Central Authority cannot conduct audit after State Authority under same subject matter

[CA Bimal Jain]

The Hon’ble Madras High Court in the case of M/S. PSK ENGINEERING CONSTRUCTION & CO. VERSUS THE ASSISTANT COMMISSIONER OF GST & CENTRAL EXCISE AUDIT CIRCLE, SALEM, STATE TAX OFFICER, STATE TAX OFFICER, LEGAL & REVISION – II, INTELLIGENCE, STATE TAX OFFICER, DATA ANALYTICS UNIT-2, OFFICE OF THE JOINT COMMISSIONER (ST) , INTELLIGENCE, SALEM - 2024 (6) TMI 1034 - MADRAS HIGH COURT held that there is no restriction in statute for Central GST authorities to initiate proceedings on different subject matter. Further, allowed the Assessee to respond to the audit notice, subject to audit not being on same subject matter as State GST proceedings.

Facts:

State GST authorities-initiated proceedings against P S K Engineering Construction & Co. (“the Petitioner”) in respect of assessment years 2019-20, 2020-21, 2021-22 and 2022-23 and passed an order dated February 29, 2024 (“the Impugned Order”).

The Petitioner referred to the show cause notices and orders issued by the State GST Authorities and contended that such proceedings were comprehensive and that the Central GST authorities are endeavouring to resurrect the same issues. 

Hence, aggrieved by the Impugned Notices and the Impugned Orders, the Petitioner filed the present writ petition.

Issue:

Whether Central Authority can conduct audit after State Authority under same subject matter?

Held:

The Hon’ble Madras High Court in M/S. PSK ENGINEERING CONSTRUCTION & CO. VERSUS THE ASSISTANT COMMISSIONER OF GST & CENTRAL EXCISE AUDIT CIRCLE, SALEM, STATE TAX OFFICER, STATE TAX OFFICER, LEGAL & REVISION – II, INTELLIGENCE, STATE TAX OFFICER, DATA ANALYTICS UNIT-2, OFFICE OF THE JOINT COMMISSIONER (ST) , INTELLIGENCE, SALEM - 2024 (6) TMI 1034 - MADRAS HIGH COURT held as under:

• Noted that, on perusal of the Impugned Notice, it is clear that such notice was issued while being fully aware of Section 6(2)(b) of the CGST Act. However, there is no restriction to initiate any proceedings on any other subject matter by Central Tax Authority. Accordingly, the officer intended to conduct audit under the provisions of section 65 of CGST Act.
• Held that, the subject matter of audit was not the same subject matter as proceedings initiated by the State GST authorities, there is no restriction in the statute. Therefore, the writ petition was disposed of by leaving it open to the petitioner to respond to the Impugned Notice.

Our Comments:

Section 6 of the CGST Act discusses “Authorisation of officers of the State or Union territory tax as proper officer in certain circumstances”. Section 6(2)(b) of the CGST Act states that 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.

The Hon’ble Supreme Court in the case of INDIA HOUSEHOLD AND HEALTHCARE LTD VERSUS LG HOUSEHOLD AND HEALTHCARE LTD - 2007 (3) TMI 669 - SUPREME COURT stated that the objective behind Section 6 of the CGST Act, can be duly inferred that the same is guided by the principle of “Comity of Courts”, which essentially entails that a Court will not pass an order which would otherwise be in conflict with an order passed by another competent Court of law. The said principle is rooted in Article 20(2) of the Constitution of India, safeguarding all persons against double jeopardy and the genesis of which emanates from the French maxim “autrefois convict”. Similarly, it echoes the Civil Law doctrine of ‘res judicata’, which on a constructive application, means that parties that have been subject to proceedings before one authority cannot be subject to proceedings on the same subject matter before another competent authority, having concurrent jurisdiction. All of these aforesaid principles, are the legislative design behind Section 6(2)(b) of the CGST Act that it is inescapable principle of law that no person shall be subject to multiple proceedings for the same event, either by multiple authorities or subsequently at a different point in time.

The above intent was further clarified vide Circular D.O.F. No. CBEC/20/43/01/2017-GST (Pt.) dated October 05, 2018 issued by the CBEC, explaining that both, the Central Tax Officers as well as the State Tax Officers are authorized to initiate intelligence based enforcement action on the entire taxpayer’s base “irrespective of the administrative assignment of the taxpayer to any authority”, and that the authority which initiates such action is empowered to complete the entire process of investigation, issuance of Show Cause Notice, adjudication, recovery, appeal, etc. It further clarifies that if such action is initiated by an officer against a taxpayer administratively assigned to the other tax authority, i.e. Centre or State, the jurisdictional officer must hold his hands. This implies that the initiating authority would not transfer the said case to its jurisdictional tax counterpart having administrative assignment over the taxpayer, but would itself take the case to its logical conclusion. Thus, Section 6 of the CGST Act read with the aforementioned Circular, clearly ensures that there is no overlap of jurisdiction by the Central and the State Tax Officers; rather it brings harmony between the Centre and the State Authorities for the same event of taxation.

There are and have been several instances where both, the Centre and State authorities have initiated action against a taxpayer, for the same subject matter, subjecting him to multiple jurisdictions, necessitating judicial intervention in light of the mandate under Section 6(2)(b) of the CGST Act.

The Hon’ble Calcutta High Court in RAJ METAL INDUSTRIES & ANR. VERSUS UNION OF INDIA & ORS. - 2021 (3) TMI 1140 - CALCUTTA HIGH COURT stayed the summons issued and proceedings initiated thereunder against assessee by the State GST Authorities since the proceedings were already pending on same subject matter under the CGST Act and held that the summons issued is, prima facie, in violation of Section 6(2)(b) of the West Bengal Goods and Services Tax Act, 2017.

Further, the Hon’ble Punjab & Haryana High Court in KAUSHAL KUMAR MISHRA VERSUS ADDITIONAL DIRECTOR GENERAL, LUDHIANA ZONAL UNIT AND ANOTHER  - 2021 (2) TMI 699 - PUNJAB & HARYANA HIGH COURT dismissed the petition and refused to interfere with the investigations undertaken by the competent authorities against the proprietor, for alleged misuse and fake availment of Input Tax Credit (“ITC”).  Further, the Court held that where different officers appointed are independently investigating altogether different matters involving contraventions of prima facie cognizable and punitive offences under CGST Act, without any overlapping, such investigation is not barred by Section 6(2)(b) of the CGST Act.

 (Author can be reached at [email protected])