2025 (8) TMI 991 - SC - GST

Issuance of summons or searches not initiation under Section 6(2)(b) CGST; proceedings start with show cause notice

M/s ARMOUR SECURITY (INDIA) LTD. Versus COMMISSIONER, CGST, DELHI EAST COMMISSIONERATE & ANR.

SC held that issuance of summons or conduct of search/seizure does not constitute initiation of proceedings under Section 6(2)(b) of the CGST Act; ... Issuance of summons - initiation of proceedings within the meaning of Section 6(2)(b) of the CGST Act or not - 'subject matter' within the meaning of Section 6(2)(b) of the CGST Act includes all matters dealt with in summons under the Act or otherwise - purport of an 'Order' under Section 6(2)(a) of the CGST Act. Whether issuance of summons can be regarded as “initiation of proceedings” within the meaning of Section 6(2)(b) of the CGST Act? - HELD THAT:- The High Court of Madras in Kuppan Gounder P.G. Natarajan v. Directorate General of GST Intelligence [2021 (9) TMI 713 - MADRAS HIGH COURT], dealt with a challenge to summons issued by the respondent on the ground that the appellant’s company fell within the state jurisdiction under the SGST Act, and the respondent is an authority with the central jurisdiction. The Court held that the scope of Sections 6(2)(b) and 70 respectively, are different and distinct, as the former deals with any proceedings on a same subject matter, whereas, the latter deals with power to summon in an inquiry and therefore, the words “proceedings” and “inquiry” cannot interchangeably be used to say that there is a bar to invoke the power under Section 70 of the CGST Act. The Court referred to the proceedings under Section 67, 68, 69, 71 and 72 respectively as “inquiry”. It was further observed that the prohibition under Section 6(2)(b) shall come into play when any proceedings on the same subject matter had already been initiated by a proper officer of another tax authority. The High Court of Rajasthan in Rais Khan v. Add. Commissioner, Enforcement Wing-II, [2024 (3) TMI 1086 - RAJASTHAN HIGH COURT], dealt with a challenge to the issuance of summons by the DGGI, on the ground that the proceedings had already been initiated by the State GST authority. The Court observed that the terms “proceedings” under Section 6(2)(b) of the CGST Act and “inquiry” under Section 70 cannot be conflated to imply a bar on the issuance of summons. It held that the mere issuance of summons does not amount to the initiation of proceedings under Section 6(2)(b). Section 6 of the CGST Act and the identical pari-materia provision in the respective State and Union Territories statutes, is a nuanced provision that enshrines both the concept as-well as the contours of “single interface” system and “cross-empowerment”. It delineates when and how the various officers appointed under different corresponding legislations shall act as “proper officer” for the purposes of the said legislation. Section 6 of the CGST Act has to be read with Circular No. 01/2017 dated 20.09.2017 and Circular dated 05.10.2018 read with Clarification F. No. CBEC-20/10/07/2019-GST dated 22.06.2020 by the Central Board of Indirect Taxes, GST Policy Wing - In conformity with the scheme of cross-empowering officers, clause (a) of sub-section (2) of Section 6 mandates that where a proper officer issues an order under the CGST Act, he has to pass an order under the SGST or UTGST Act respectively, under an intimation to the jurisdictional officer of the State and Union Territory tax authorities. Further, clause (b) of sub-section (2) bars a proper officer under the CGST Act to initiate proceedings on a subject matter where a proper officer under the SGST Act and UTGST Act has initiated proceedings on the same subject matter. In the present case, the petitioner was served with a show cause notice dated 18.11.2024 by the respondent no. 2 under Section 73 of the CGST Act, thereby initiating proceedings. The petitioner has impugned the summons dated 16.01.2025 and 23.01.2025 respectively issued by the respondent no. 1 for production of documents. At the summons stage, it cannot be predicated with certainty that the subject matter of the proceedings will be identical; the mere presence of an overlapping aspect under investigation does not ipso facto render the subject matter “same”. In the facts of the present case, the mere issuance of summons does not imply that the Department has decided to proceed against the taxpayer for recovery of liability. Therefore, issuance of summons, by no stretch, can be considered as the initiation of proceedings, since at that stage, the Department still retains the discretion not to initiate any proceedings. A mere contemplation or possibility of initiating action cannot be equated with “proceedings”, as doing so would undermine the framework of cross-empowerment under the Act. Even when a discovery is made during the search proceedings under Section 67 of the CGST Act, the Department is required to bring such proceedings to a definitive conclusion, either by issuing a show cause notice under Section 74 or by dropping the matter altogether. Whether “subject matter” within the meaning of Section 6(2)(b) of the CGST Act includes all matters dealt with in summons under the Act? - HELD THAT:- It is abundantly clear from the purport of Section 6(2)(b) that “subject matter” needs to be understood in perspective of initiation of proceedings. In other words, subject matter of the proceedings. In the preceding paragraphs of this judgment, we have stated that proceedings stand initiated when a show cause notice is issued with regard to a subject matter. We say so because an issuance of a show cause notice is the first stage whereby the Revenue for the very first time elaborately pens down various grounds and charges it is alleging against the assessee, who is invited to show cause as to why adverse action must not be taken against him on the basis of the apprehensions that the authority contemplates. A show cause notice delineates the scope of the proceedings in the expression of subject matter with which the authority would be dealing. It would be impermissible for an authority to invoke such rules, claims or grounds at a later stage which do not figure in the show cause notice. That is to say, any ground, reasoning or claim which does not figure out in the show cause notice cannot be permitted to adversely affect the noticee. In the present case, the learned Counsel for the petitioner contended that the subject matter of the proceedings pertained to the availability of input tax credit in respect of cancelled dealers. However, this contention fails for two reasons: first, the summons, on its own, cannot reveal the subject matter; and secondly, the subject matter can be ascertained only from the show cause notice. The apprehension of the petitioner cannot be countenanced merely because a facet of the ongoing inquiry overlaps with the subject matter of the show cause notice already issued - Upon crystallization of the subject matter through a show cause notice issued pursuant to an intelligence, no other tax authority may assume jurisdiction over it, provided it is ascertainable that the consequences of any further departmental action would be subsumed within the same subject matter. What is the purport of an “Order” under Section 6(2)(a) of the CGST Act? - HELD THAT:- Section 6(2)(a) is couched in terms that are both enabling and mandatory. It confers upon, and simultaneously obliges, the proper officer to issue a corresponding order under the SGST Act or the UTGST Act in cases where an order is being issued under the CGST Act. The expression ‘order’, qualified by the terms “under this Act”, occurring in the said provision admits of a broad construction, so as to include every form of order which a proper officer is competent to issue by virtue of the authority vested in them under the statute. Such an interpretation is necessary to ensure that the statutory mandate achieves its intended purpose of avoiding multiplicity of proceedings and securing uniformity of adjudication across the parallel enactments. Inasmuch as the CGST Act vests the proper officer with authority to issue “orders” under various provisions, it becomes imperative that such officer duly apprises the jurisdictional counterpart of any action initiated by the Department in relation to a taxable person who may otherwise fall within the administrative domain of that officer. Given that the statutory framework envisages a regime of cross-empowerment amongst officers, the obligation so cast operates as a safeguard against the prejudice which may arise from the initiation of parallel or overlapping proceedings against the same taxpayer by different wings of the Department. The expression “initiation of any proceedings” occurring in Section 6(2)(b) refers to the formal commencement of adjudicatory proceedings by way of issuance of a show cause notice, and does not encompass the issuance of summons, or the conduct of any search, or seizure etc - The expression “subject matter” refers to any tax liability, deficiency, or obligation arising from any particular contravention which the Department seeks to assess or recover - Where the proceedings concern distinct infractions, the same would not constitute a “same subject matter” even if the tax liability, deficiency, or obligation is same or similar, and the bar under Section 6(2)(b) would not be attracted. Petition disposed off. 1. ISSUES PRESENTED and CONSIDERED Whether issuance of summons under Section 70 of the CGST Act constitutes 'initiation of proceedings' within the meaning of Section 6(2)(b) of the CGST Act. Whether the term 'subject matter' in Section 6(2)(b) of the CGST Act includes all matters dealt with in summons issued under the Act. What is the legal purport and scope of an 'order' under Section 6(2)(a) of the CGST Act. Interpretation and application of the cross-empowerment and single interface framework under Section 6 of the CGST Act. Validity and effect of the Circular dated 05.10.2018 issued by the Central Board of Excise & Customs regarding cross-empowerment and intelligence-based enforcement actions. Appropriate guidelines for coordination and avoidance of parallel proceedings between Central and State GST authorities. 2. ISSUE-WISE DETAILED ANALYSIS I. Whether issuance of summons can be regarded as 'initiation of proceedings' within the meaning of Section 6(2)(b) of the CGST Act? Relevant legal framework and precedents: Section 6(2)(b) of the CGST Act bars initiation of proceedings by one proper officer if proceedings on the same subject matter have already been initiated by another proper officer under the corresponding State or Union Territory GST Act. Section 70 empowers proper officers to summon persons in an inquiry. Various High Courts have interpreted the distinction between 'proceedings' and 'inquiry' or investigation differently. Court's interpretation and reasoning: The Court observed that summons issued under Section 70 are tools for gathering information and do not amount to initiation of adjudicatory proceedings. 'Initiation of proceedings' under Section 6(2)(b) refers to formal commencement of adjudication, typically by issuance of a show cause notice. Summons are preliminary and investigatory in nature and do not establish the subject matter or intent to proceed. Key evidence and findings: High Courts of Allahabad, Madras, Kerala, and Rajasthan have held that summons or inquiries under Section 70 do not amount to 'proceedings' under Section 6(2)(b). High Courts have emphasized that 'proceedings' include assessment, demand, penalty, or adjudication actions, such as those under Sections 73 and 74. Summons are issued to collect evidence and do not define the subject matter conclusively. Issuance of summons is not determinative of the course of action the Department may take. Application of law to facts: The petitioner challenged summons issued after a show cause notice was already issued by another authority on the same subject matter. The Court held that the summons themselves do not amount to initiation of proceedings and therefore do not trigger the bar under Section 6(2)(b). The High Court correctly distinguished summons from formal proceedings. Treatment of competing arguments: Petitioner argued that summons issuance is initiation of proceedings and barred under Section 6(2)(b). Respondents and various High Courts contended summons are preliminary inquiries and do not amount to proceedings. The Court favored the latter view, emphasizing the need for clear commencement of adjudicatory proceedings by issuance of show cause notice. Conclusions: Issuance of summons under Section 70 is not 'initiation of proceedings' under Section 6(2)(b) of the CGST Act. Summons are investigatory and evidence-gathering tools and do not bar parallel summons or inquiries. II. Whether 'subject matter' within the meaning of Section 6(2)(b) of the CGST Act includes all matters dealt with in summons under the Act? Relevant legal framework and precedents: Section 6(2)(b) bars initiation of proceedings on the 'same subject matter.' The term 'subject matter' is not defined in the Act but has been judicially interpreted as the cause of action or the nature of proceedings concerning a particular dispute or liability. Court's interpretation and reasoning: The Court held that 'subject matter' refers to the specific tax liability, deficiency, or contravention that the Department seeks to assess or recover, as delineated in a show cause notice. It is not every matter touched upon during summons or inquiry. The subject matter is crystallized only when formal proceedings are initiated by issuance of a show cause notice specifying the charges, grounds, and demand. Key evidence and findings: High Courts of Allahabad, Orissa, and Punjab & Haryana equate 'subject matter' with cause of action or nature of proceedings. Show cause notices must specify the charges and grounds in detail, defining the scope of proceedings. Subsequent proceedings or inquiries overlapping in some aspects but differing in scope or period may not be barred. Section 75(7) of the CGST Act restricts demand confirmation to grounds specified in the notice, underscoring the importance of clear subject matter definition. Application of law to facts: The petitioner's claim that summons relate to the same subject matter as the prior show cause notice was rejected because summons alone cannot define or fix the subject matter. Overlapping investigations do not ipso facto mean the subject matter is identical. Treatment of competing arguments: Petitioner argued broad interpretation of subject matter to include all matters in summons. Court rejected this, emphasizing the need for precise and formal identification of subject matter through show cause notices. Conclusions: 'Subject matter' under Section 6(2)(b) refers to the adjudicatory dispute or liability as formally initiated by a show cause notice. Summons-related matters are preliminary and do not define the subject matter for the purpose of Section 6(2)(b). III. What is the purport of an 'Order' under Section 6(2)(a) of the CGST Act? Relevant legal framework and precedents: Section 6(2)(a) mandates that where a proper officer issues an order under the CGST Act, a corresponding order must be issued under the SGST or UTGST Act with intimation to the jurisdictional officer. The term 'order' is broadly construed to include all forms of orders competent under the statute. Court's interpretation and reasoning: The provision aims to ensure a unified and comprehensive adjudication, avoiding multiplicity of proceedings and conflicting decisions. The obligation to issue corresponding orders fosters administrative coherence and respects comity between jurisdictions. Key evidence and findings: 'Order' includes all adjudicatory decisions issued by proper officers under the statute. Issuance of corresponding orders under both CGST and SGST/UTGST Acts prevents conflicting outcomes and multiplicity. Mandatory intimation to jurisdictional officers safeguards against parallel or overlapping proceedings. Application of law to facts: The Court emphasized the importance of simultaneous issuance of orders under the parallel Acts to maintain the single interface and cross-empowerment framework. Conclusions: 'Order' under Section 6(2)(a) is a broad term encompassing all adjudicatory decisions under the CGST Act. Issuance of corresponding orders under SGST/UTGST Acts is mandatory to ensure administrative harmony. IV. Framework of single interface and cross-empowerment under Section 6 of the CGST Act Relevant legal framework and precedents: Section 6 provides for cross-empowerment of officers between CGST and SGST/UTGST Acts, enabling officers appointed under one Act to act as proper officers under the other. The GST Council's decisions and Circulars dated 20.09.2017 and 05.10.2018 elaborate the administrative division of taxpayers and empower both Central and State authorities to undertake intelligence-based enforcement actions across the entire value chain. Court's interpretation and reasoning: The Court explained that the GST regime embodies two complementary concepts: 'single interface' to avoid dual administrative control over taxpayers, and 'cross-empowerment' to enable both Central and State authorities to act on intelligence-based enforcement actions. Section 6 balances these concepts by preventing parallel proceedings on the same subject matter but allowing intelligence-based actions by either authority. Key evidence and findings: GST Council meetings emphasized administrative division of taxpayers and cross-empowerment for enforcement. Circular dated 05.10.2018 clarifies that the authority initiating intelligence-based enforcement action may complete the entire process irrespective of administrative assignment. Section 6(1) authorizes officers appointed under SGST/UTGST Acts to be proper officers under CGST Act and vice versa. Section 6(2)(b) bars initiation of proceedings on the same subject matter by different authorities to avoid duplication. Section 6(2)(a) mandates issuance of corresponding orders under both Acts. Application of law to facts: The Court underscored that intelligence-based enforcement action can be initiated by either Central or State authorities regardless of administrative assignment, but formal proceedings on the same subject matter cannot be duplicated. Treatment of competing arguments: Petitioner emphasized bar on parallel proceedings under Section 6(2)(b). Respondents relied on cross-empowerment and Circulars to justify intelligence-based actions. The Court harmonized these views, recognizing the bar on parallel proceedings but allowing intelligence-based enforcement by either authority. Conclusions: Section 6 enshrines single interface and cross-empowerment principles. Intelligence-based enforcement action may be initiated by either Central or State authorities across the entire value chain. Parallel proceedings on the same subject matter are barred to avoid duplication and harassment. V. Interpretation and effect of Circular dated 05.10.2018 Relevant legal framework and precedents: The Circular clarifies ambiguity regarding enforcement action by Central or State tax officers against taxpayers assigned to the other authority. It empowers officers of both Central and State tax to initiate and complete intelligence-based enforcement actions over the entire taxpayer base. Court's interpretation and reasoning: The Court held that the Circular is consistent with Section 6 and the GST Council's decisions. It clarifies that intelligence-based enforcement action is not restricted by administrative assignment and that the authority initiating such action may complete the process. However, the Circular does not cover all possible scenarios and is limited to intelligence-based enforcement actions. Key evidence and findings: Circular recognizes cross-empowerment and allows authorities to act beyond administrative assignment for intelligence-based actions. It does not preclude the bar on parallel proceedings for the same subject matter once formal proceedings are initiated. GSTN IT system changes are underway to support this framework. Application of law to facts: The Court found that the Circular supports the respondent's authority to issue summons and conduct investigations despite taxpayer assignment to another authority, provided no formal proceedings on the same subject matter have been initiated by the other authority. Conclusions: The Circular dated 05.10.2018 clarifies and operationalizes cross-empowerment for intelligence-based enforcement actions. It does not override the statutory bar on parallel proceedings under Section 6(2)(b). VI. Guidelines and directions to avoid parallel proceedings and ensure coordination Court's reasoning and directions: Where summons or show cause notices are issued by multiple authorities, the assessee must comply initially and notify the subsequent authority if proceedings are already pending. Authorities must communicate to verify overlap and avoid duplication. If subject matters differ, authorities must inform the assessee accordingly. If an overlap exists, authorities must decide which will continue the proceedings, and the other shall forward all material to that authority. If no agreement is reached, the authority which first initiated the inquiry or investigation shall continue. Non-compliance with these guidelines may be challenged by the assessee via writ petition. Taxpayers must cooperate fully, including responding to summons and notices. Departments should enhance IT infrastructure for seamless data and intelligence sharing to support cooperative federalism and reduce taxpayer hardship. Conclusions: Effective coordination and communication between Central and State tax authorities are essential to avoid parallel proceedings and duplication. Taxpayers have a duty to cooperate and notify authorities of overlapping proceedings. Robust IT systems and data sharing mechanisms are recommended to facilitate transparency and coordination.