SRINAGAR: The High Court of Jammu and Kashmir and Ladakh has dismissed petitions by ten textile and allied industrial units challenging Central Goods and Services Tax (CGST) action, ruling that the authorities acted within their powers in issuing show cause notices over alleged bogus Input Tax Credit (ITC) transactions.
The division bench of Justice Sanjeev Kumar and Justice Sanjay Parihar, delivering a reserved verdict, held that the petitions were without merit and that the arguments advanced by the companies’ legal counsel could not withstand legal scrutiny.
The affected firms — RK Ispat Ltd., Silklon Processors Pvt. Ltd, Chenab Industries Pvt Ltd, Jyotsana Industries Pvt Ltd, JK Textorium Pvt Ltd, JK Synthetic Pvt Ltd, M/s Natural Industries, Toplon Industries Pvt Ltd, Orbit Spinning Pvt Ltd, and Green Textorium Pvt Ltd. — are based in the Jammu and Kashmir Integrated Textile Park at Kathua, operating under a single entry-exit point. Court records indicate that of the 12 units searched by CGST authorities, only two were functional, while the remainder allegedly conducted paper transactions to generate turnover and claim ITC without actual supply or receipt of goods.
According to the Central GST Commissionerate, intelligence suggested that these firms had availed and utilised bogus credits through artificial turnover. Searches conducted under Section 67(2) of the CGST Act in April 2024 revealed irregularities across the units. Investigators reported that only a fraction of Orbit Spinning Pvt. Ltd’s turnover stemmed from manufacturing, while most derived from trading. Silklon Processors and Natural Industries allegedly engaged in repetitive sham transactions. RK Ispat Ltd was operating without the necessary permission from the District Industries Centre, and several other units, though non-functional, continued to report significant turnover. These findings formed the basis for the show cause notices issued by the Joint Commissioner, CGST Jammu.
The petitioners argued that the notices were beyond the Central GST authorities’ jurisdiction, citing administrative allocation to State GST authorities, impermissible bunching of multiple assessment years in a single notice, lack of authority of the Joint Commissioner for amounts under Rs 1 crore, and that the action constituted routine scrutiny rather than intelligence-based enforcement.
The High Court rejected these claims. The bench noted that cross-empowerment under Section 6 of the CGST Act is automatic, enabling both central and state officers to act against taxpayers irrespective of administrative assignment. “By virtue of the provisions of Subsection (1) of Section 6 of the CGST Act, the officers appointed under the State Goods and Services Tax Acts and the Union Territory Goods and Services Tax Acts are deemed to be proper officers for the purposes of the CGST Act, 2017. The cross-empowerment is, therefore, inherent and automatic under the Subsection,” the court said.
On the issue of monetary limits, the court clarified that the Rs 1 crore threshold in departmental circulars is merely an administrative guideline and does not restrict a Joint Commissioner from issuing notices for smaller amounts. Regarding the alleged improper bunching of assessment years, the court did not quash the notices but allowed the companies to raise the matter before the adjudicating authority. The bench also affirmed that the show cause notices were intelligence-based, supported by specific inputs and search outcomes, referencing the Supreme Court ruling in M/s Armour Security India Ltd. vs Commissioner CGST Delhi East Commissionerate to underline that both central and state authorities can initiate enforcement actions.
Concluding its 21-page order, the High Court dismissed all petitions, noting that companies remained free to contest issues such as year bunching and penalty imposition before the adjudicating authority.
The verdict is significant for GST enforcement in Jammu and Kashmir and nationwide. It reinforces that cross-empowerment of tax officers is intrinsic to the GST framework, intelligence-based enforcement can be undertaken by both central and state authorities regardless of administrative allocation, and monetary limits in departmental guidelines are not jurisdictional barriers. For the Kathua textile firms, the decision requires them to respond to the show cause notices on their merits rather than seeking to nullify proceedings in court
