Orissa HC: Central GST Authority Cannot Launch Parallel Section 74 Proceedings When State GST Has Already Initiated Action

Orissa HC: Central GST Authority Cannot Launch Parallel Section 74 Proceedings When State GST Has Already Initiated Action

The assessee, a registered works-contract service provider in Odisha, had already undergone adjudication under Section 74 of the GST Act by the State Proper Officer for alleged wrongful ITC availed on the basis of invoices issued by two alleged non-existent suppliers for the periods spanning December 2017 to March 2019. These proceedings resulted in Orders-in-Original dated 12.04.2023, which were later on affirmed or modified in appeals under Section 107. Because the GST Appellate Tribunal had not yet been constituted, the assessee secured protective directions from the High Court in multiple writ petitions permitting the benefit of Section 112(9) stays.

The Directorate General of GST Intelligence (DGGI), Rourkela Unit, ignoring the above proceedings, issued separate Show Cause Notice under Section 74 on the very same allegations and periods. The assessee objected, pointing out that Section 6(2)(b) prohibits the initiation of proceedings by the Central authority when the State authority has already started proceedings on the same subject matter.  Despite this, the Assistant Commissioner (CGST), proceeded to pass Order-in-Original dated 30.01.2025 and issued DRC-07 summaries.

Issue Before HC: Whether the amounts received by Tansam Engineering from L&T Valves were salary reimbursements for deputed employees or consideration for manpower-supply services attracting service tax.

HC’s Ruling: The Orissa High Court held that Section 6(2)(b) of the GST Act expressly bars initiation of proceedings by one tax administration when proceedings on the same subject-matter have already been initiated by the other. Relying squarely on the Supreme Court’s authoritative decision in Armour Security (India) Ltd. v. Commissioner, CGST, the Court clarified that issuance of summons under Section 70 does not amount to initiation of “proceedings”; only a Show Cause Notice beginning formal adjudication qualifies. Since the State Proper Officer had issued SCNs under Section 74 on 02.07.2021 and 30.07.2021, prior to the DGGI’s SCN dated 13.08.2021, the Central proceedings were legally barred.

The Court emphasised that both authorities relied on the same intelligence inputs and alleged identical contraventions involving the same suppliers, tax periods, and alleged fake ITC. As such, the later SCN issued by the Central Proper Officer was without jurisdiction, rendering the subsequent Order-in-Original a nullity. Applying the doctrine sublato fundamento cadit opus, the Court quashed the DGGI SCN, the OIO, and the associated DRC-07 demand summaries.

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