One of my clients is registered under GST, and the GST registration falls under the jurisdiction of the Central GST (CGST) authorities.
The Special Investigation Branch (SIB) of the State GST Department conducted a search (raid) at the client's business premises.
During the search, the officers compared the stock recorded in the books of accounts with the closing stock reflected in the balance sheet and the stock physically available at the premises. They observed that the closing stock as per the balance sheet was higher than the physical stock available, thereby alleging a shortage of stock. In addition, the officers recovered five loose sheets/documents containing details relating to certain orders. However, some of the goods referred to in those documents were allegedly not found at the premises.
During the course of the search, the officers exerted pressure on the client and compelled him to deposit ₹1,10,00,000 (Rupees One Crore Ten Lakhs) through Form GST DRC-03. According to the client, this payment was not voluntary, but was made under coercion, pressure, and compulsion exercised by the departmental officers.
Subsequently, based on the search proceedings, the SIB issued a Show Cause Notice (SCN), to which a detailed and comprehensive reply was duly submitted.
Meanwhile, the Central GST Department conducted a regular GST audit for the financial years 2020-21, 2021-22, 2022-23, 2023-24, and 2024-25.
Thereafter, the SIB transferred the investigation proceedings to the Jurisdictional State GST Officer.
Approximately two to three months later, the Jurisdictional State GST Officer issued separate and detailed Show Cause Notices under of the CGST/SGST Act for each of the financial years 2020-21 to 2024-25. These notices raised several fresh issues, including:
GSTR-3B and GSTR-1 mismatches;
Cancelled E-way Bills;
Excess Input Tax Credit (ITC);
Liability under Reverse Charge Mechanism (RCM) on warehouse rent; and
Other tax-related discrepancies.
On the basis of these issues, the notices proposed reassessment and demanded tax, interest, and penalty. These allegations are distinct from the issues raised by the SIB in its original Show Cause Notice and appear to be based on facts allegedly gathered from the GST portal and departmental records rather than from the search proceedings.
Can the Jurisdictional State GST Officer raise issues that were not part of the SIB's Show Cause Notice and initiate fresh proceedings under Section 74 of the CGST/SGST Act on entirely different grounds?
Whether, after a search conducted by the SIB based on limited allegations and after the Central GST Department has already completed a regular GST audit for the same financial years, the Jurisdictional State GST Officer can, without any fresh independent and tangible evidence, initiate comprehensive reassessment proceedings under Section 74 covering all tax-related issues for the same five financial years?
Can the State GST Officer rely upon data available on the GST portal and introduce new allegations beyond those arising from the SIB search?
Is the jurisdiction of the State GST Officer under Section 74 confined only to the issues investigated and alleged by the SIB, or can he independently issue Show Cause Notices on other tax irregularities such as:
GSTR-3B vs. GSTR-1 mismatches;
Excess ITC;
Reverse Charge Mechanism (RCM) liabilities;
E-way Bill discrepancies; and
Other GST compliance issues?
What is the legal scope and extent of the powers of the Jurisdictional State GST Officer in such circumstances?
