Delhi High Court Upholds GST Circular Allowing Common Adjudication Of Composite SCNs Based On Highest Demand

The Delhi High Court has upheld the validity of a GST circular prescribing the 'highest amount of demand' criterion for selecting a Common Adjudicating Authority where a composite show-cause notice is issued to multiple noticees falling under different jurisdictions.

The Division Bench of Justices Anil Kshetarpal and Shail Jain held that the circular does not confer any fresh jurisdiction on an officer.

Rather, it merely provides an administrative mechanism for selecting, from among officers who already possess the requisite pan-India jurisdiction, the officer who will adjudicate a composite SCN.

The Court was dealing with a batch of eight petitions challenging GST circulars governing the appointment of a Common Adjudicating Authority.

The proceedings arose from a Directorate General of Goods and Services Tax Intelligence (DGGI) investigation into an alleged large-scale fraudulent IGST racket.

It is alleged that the fraud involved a three-layer chain of fake invoicing without actual movement of goods and accordingly, SCN was issued to 146 noticees, including Petitioners.

After the GST authority confirmed the demands and imposed penalties, Petitioners approached the High Court challenging the jurisdiction of the Common Adjudicating Authority.

Petitioners challenged the criterion under which the officer having jurisdiction over the noticee against whom the highest amount of demand had been raised would adjudicate the entire composite SCN. It was argued that this criterion was arbitrary and violative of Article 14 of the Constitution.

Revenue on the other hand submitted that the circular did not create or expand jurisdiction. It merely provided an administrative mechanism for selecting one officer from among officers who already had pan-India jurisdiction over DGGI notices under the relevant notification.

At the outset, the High Court examined Section 2(91) which defines a 'proper officer' as the Commissioner or officer of central tax assigned a particular function by the Commissioner in the Board.

Sections 3 and 5 deal with the classes of officers and delegation of powers, while Section 167 empowers the Commissioner to direct, by notification, that a statutory function may be performed by a specified officer.

These provisions when read together, the Court held, make a “statutory vehicle” for creating a class of officers, vesting that class with a function and transferring a function from one class of officer to another.

The Court then examined two Notifications which assign territorial jurisdiction to Central Tax officers and confer pan-India jurisdiction on specified Additional/Joint Commissioners to adjudicate DGGI notices. However, they do not specify which officer among those having pan-India jurisdiction should adjudicate a composite SCN involving noticees across different Commissionerates.

“It is this residual, administrative gap, and not the existence of jurisdiction itself, that the Impugned Circular intended to address,” the Court remarked.

It also rejected the Article 14 challenge to the 'highest amount of demand' criterion and held that the criterion is objective, quantifiable and uniformly applicable and has a rational nexus with the legitimate objective of ensuring a single and consistent adjudication of what is, in substance, one cause of action arising from one investigation.

The Court further observed that the mechanism avoids the possibility of conflicting findings by different officers on the same set of facts.

As such, the Court dismissed the petitions insofar as they challenged the jurisdiction of the Common Adjudicating Authority, while permitting Petitioners to pursue statutory remedies on merits.

For Petitioner: Advocates Gaurav Gupta and Deepanshu Saini

For Respondents: Shashank Sharma, SSC along with Malika Kumari, Advocates Avshreya Pratap Singh Rudy, CGSC along with Usha Jamnal, Nyasa Sharma, ⁠Ankit Khatri, Siddhant Nagar and Abhinav Mall,  Anurag Ojha, SSC along with Dipak Raj and Aditya Choudhary