The Goods and Service Tax Act (GST) was implemented in India with the vision to broad base taxation, introduce seamless credit and the best practices across the world being adopted. The Government focused on many initiatives among which we have “ease of doing business” and “one nation one tax”. The framers of this comprehensive indirect tax law wished to make it as simple as possible and to have clear bifurcation of powers between the Centre and the State to allow co-operative federalism to work. Accordingly, GST was introduced in the nature of dual tax wherein both the Union i.e., Centre as well as the State can levy and collect tax.
Though the taxpayers are bifurcated clearly, there are instances of parallel proceedings being initiated by the different departments and the ultimately the courts are left to decide the jurisdiction and validity of such proceedings. This short article aims to throw some light on these issues and the judicial pronouncements in this regard.
In GST, both state and central governments are levying & collecting tax on same taxable event simultaneously which poses challenge for the government for assessment of taxpayers. To address this challenge, sec 6 was inserted in both SCST Act and CGST Act to provide for cross empowerment, so that central tax offer can have jurisdiction under state tax and vice versa too.
Sec 6 of the CGST Act reads as:
“6. Authorization of officer of State tax or Union territory tax as proper office in certain circumstances.
(1) Without prejudice to the provisions of this Act the officer appointed under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act are authorised to be the proper officers for the purposes of this Act, subject to such conditions as the Government shall, on the recommendations of the Council, by notification, specify.
(2) Subject to the conditions specified in the notification issued under sub-section (1)
(a) where any proper officer issues an order under this Act, he shall also issue an order under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act, as authorised by the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act, as the case may be, under intimation to the jurisdictional officer of State tax or Union territory tax;
(b) where a proper officer under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act has initiated any proceedings on a subject matter, no proceedings shall be initiated by the proper officer under this Act on the same subject matter.
(3) Any proceedings for rectification, appeal and revision, wherever applicable, of any order passed by an officer appointed under this Act shall not lie before an officer appointed under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act.
Note: Sec 6 of SGST Act is also similar worded for empowerment of Central Tax Officers
However, due to enabling cross jurisdiction by sec 6 ibid, every taxpayer gets covered by two jurisdictional authorities which possessed a bigger problem. Therefore, cross empowerment issue was discussed and laid before the GST Council in its 21st GST Council meeting held on 09.09.2017, whereby mechanism to share taxpayer base between the state and the centre was approved and in this regard, GST council issued a circular no. 1/2017 [F No. 166/Cross Empowerment/GSTC/2017] dated 20.09.2017 mentioning its decision and principles for cross empowerment under GST for all administrative purposes. Relevant portion of the circular is
“Based on the decisions taken in the 9th Meeting of the GST Council held on 16 January, 2037 and 21st Meeting of the GST Council held on 9 September, 2017, the following criteria should be followed for the division of taxpayer base between the Centre and the States to ensure single interface:
- Of the total number of taxpayers below Rs. 1.5 Cr turnover, all administrative control over 90% of the taxpayers shall vest with the State Tax administrations and 10% with the Central Tax administrations
- In respect of the total number of the taxpayers above Rs. 1.5 Cr turnover, all the administration control shall be divided equally in the ratio of 50% each for the Central and the State Tax administrations.
- The division of the taxpayers in each state shall be done by the computer at the state level based on stratified random sampling and could also take into account the geographical location and type of the taxpayers, as may be mutually agreed”
On the basis of the above circular, state GST commissioners and chief commissioner of central taxes issued joint orders for cross empowerment, whereby it was specifically provided that to ensure single interface, taxpayers are divided between state and centre for all administrative controls/ purposes.
Department has even issued clarification w.r.t. jurisdiction of Central and State tax administrations under CST through letter No. D.O. R. No. CBEC/20/43/01/2017-GST (Pt.) dated 05.10.2018 which specifies following:
- If an officer of the Central tax authority initiates intelligence based enforcement action against a taxpayer administratively assigned to State tax authority, the officers of Central tax authority would not transfer the said case to its State tax counterpart and would themselves take the case to its logical conclusions.
- Similar position would remain in case of intelligence based enforcement actions initiated by officers of the State Tax Authorities against a taxpayer administratively assigned to the Central tax authority.
DGGI take on Cross empowerment under GST:
Issue raised in the reference is whether intelligence based enforcement actions initiated by the Central Tax officer against those taxpayers which are assigned to the State Tax administration gets covered under Section 6(1) of CGST Act and the corresponding provisions of the SGST/UTGST Acts or whether a specific notification is required to be issued for cross empowerment.
DGGI through Letter No. I. No. CBEC-20/10/07/2019-GST dated 22.06.2020 has clarified that in terms of sub-section (1) of section 6 of the CGST Act and sub-section (1) of section 6 of the respective State GST Acts respective State Tax officers and the Central Tax officers respectively are authorised to be the proper officers for the purposes of respective Acts and no separate notification is required for exercising the said powers in this case by the Central Tax Officers under the provisions of the State GST Act. It is noteworthy in this context that the registered person in GST are registered under both the CGST Act and the respective SGST/UTGST Act.
There are multiple judicial pronouncements regarding cross empowerment. I have noted some of important judgements as follows:
- Parallel proceedings cannot be initiated by Central/ State Tax Authorities on the same subject matter
If the defects are similar in the SCNs then it shall be omitted and no proceedings to be initiated against the assessee w.r.t. the defects, which are already the subject matter or consideration by the Central Tax Authority – Madras HC in M/s. VGN Projects Estates Private Limited v. Assistant Commissioner (State Taxes) and others IW.P. No. 2391 of 2023 and W.M.P. No. 2481 of 2023, dated 30.01.2023]
- Parallel proceedings cannot be conducted by the 3 wings of same department for the same tax period
Audit proceedings under sec 65 of the CGST Act being commenced by Audit Commissionerate, it is appropriate that the proceedings should be taken to the logical end by Audit Commissionerate itself and further proceedings initiated by the Anti-Evasion and Range Office for the very same period shall not be proceeded with any further action – Calcutta HC in M/s. R.P. Buildcon Private Limited & Anr v. The Superintendent, CGST & CX [M.A.T. No.1595 of 2022 with I.A. No. CAN 1 of 2022 of 2022 dated 30.09.2022
- Inquiry cannot be considered as any proceeding initiated on the same subject matter
The court dismissed the petition filed for prohibiting another proper officer to initiate any inquiry / proceeding on the same subject matter. Held that, there is no proceeding initiated by the proper officer on the same subject matter referable to sec 6(2)(b) of the CGST Act and it is merely an inquiry by a proper officer by issuance of summons under sec 70 of the CST Act. Allahabad HC in G.K. Trading Company v. Union of India & Ors. [Writ Tax No. 666 of 2020, dater 2.12.2020].
- There cannot be two parallel investigations under State Act as well as Central Act
The proceedings were initiated by the SGST officers where CGST officers have already initiated the proceedings. Further, it was submitted that the authorities under the SGST Act are well aware that the authorities under the CGST Act are investigating the matter. It was submitted that there cannot be two parallel investigations under the State Act as well as the Central Act. Hence, interim relief restraining any coercive action pursuant to the impugned inquiry proceedings granted – Gujarat HC in Sureshbhai Gadhecha v. State of Gujarat [R/ Special Civil Application No. 23279 of 2019 dated 27.12.2019]
- No bar on investigation by different officers independently investigating different matters without any overlapping
Dismissed the petition and refused to interfere with the investigations undertaken by the competent authorities against the proprietor, for alleged misuse and fake availment ITC. Further, the Court held that where different officers appointed are independently investigating altogether different matters involving contraventions of prima face cognizable and punitive offences under the CGST Act, without any overlapping, such investigation is not barred by Sec 6(2) of the CGST Act. Punjab &. Haryana HC in Kaushal Kumar Mishra Vs. Additional Director General [SLP (C) No. 003013/2021 dated 26.02.2021]
As per the above discussed divergent legal jurisprudence, the issue of parallel proceedings still persists. Further, courts have ruled that cross-empowerment does not empower State Government to apply provisions of states’ Act or Rules made thereunder to inter-state transactions. Furthermore, it draws a clear distinction between a proceedings drawn for the demand of tax, and enquiry/ investigation initiated/conducted by the Authorities in respect of an offence committed by the assesses and there shall not be any parallel investigation/proceeding to be initiated by the Central and State Tax authorities on the same subject matter.
it is pertinent to note that, the term “intelligence-based enforcement action’ has not been defined anywhere in the CGST Act that has created a lot of confusion and ambiguity in terms of the borderlines and powers of the authorities under which the scope of this term can be executed. In absence of clarification, both the Centre and State GST authorities are initiating proceedings against the assesses irrespective of allocated jurisdictions, which is in real terms is taking away ease of business for taxpayers.
The courts are allowing parallel proceedings for the same period on the basis that the subject matter is different. However, it is to be noted that when search is conducted, the officers look at all the records, documents etc. for that period and proceed with the discrepancies found. Thus, parallel proceedings cannot be allowed on the basis that the subject matter is different as it will be then endless procedure causing undue hardship to the taxpayer.
Due care is expected by the GST authorities to initiate any proceedings not only on the basis of intelligence received, but also after conducting a proper verification of any parallel proceedings going on against an assessee, and wherever such proceedings are already initiated, the subsequent ones need to be stopped.