allegations and details. [(Delhi HC 2023) in Aaira Batteries Vs Pr. Com of DTT Case ] Sahil Enterprises vs UOI (Tripura HC 2021) 86A restrictions a temporary measure for a period not exceeding 1 year A S E India v. UOI (Telangana HC 2023) 86A blocking set aside for - Non-speaking order ; no-reasons for blocking. Arhaan Ferrous & Non Ferrous Sol (P.) Ltd.v.SIO3 (AP HC 2023) Unless reasons are recorded broadly, TP cannot be expected to file any objections under provisions of S.83 & Rule 159(5). Order set aside. 7

8. LEARNINGS FROM LITIGATIONS CONTD… Reasoned SCNs/Orders with material basis and following process of Natural Justice (S. 29- Cancellation of Registration) Due process to be followed – Opportunity to TP, Speaking Order - S. 83, R. 86A Proportionality of Action Timely Completion of investigation given stringent 1 Yr debarring clause (S. 83, R 86A) Learnings from Court Rulings adopted in CBIC Guidelines/Instructions 8

9. SHOW CAUSE NOTICE & PENALTY Section 74 – SCN; Tax can be paid before SCN/Order to claim less penalty Section 122 – Penalty – fake invoices/supplies; ITC claim w/o supplies; Non filing of Returns CBIC Clarification ( F.No . CBIC-20001/2/2022-GST) dt. 06.07.2022 Penalty issues in ITC Fraud addressed Hon’ble SC -  in case of M/s Ecom Gill Coffee Trading (SC of India 2023) [KVAT Case, but ratio applied in GST case - Universal Enterprises v. UOI (Allahabad HC 2023) In case of cancelled suppliers, disputed sale, no proof of movement of goods etc - ITC denied 9

10. PROSECUTION Section 132 Avails of ITC on invoice w/o supply; issues invoice w/o supply which leads to wrongful availment; abets in above offences - punishable (upto 5 years) Presumption of culpable mental state Section 138 – Compounding of offences allowed CBIC Instruction No. 04/2022-23 dt. 01.09.2022 Prosecution can be filed before adjudication in Arrest cases (S. 69) Habitual Evader Person/company involved in two or more cases of confirmed demand of tax evasion/fraudulent refund or misuse of ITC involving fraud etc. in past two years Total tax evaded and/or total ITC misused Rs 5 Cr . Supplementary Charge sheet - Allowed as per S.173 Cr.P.C 10 THANK YOU