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.

M/s ARMOUR SECURITY (INDIA) LTD. Versus COMMISSIONER, CGST, DELHI EAST COMMISSIONERATE & ANR. - 2025 INSC 982 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.