Taxpayers becoming victim of dual administration under GST

[DEEPALI MISHRA]

1. Introduction

The rationale behind the concept of jurisdiction in law presides to define the limit of the judicial authorities to adjudicate only those matters with which it has some connection or which falls within the territorial or pecuniary limits of the authority. However, the same does not seems to align under GST regime. The provisions of Section 6 inserted under both the enactments i.e., State and Central, provides for cross empowerment, so that Central Tax Officer can have jurisdiction under State Tax and vice-a-versa. This dual jurisdiction raised concerns regarding the administration of the taxpayers when substantial changes were noticed in the wordings of the provision of Section 6 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) as compared to which was initially given under Model GST law. Though enumerated various times by the government, that the idea was to have single jurisdiction (or interface) for all administrative purposes, however, the agony of the taxpayers does not seem to end till date.

This article is an attempt to demystify the controversial issues relating to cross-empowerment in GST and the latest judicial pronouncements on the same.

2. The Saga of Cross-Empowerment in GST

The controversy was stirred by the provisions of clause (a) of Section 6(2) of the CGST Act, 2017 which provides that any proper officer who issues an order under the CGST Act, shall also issue an order under the State Goods and Services Tax (‘SGST’) Act or the Union Territory Goods and Services Tax (‘UTGST’) Act, as per the authorization given by the respective SGST/UTGST Act, by intimating to the jurisdictional officer of State tax or Union territory tax. This provision gave wide powers to issue order and initiate proceedings both by the Centre as well as the State tax authorities on the same issue.

This matter of jurisdiction was taken up in the 9^th GST Council meeting and in the minutes of the said meeting, the decision was taken for division of taxpayers between the Central and the State tax administrations for all administrative purposes based on the turnover. This decision was given effect pursuant to 21^st GST Council meeting by way of issuance of Circular No. 1/2017 dated 20-9-2017.

In the 9^th GST Council meeting, it was also decided that both the Central and State tax administrations shall have the power to take intelligence-based enforcement action in respect of the entire value chain. This again stirred a whole new controversy on what can be considered as intelligence-based enforcement action. However, this issue was not taken in the 21^st Council meeting.

In view of rising ambiguities on intelligence-based enforcement action, clarifications were issued vide LETTER D.O.F. No. CBEC/20/43/01/2017-GST (PT.), dated 5-10-2018 wherein it was clarified that authority which initiates such action is empowered to complete the entire process of investigation, issuance of SCN, adjudication, recovery, filing of appeal etc. arising out of such action. In other words, if an officer of the Central tax authority initiates intelligence-based enforcement action against a taxpayer administratively assigned to the 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.

Another letter dated 22-6-2020 was issued by CBIC addressing the issue whether intelligence-based enforcement actions initiated by the Central Tax officers against those taxpayers which are assigned to the State Tax administration gets covered under Section 6(1) of the CGST Act and the corresponding provisions of the SGST/UTGST Acts or whether a specific notification is required to be issued for cross empowerment on the same lines as Notification No. 39/2017-Central Tax dated 13-10-2017, authorizing the State GST Officers for the purpose of refunds under section 54 and 55 of the CGST Act?

Accordingly, it was clarified that in terms of Section 6(1) of the CGST Act and respective State GST Acts, respective State Tax officer and the Central tax officers would be considered to be the proper officers for the purposes of the 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 that the registered persons in GST are registered under both, the CGST Act and the respective SGST/UTGST Act. The letter further clarified that a notification under Section 6(1) of the CGST Act would be part of subordinate legislation which instead of empowering the officer under the Act, can only be used to impose conditions on the powers given to the officers by the section.

3. Latest Judicial Precedents

With numerous Writ Petitions filed across the High Courts in India challenging the legality and validity of enquiries, investigations, search operations conducted by the department on the grounds of jurisdiction, it is imperative to understand the opinion of the judicial authorities on the subject matter. Some recent pronouncements highlighting the issues pertaining to jurisdiction as discussed above are as under: -

1. High Court of Delhi in the case of RCI INDUSTRIES AND TECHNOLOGIES LTD THROUGH ITS DIRECTOR RAJEEV GUPTA VERSUS COMMISSIONER DGST DELHI & ORS. - 2021 (1) TMI 702 - DELHI HIGH COURT [W.P. NO. (C) 121 OF 2021]- In favor of assessee

Facts: Assessee was subjected to harassment at the hands of CGST Authorities, i.e., DGGI Gurugram who have searched them numerous times. The last search was conducted by the CGST authorities on 7th March, 2020 at the director's residence. This search action was challenged by the assessee in W.P.(C) No. 7145/2020 before the Punjab and Haryana High Court. The said challenge was successful and consequently the search action and the panchnama dated 7th March, 2020 were quashed. Consequently, State GST Authority, i.e., DGST has subjected yet another search action on the assessee in relation to the same period, despite the assessee being earlier subjected to search action at the hands of the Central Authorities, which was challenged before the Punjab and Haryana High Court.

Assessee contended that the action of the State authorities under the DGST Act is illegal and unlawful and contrary to the provisions of the CGST/DGST Act.

Held: If an officer of the Central GST initiates intelligence-based enforcement action against a taxpayer administratively assigned to State GST, the officers of the former would not transfer the said case to their counterparts in the latter department and they would themselves take the case to its logical conclusion. In case, the action of the State and Central Authorities is overlapping, the assessee would be at liberty to take action to challenge the same in accordance with law.

2. Supreme Court of India, COMMISSIONER OF CUSTOMS VERSUS SAYED ALI - 2011 (2) TMI 5 - SUPREME COURT[CIVIL APPEAL NOS. 4294 - 4295 OF 2002, 4603 - 4604 OF 2005]- In favor of assessee

Facts: Show cause notice was issued upon the assessee by the Collector of Customs (Preventive) levying customs duty and penalty on the goods seized. Assessee filed appeal before the CEGAT and preliminary objection of the assessee was regarding jurisdiction of the Collector (Preventive) to issue show cause notice as well as the jurisdiction to adjudicate the matter when imports have taken place at Bombay Customs House.

Assessee contended that Commissioner (Preventive) has not been appointed as a ‘proper officer’ for the purposes of assessment or re-assessment, nor assigned any functions under Section 28 of the Customs Act, 1962 or under any other Section related to assessment of goods entered for home consumption, he was not competent to issue notice under Section 28 of the Customs Act.

Held: Section 28 of the Customs Act provides the cases for issuance of notice by the proper officer for payment of duty that has not been paid or has been short-levied or erroneously refunded or when any interest payable has not been paid, part paid or erroneously refunded. Further, on perusal of the provision of Section 2 (34) of the Customs Act. which defines ‘proper officer’ it is conferred that only such officers of customs who have been assigned specific functions would be ‘proper officers’ in terms of Section 2(34) of the Customs Act. Specific entrustment of function by either the Board or the Commissioner of Customs is therefore, the governing test to determine whether an ‘officer of customs’ is the ‘proper officer’.

From a conjoint reading of Sections 2(34) and 28 of the Customs Act, 1962 (‘Customs Act’), it is derived that only such customs officer who has been assigned the specific functions of assessment and re-assessment of duty in the jurisdictional area where the import concerned has been affected, by either the Board or the Commissioner of Customs, in terms of Section 2(34) of the Customs Act is competent to issue notice under Section 28 of the Customs Act.

Moreover, if the Revenue's contention that once territorial jurisdiction is conferred, the Collector of Customs (Preventive) becomes a ‘proper officer’ in terms of Section 28 of the Customs Act is accepted, it would lead to a situation of utter chaos and confusion, in as much as all officers of customs, in a particular area be it under the Collectorate of Customs (Imports) or the Preventive Collectorate, would be ‘proper officer’. Therefore, it is only the officers of customs, who are assigned the functions of assessment, including reassessment, working under the jurisdictional Collectorate within whose jurisdiction the bills of entry or baggage declarations had been filed and the consignments had been cleared for home consumption, will have the jurisdiction to issue notice under Section 28 of the Customs Act.

In the present case, the import manifest and the bill of entry were filed before the Collectorate of Customs (Imports) Mumbai. Thus, the Collector of Customs (Preventive), was not a ‘proper officer’ within the meaning of Section 2(34) of the CGST Act and was not competent to issue show cause notice for re - assessment under Section 28 of the Customs Act.

3. High Court of Gujarat in the case of NAYARA ENERGY LTD. VERSUS UNION OF INDIA - 2019 (6) TMI 1377 - GUJARAT HIGH COURT, [R/SPECIAL CIVIL APPLICATION NO. 10825 OF 2019]- In favor of assessee

Facts: The assessee filed a writ petition challenging the legality and validity of the show cause notice issued by the Deputy Commissioner of State Tax under Section 74(1) of the Gujarat Goods and Services Tax Act, 2017 and Section 74(1) of the Central Goods and Services Tax Act, 2017.

The principal argument of the assessee was that the term ‘proper officer’ has been duly defined u/s 2 (91) of the Act as:

(91)"proper officer" in relation to any function to be performed under this Act, means the Commissioner or the officer of the central tax who is assigned that function by the Commissioner in the Board;"

Inviting attention of the court to Section 3 and 5 which deals with appointment of the officers and powers of officers respectively, assessee justified that show cause notice issue by the Dy. Commissioner of state was not only bad in law but was also without jurisdiction.

Held: Considering the submissions made by the assessee, it was held by the Hon’ble High Court that in the absence of any specific notification issued by the State Government appointing the Dy. Commissioner of State Tax, he could not have issued the show-cause notice under Section 74 of the Act, 2017.

4. High Court of Delhi in the case of ROSHNI SANA JAISWAL VERSUS COMMISSIONER OF CENTRAL TAXES, GST DELHI (EAST) - 2021 (5) TMI 528 - DELHI HIGH COURT[ W.P.(C) 2348/2021 & CM No. 6860/2021]- In favor of assessee

Facts: Assessee was acting as a director of a company named Milkfood Ltd., between 2006 and 2008 and since then, she has been working in the capacity of a mentor/advisor in the company. The assessee owns approximately 14.33 % equity shares in the company. She drew a salary of ₹ 1.50 Cr. for the F.Y. 2019-20. The department commenced investigation under Section 67 of the CGST Act, 2017 against the company on the ground that company was availing ITC against fake/ineligible invoices. Several bank accounts of the assessee were provisionally attached. Assessee filed writ against the orders of provisional attachment of bank accounts.

Held: The Hon’ble Court observed that, one of the jurisdictional ingredients, which is missing in this case is that the assessee is not a taxable person. This aspect is borne from the perusal of the provisional attachment orders wherein the Department adverts that Milkfood Ltd. is the taxable person.

Section 83(2) of the CGST Act states that provisional attachment can be ordered only of property, including bank account, belonging to the taxable person. The definition of the ‘taxable person’ as per Section 2(107) of the CGST Act, provides that only that person can be a taxable person, who is registered or liable to be registered as per the Act. It is not even the case of the Department that the assessee is either registered or was liable to be registered in terms of the provisions of Section 2(107) of the CGST Act.

In the zeal to protect the interest of the revenue, the department cannot attach any and every property, including bank accounts of persons, other than the taxable person.

Therefore, proceedings carried out against the assessee are without jurisdiction and hence, provisional attachment orders are quashed.

5. High Court of Gujarat in the case of Himanshu Balram Gupta v. Union of India - 2020 (12) TMI 1118 - GUJARAT HIGH COURT [R/SPECIAL CIVIL APPLICATION NO. 16271 OF 2020]- In favor of assessee

Facts: Assessee was registered in GST as a proprietorship firm and was under jurisdictional control of Joint Commissioner. The said authority initiated some investigation against assessee and issued summons under Section 70, however in the meantime DGGI also issued summons under Section 70 on assessee with respect to very same investigation.

Held: In the instant case, it was held that under Section 70 it is the proper officer who has the power to summon person to give evidence and produce documents. Accordingly, the proper officer under the provisions of the CGST Act, 2017 is the Joint Commissioner, Central GST, Delhi South Commissionerate, who not only issued summons but also granted the permission to search the business premises of the writ applicant on the basis of his reasonable belief. In such circumstances Directorate General of Goods and Services Tax Intelligence, Zonal Unit, Ahmedabad ought not to have issued any summons under Section 70 of the CGST Act, 2017 with respect to the very same investigation, as it has no jurisdiction to issue any summons.

6. High Court of Bombay in the case of SHAFI KHAN KHOKHAR VERSUS STATE OF MAHARASHTRA & ORS. - 2018 (12) TMI 1354 - BOMBAY HIGH COURT [WP NO. 2951 OF 2018]- In favor of revenue

Facts: In this case assessee carried out his business in Jaipur and Mumbai, however he registered his business under CGST only in the state of Mumbai. An enquiry was initiated by Authority of Mumbai by issuing summon to him. The assessee challenged the enquiry so initiated against him on the grounds that he was already subjected to enquiry by CGST Authorities at Jaipur who have issued him a summons dated 7.9.2017. Accordingly, two parallel proceedings / enquiries under the same subject are without jurisdiction and shall be quashed.

Held: As the assessee has taken registration in the State of Mumbai, it is undisputed that he is subject to the jurisdiction of Mumbai authorities in respect of the business which he has carried out within jurisdiction of the authority. Once registration has been taken in Mumbai and some services have been rendered in Mumbai, then the assessee is subject to the jurisdiction of Mumbai Authorities and enquiry can’t be challenged merely on the grounds that the same is without jurisdiction.

4. Way Forward & Concluding Remarks

Though favorable judgments are coming on jurisdictional issues as seen above, this fact cannot be denied that the taxpayers are not suffering at the cost of proving the action undertaken by the authorities are without jurisdiction and holds no validity under law. The turmoil in the form of mental harassment done by the authorities on the taxpayers is unimaginable. In some cases, it has been found that the authorities have even physically tortured the taxpayers during search proceedings. As the situation is getting out of hand which is evident as new cases on jurisdiction keep on arising now and then, shows that the authorities fail to understand the real intention of the legislature.

On the other hand, taxpayers can avoid difficulties in this matter to a great extent by following few measures on their end when the notice is issued to them:-

1. On receipt of any notice/summon, do not panic and rush to file its reply.

2. Where, the time limit to file reply seeks to lapse, seek extension (If required)

3. Check jurisdiction in which your business lies through GST portal as under

4. Review the details of the Authorized officer issuing notice to the assessee.

5. Where the jurisdiction of the business and the officer contradicts, challenge the legality of the notice. However, in other cases, properly draft a reply with appropriate reasoning against each query.

6. Always seek professional help.