Before the Notice, after the Damage: Parallel Proceedings under CGST Act

[Saahil and Vaishnawi are students at NALSAR University of Law.]

In a significant decision in August 2025, the Supreme Court of India (SC) in Armour Security (India) Limited v. Commissioner, CGST (Armour Security), re-engineered how administrative plurality would function under the goods and services tax (GST) system built on uniformity. It did so by situating the distinction between “inquiry” and “proceeding,” under the Central Goods and Services Tax 2017 (Act), at the issuance of a show cause notice (SCN). This move was significant as the safeguards provided for against unchecked multiplicity of enforcement actions under Section 6 of the Act depend entirely on what qualifies as “proceedings.”

Section 6 of the Act reflects the legislature’s attempt to regulate the exercise of concurrent enforcement powers by the Union and the States. While sub-section (1) enables cross-empowerment to ensure administrative efficiency, sub-section (2) imposes a substantive restraint. Section 6(2)(b) of the Act mandates that once proceedings are initiated by one authority on a given subject matter, parallel proceedings by the other are barred.  

This piece critiques the demarcation of “proceedings” by the court on the grounds that it wrongly clubs all pre-SCN actions under inquiry and arbitrarily drawing the line at the issuance of the SCN. It further suggests that “proceedings” should include any adverse action taken under the applicable Act whether before or after the issuance of SCN to safeguard against harassment of the assessee. 

The Armour Security Dispute and the Judicial Divide on “Proceedings”

The controversy in Armour Security arose from parallel engagement by Central and State GST authorities in respect of the same assessee and substantially overlapping factual allegations. Armour Security, a service provider, was being investigated by one tax administration, followed by issuance of summons by another authority operating under the concurrent GST framework. Invoking Section 6(2)(b) of the Act, the assessee contended that once proceedings had been initiated by one authority, the other was statutorily barred from acting on the same subject matter. The dispute thus turned not on the permissibility of dual administration in the abstract, but on the precise moment at which “proceedings” could be said to commence for the statutory bar to be triggered.

Prior to Armour Security, High Court decisions on Section 6(2)(b) of the Act broadly reflected two approaches. One set of decisions like Vivek Narsaria v. State of Jharkhand, adopted a sweeping view, treating inquiry and proceedings as part of one continuous process. Under this approach, once any action was initiated by one authority, whether by way of summons, inspection, or investigation, the other authority was precluded from acting on the same subject matter. The crux of this reasoning came from the reading of GST letter D.O. F.No. CBEC/20/43/01/2017-GST issued on 5 October 2018 which considers the entire process of investigation as “intelligence based enforcement action.” 

The other line of authority, exemplified most clearly by the Allahabad High Court’s decision in GK Trading Company v. Union of India (GK Trading), rejected this expansive approach. It held that “inquiry” and “proceedings” are distinct stages, and that proceedings commence only when the department issues a SCN under Sections 73 or 74 of the Act. Investigative measures such as summons, search, seizure, and arrest were treated as part of an antecedent inquiry that does not attract the bar under Section 6(2)(b) of the Act. 

The Supreme Court in Armour Security affirmed the reasoning in GK Trading. The court emphasised that a SCN is issued with certainty, is directed towards a determinate outcome, and initiates a quasi-judicial process governed by principles of natural justice that must culminate in an adjudicatory order. Investigative steps prior to this stage were characterized as insufficient to attract the bar.

Foundationally, the SC’s rejection that every investigative act constitutes “proceedings” is correct. Treating inquiry and proceedings as one undifferentiated continuum risks overlooking the deep differences between the both. In the very least, issuance of summons for instance may be incidental to the recipient of the summons while acts like arrest and SCN are direct adverse actions against the recipient. 

However, the crux of the criticism lies in the choice of where that distinction is drawn. By identifying the SCN as the dividing line between inquiry and proceedings, the SC arbitrarily adopts a threshold that appears formal rather than reasoned. This approach treats inquiry as a homogenous category and assumes that determinacy and legal consequence arise only at the stage of adjudication.

The Problem with Treating Pre-SCN Powers as Homogenous

The first flawed premise in the court’s reasoning is that inquiry under the CGST Act operates as a straight procedural continuum in which all pre-SCN actions are equivalent. This reasoning assumes that inquiry is a single, undifferentiated stage that merely precedes adjudication. 

Summons under Section 70 are investigative tools meant to facilitate information gathering and may be issued even to third parties. They can be incidental to another inquiry altogether and do not necessarily target a person against whom enforcement action is contemplated. This explains why courts have consistently held that summons, by themselves, do not constitute proceedings under Section 6(2)(b).

The difficulty arises when this reasoning is extended indiscriminately to all pre-adjudicatory powers. In GK Trading, while the court correctly acknowledged a conceptual distinction between inquiry and proceedings, it nevertheless bundled summons, arrest, and search and seizure into a single category of inquiry. This approach overlooks the fact that arrest and search and seizure are inherently coercive actions that directly impair liberty and property, unlike summons which are merely facilitative. 

Reliance may be placed on the Telangana High Court’s decision in PV Ramana Reddy v. Union of India for a more cognizant understanding of the differing nature of these powers. The Court expressly recognized that while summons under Section 70 operate within a civil procedural framework, search and seizure under Section 67 and arrest under Section 69 are governed by the criminal procedure regime. This statutory reference is not accidental. It reflects a legislative choice to subject certain actions under the GST regime to criminal law safeguards because of their intrusive nature. This recognition forms the basis for the creation of a distinct  class which may be termed “adverse” or “coercive” actions. 

This class finds recognition even in the obiter of the judgment in Armour Security. The court while drawing the line at SCN’s marks it as an important step to prevent further “adverse actions”. However, the court overlooks that such actions may also be undertaken at a pre-SCN stage.  If the purpose is to prevent parallel adverse action, the protection cannot begin only at the issuance of a SCN but must also extend to adverse action taken before it. 

Why Certainty and Determinacy Cannot Justify the SCN Threshold

The court places significant weight on the idea that a SCN is issued with certainty and is directed towards a determinate outcome. It is only at this stage, the court reasons, that the department commits itself to a defined allegation and initiates a process that must culminate in an adjudicatory order. This attribute of determinacy is said to distinguish a SCN from the exploratory character of inquiry and to justify locating the commencement of proceedings at that point.

The shortcoming of this reasoning is that certainty and determinacy are not exclusive to the issuance of a SCN. Coercive actions under the GST Act, particularly arrest, are subject to standards that demand a comparable, and in many respects higher, degree of certainty. Arrest under Section 69 presupposes the formation of reasons to believe that a specific offence under Section 132 of the Act has already been committed and that statutory thresholds rendering the offence cognizable and non-bailable are satisfied.

The SC in Radhika Agarwal v. Union of India, affirmed that the power to arrest under Section 69 of the Act may only be exercised when the department believes with sufficient level of certainty that an offense under Section 132 of the Act has been committed. Further, the Court emphasized that arrest is justified only where custodial investigation is necessary, where there is a likelihood of absconding, or where the accused may influence witnesses.

Executive instructions under the GST regime reinforce this position. Instruction No. 02/2022-23 on arrest and bail explicitly cautions that arrest should not be routine or automatic. It draws a distinction between the existence of the power to arrest and the justification for its exercise, requiring a clear demonstration of mens rea and a palpable intent to evade tax. These requirements underscore that arrest is undertaken with a defined legal conclusion in mind, namely, that an offence has been committed by the person arrested.

On the one hand, the court treats certainty and determinacy as the normative basis for drawing the line at the SCN. On the other hand, it characterises arrest, which demands equal or greater certainty, as a mere incident of inquiry. The result is that the very attribute used to privilege the SCN is ignored when assessing the nature of coercive enforcement actions.

By drawing the line at the SCN, the court treats that stage as the point at which the law intervenes to prevent further adverse action by parallel authorities. However, by doing so, it simultaneously permits pre-SCN coercive action by multiple authorities on the same subject matter. This is offered not as a critique of the outcome in Armour Security, but of the reasoning that underlies it.

The Way Forward: Re-anchoring Section 6(2)(b) in Adverse Action

A more coherent understanding of Section 6(2)(b) of the Act requires rejecting the assumption that inquiry under the CGST Act is a uniform procedural stage. Within inquiry itself, adverse and coercive actions such as search, seizure, and arrest form a distinct class, governed by criminal procedure and justified only by heightened thresholds. The line between inquiry and proceedings should therefore be drawn not at the formal commencement of adjudication through a SCN, but at the point where the State deploys coercive power against the taxpayer. This approach preserves the SC’s conceptual distinction while giving substantive effect to the statutory aim of preventing parallel coercive enforcement and taxpayer harassment, even as the outcome in Armour Security remains intact.