[S.6 CGST Act] J&K&L High Court Upholds GST Show Cause Notices Based On Intelligence Inputs

The Jammu & Kashmir and Ladakh High Court has held that intelligence-based enforcement actions can be initiated by either the Central or the State tax authorities, irrespective of taxpayer assignment, and such actions do not require a separate notification for cross-empowerment.

The court dismissed a batch of writ petitions filed by several companies challenging show cause notices issued under the Central Goods and Services Tax Act, 2017 (“CGST Act”) on the ground of lack of jurisdiction.

A Division Bench comprising Justice Sanjeev Kumar and Justice Sanjay Parihar held that show cause notices issued by the Joint Commissioner, CGST Commissionerate, Jammu, pursuant to intelligence inputs indicating large-scale fraudulent availment and utilisation of bogus Input Tax Credit (ITC) were legally sustainable.

Petitioners' Contentions

The petitioners, companies engaged in manufacturing and trading under the CGST and SGST Acts, challenged the show cause notice dated 17.04.2024 and its summary dated 31.03.2024 on multiple grounds:

The CGST authorities lacked jurisdiction as the petitioners were assigned to the State Tax Department.

The Joint Commissioner could not issue the notice as the alleged tax amount was below ₹1 crore, contrary to a 2018 circular.

A composite notice covering five assessment years (2017–18 to 2021–22) violated Section 74 of the CGST Act.

Intelligence-Based Enforcement Action Is Valid

Rejecting the petitioners' arguments, the Court emphasised the Supreme Court's ruling in M/s Armour Security India Pvt. Ltd., which clarified that intelligence-based enforcement actions — based on information about tax evasion from the value chain — can be initiated by either Central or State authorities.

The Bench quoted extensively from paragraphs 47–51 and 96 of the Armour Security judgment, which held that cross-empowerment under Section 6 of the CGST Act allows either authority to act on intelligence-based tax evasion cases.

“Intelligence-based enforcement action” refers to proceedings initiated based on actionable intelligence, not arising from routine audits or scrutiny, it said.

The initiation of proceedings refers to the issuance of a show cause notice and not preliminary steps like search, seizure, or summons.

The Court noted that the present show cause notices were issued following search operations under Section 67(2), which uncovered fraudulent transactions among 12 companies, including the petitioners. It was found that several entities were engaged in paper transactions without actual supply of goods, with some units non-functional and lacking required permissions.

Findings and Conclusion

The Bench held that the challenge to jurisdiction was untenable as the power to initiate intelligence-based action is not restricted by taxpayer assignment. It also clarified that the bunching of multiple assessment years in a single notice was not inherently illegal when based on common intelligence inputs.

“For all these reasons, we find no merit in these petitions and the same are, accordingly, dismissed,” the Court concluded, while clarifying that observations beyond the interpretation of Section 6 were prima facie and would not prejudice the petitioners before the adjudicating authority.

Case Title: M/s R.K. Spat Ltd. & Ors. v. Union of India & Ors., 2025

Petitioners Through: Jatin Mahajan, Advocate

Respondent through: Mr. Jagpaul Singh CGSC

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