UNDERSTANDING OF JOINT INVESTIGATION - CROSS EMPOWERMENT IN GST

The concept of cross empowerment means irrespective of jurisdiction one authority (CGST) can adjudicate cases of (SGST) authority and vice versa. Presently, the issue of cross empowerment is the burning topic across the country. There are many notices were issued by the CGST / SGST authorities but the adjudications proceedings were being challenged before the Court on the ground of beyond jurisdiction as the  implementation of cross empowerment has not been notified till date. 

GST Council in its 9th meeting held on 16.01.2017, a decision was taken regarding cross empowerment to ensure a single interface with authorities for the future GST laws. The relevant para of minutes of meeting is reproduced as under:

“28- After further discussion, the Council agreed to the decisions as recorded below in respect of cross-empowerment to ensure single interface under GST.

1. There shall be a division of taxpayers between the Central and the State tax administrations for all administrative purposes;
2. Of the total number of taxpayers below Rs. 1.5 crore turnover, all administrative control over 90% of the taxpayers shall vest with the State tax administration and 10% with the Central tax administration;
3. In respect of the total number of taxpayers above Rs. 1.5 crore turnover, all administrative control shall be divided equally in the ratio of 50% each for the Central and the State tax administration;

iv. The division of taxpayers in each State shall be done by 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;

1. The new registrants shall be initially divided one each between the Central and the State tax administration and at the end of the year, once the turnover of such new registrants was ascertained, those units with turnover below Rs. 1.5 crore shall be divided in the ratio of 90% for the State tax administration and 10% for the Central tax administration and those units above the turnover of Rs.1.5 crore shall be divided in the ratio of 50% each for the State and the Central tax administration;

vi. The division of the taxpayers may be switched between the Centre and the States at such interval as may be decided by the Council;

vii. The above arrangement shall be reviewed by the Council from time to time;

viii. Both the Central and the State tax administrations shall have the power to take intelligence-based enforcement action in respect of the entire value chain;

ix. Powers under the IGST Act shall be cross-empowered to the State tax administration on the same basis as under the CGST and the SGST Acts either under law or under Article 258 of the Constitution but with the exception that the Central tax administration shall alone have the power to adjudicate a case where the disputed issue relates to place of supply, or when an affected State requests that the case be adjudicated by the CGST authority and for such issues of export and import as may be discussed in the Law Committee of officers and brought back to the Council for decision;

x. The territorial water within the twelve nautical miles shall be treated as the territory of the Union of India unless the Hon'ble Supreme Court decides otherwise in the ongoing litigation on the issue but the power to collect the State tax in the territorial waters shall be delegated by the Central Government to the States                                            

Subsequently, a circular No. 1/2017-GST (Council) dated 20.09.2017 was issued for a division of taxpayer base between the Centre and States to ensure a Single Interface under GST Enactments between Tax Officers and Central Tax Officers under GST/IGST Acts of 2017. In this circular it is mentioned that “Suitable notifications regarding cross-empowerment of State and Central Tax officers under CGST/IGST and SGST Acts respectively are being issued separately.” This is clear that cross empowerment notification will be issued later.

Further, GST Council in its 22nd meeting held on 06-10-2017 discussed the agenda item 9: proposal for issuing notifications on cross empowerment for ensuring single interface under GST.But the Council approved the following:

1. To issue notifications by the Central Government and the State Governments, cross empowering officers of the Central and State Governments to sanction refund and that an order of refund passed by an officer of the Central or State Government shall cover both the Central tax and the State tax. Similar notification to be issued under the IGST Act by the Central Government;
2.  Until the division of taxpayers is effected between the Central and State administration, an officer of the Central and the State Government was authorised to process any refund claim filed by an applicant under his jurisdiction subject to a declaration being given by the applicant that the same refund claim has not been claimed from the other administration having jurisdiction over the applicant.

No parallel proceeding and investigation:

Section 6(2) (b) of the CGST Act, 2017 prescribes the administrative power of the Central GST Authority and State GST Authority/Union Territory Authority. The relevant portion of administrative and jurisdictional power is reproduced as under:

“(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.”

Board clarification:

The Government of India in Ministry of Finance/Department of Revenue, Central Board of Excise & Customs, in D.O.F. No. CBEC/20/43/01/2017-GST (Pt.), dated 5-10-2018 made it clears in the following paras as follows:

“3.It is accordingly clarified that the officers of both Central tax and State tax 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. The 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.

4. In other words, 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.

5. Similar position would remain in case of intelligence based  enforcement action initiated by officers of State tax authorities against a taxpayer administratively assigned to the Central tax authority.

6. It is also informed that GSTN is already making changes in the IT system in this regard.”

GST Council Clarification:

The GST Council has issued Office Memorandum vide F. No. 757/Follow-up/GSTC/2018/8198, dated October 19, 2022 the Authority regarding action consequential to the issuance of Show Cause Notice and for issuance of recurring SCN in case of an enforcement action initiated by the Central authorities against a taxpayer assigned to State and vice versa.

Varied practices are being followed by the held formations regarding the issuance of recurring Show Cause Notices (SCNs) as well as other consequential actions in cases where investigation has been initiated and analized by Central Tax Authorities in respect of the taxpayers under State Tax Administration and vice versa. In some cases, the authority which initiates the investigation is also issuing recurring SCN whereas in some other cases, it is being left for the concerned jurisdictional Tax authority, who is administrating the taxpayer, to issue recurring SCN. This may create confusion and may lead to a situation in which none of the authorities issue the recurring SCN in timely manner and therefore, there is a need to have a uniform practice in such matters.

2. The matter was deliberated by the GST Council in its 47th meeting, where the Council recommended to clarify the issue as follows:

(i)  A taxpayer located within a State is open to enforcement action by both authorities. For example, an enforcement action against a taxpayer, assigned to State Tax Authorities, can be initiated by the Central Tax Authorities (and vice versa). In such cases, all the consequential action relating to the case including, but not limited to, appeal, review, adjudication, rectification, the revision will lie with the authority which had initiated the enforcement action i.e. the Central tax authorities in the instant case.

Refund in such cases may, however, be granted only by jurisdictional tax authority, administering the taxpayer.

(ii) Issuance of recurring SCNs does not involve any fresh investigation as the subject matter as well as ground of SCN remain the same, and therefore, it may be desirable that such further/recurring SCNs are issued by the actual jurisdictional authorities (which is responsible for assessment of returns of the taxpayer), as they will be in a position to access the records and returns of the taxpayers, and to check whether the grounds of SCN still exist or not and take a view/action for issuance of recurring SCN, based on facts in the said period. Besides, if the same authority, who has taken enforcement based action (but does not administer the said taxpayer), is mandated to issue recurring SCN also, it will put unnecessary burden on the investigating tax authority to keep a track on subsequent practice of the taxpayer after conclusion of investigation and to collect all the data and records for issuance of recurring SCN. Accordingly, the recurring SCNs may be issued by the concerned jurisdictional tax authorities administering the taxpayer, i.e. even if investigation is conducted by Central Tax Authorities and initial SCN is issued by them, the recurring SCN may be issued only by the jurisdictional tax authority administering the taxpayer and if the such jurisdictional tax authority is State tax, the recurring SCN may be issued by the concerned State tax authority.

Case Law:

The Hon’ble High Court of Madras in the case of Tvl. Vardhan Infraastructre, Represented by its Partner, S. Manikandan, Chennai Versus The Special Secretary, The Chairman, Central Board of Indirect Taxes, The Additional Chief Secretary & Commissioner of State Taxes, The Director General of GST Intelligence, South, The Senior Intelligence Officer, The Assistant Commissioner (ST) - 2024 (3) TMI 1216 - MADRAS HIGH COURT, held that “Section 6(1) of the respective GST Enactments empowers Government to issue notification on the recommendation of GST Council for cross-empowerment - However, no notification has been issued except under Section 6(1) of the respective GST Enactments for the purpose of refund although officers from the Central GST and State GST are proper officers under the respective GST Enactments - Since, no notifications have been issued for cross-empowerment with advise of GST Council, except for the purpose of refund of tax under Chapter-XI of the respective GST Enactments r/w Chapter X of the respective GST Rules, impugned proceedings are to be held without jurisdiction - Consequently, the impugned proceedings are liable to be interfered - Thus, if an assessee has been assigned administratively with the Central Authorities, pursuant to the decision taken by the GST Council as notified by Circular No.01/2017 bearing Reference F.No.166/Cross Empowerment/GSTC/2017 dated 20.09.2017, the State Authorities have no jurisdiction to interfere with the assessment proceedings in absence of a corresponding Notification under Section 6 of the respective GST Enactments - Similarly, if an assessee has been assigned to the State Authorities, pursuant to the decision taken by the GST Council as notified by Circular No.01/2017 bearing Reference F.No.166/Cross Empowerment/GSTC/2017 dated 20.09.2017, the officers of the Central GST cannot interfere although they may have such intelligence regarding the alleged violation of the Acts and Rules by an assessee - Therefore, in absence of a notification for cross-empowerment, the action taken by the respondents are without jurisdiction - Officers under the State or Central Tax Administration, as the case may be, cannot usurp the power of investigation or adjudication of an assessee who is not assigned to them - There shall be a direction to the Central Authority/State Authority, as the case may be, to whom the respective petitioners have been assigned for administrative purpose to initiate appropriate proceedings afresh against them strictly in accordance with the provisions of the respective GST Enactments and GST Enactments Rules and Circular issued thereunder .”

Joint investigation: Therefore, joint investigation by the CGST officer and SGST officers are may not be possible for the following reasons:

1. Section 6(1) of the respective GST Enactments empowers Government to issue notification on the recommendation of GST Council for cross-empowerment. However, no notification has been issued except under Section 6(1) of the respective GST Enactments for the purpose of refund although officers from the Central GST and State GST are proper officers under the respective GST Enactments.
2. Since, no notifications have been issued for cross-empowerment with advise of  GST Council, except for the purpose of refund of tax under Chapter-XI of the respective GST Enactments read with Chapter X of the respective GST Rules, investigation proceedings are to be held without jurisdiction.
3. Thus, if an assessee has been assigned administratively with the Central Authorities, pursuant to the decision taken by the GST Council as notified by Circular No.01/2017 bearing Reference F.No.166/Cross Empowerment/GSTC/2017 dated 20.09.2017, the State Authorities have no jurisdiction to interfere with the assessment proceedings in absence of a corresponding Notification under Section 6 of the respective GST Enactments.
4.  Similarly, if an assessee has been assigned to the State Authorities, pursuant to the decision taken by the GST Council as notified by Circular No.01/2017 bearing Reference F.No.166/Cross Empowerment/GSTC/2017 dated 20.09.2017, the officers of the Central GST cannot interfere although they may have such intelligence regarding the alleged violation of the Acts and Rules by an assessee.
5. The manner in which the provisions have been designed are to ensure that there is no cross interference by the counterparts. Only exception provided is under Section 6 of the respective GST enactment. Therefore, in absence of a notification for cross-empowerment, the action taken by the officers under the State or Central Tax administration as the case may be cannot usurp the power of investigation or adjudication of an assesse who is not assigned to them thereby investigation without jurisdiction.