Background of the Case

CTS Industries Limited, a company registered under the Companies Act with its office in Begusarai, Bihar, was subjected to a search operation by the Directorate General of GST Intelligence (DGGI), Patna. During this operation, documents and purchase invoices were seized, and a panchnama was prepared on 06.07.2021. Subsequently, the DGGI issued a series of summonses to the company, requesting the production of documents and information. In response, CTS Industries appeared through its representative and submitted the required documents.

Parallelly, the Assistant Commissioner of State Tax, Begusarai Circle, initiated scrutiny of returns under Section 61 of the Bihar Goods and Services Tax Act, 2017. Based on this scrutiny, a demand-cum-show cause notice was issued under Section 74(1) of the Act, alleging wrongful availment of Input Tax Credit (ITC) due to fraud or suppression of facts. The company failed to respond to this notice or appear for a personal hearing. Thus, an assessment order was issued in accordance with Section 74(9) on 28.06.2022.

Court’s Ruling in CTS Industries Ltd. Case

In CTS Industries Ltd. v. Assistant Commissioner of State Tax, Begusarai & Ors. [CWJC No. 1898/2023 & 2806/2023], The State GST Authority’s tax assessment order was maintained by the Patna High Court, which concluded that the State’s action under Section 74(1) is lawful even if the Directorate General of GST Intelligence (DGGI) has previously acted—provided no proceedings were pending at the time.

The petitioner contended that DGGI’s search and summons precluded parallel State action under Section 6(2)(b) of the CGST Act and cited the CBIC Circular dated 05.10.2018. Rejecting this, the Court found that the State officer’s action was based on independent scrutiny under Section 61, and that the DGGI had initiated proceedings only after the State order was passed. The Court also emphasized that no violation of natural justice occurred, as the petitioner had been served a valid SCN under Section 74 but failed to respond or appear.

The judgment reinforces that timing and independence of proceedings matter when invoking Section 6(2)(b). A valid assessment under Section 74 by a State authority cannot be invalidated solely due to prior DGGI intelligence activity—unless a proceeding on the same subject matter was already pending. It also serves as a cautionary reminder to taxpayers: ignoring show cause notices weakens procedural challenges.