2025 (10) TMI 170 - HC - GST

Section 6(1) CGST grants automatic cross-empowerment to State/UT GST officers unless government issues restrictive notification

R.K. Ispat Ltd. through Ram Avtar Aggarwal Silklon Processors Pvt. Ltd. through Vikrant Sharma Chenab Industries Pvt. Ltd. through Kush Aggarwal Jyotsana Industries Pvt. Ltd through Sajan Marriya J&K Textorium Pvt. Ltd. through Rajesh Kumar J&K Synthetic Pvt. Ltd. through Rajesh Kumar M/s Natural Industries through Ram Avtar Aggarwal Toplon Industries Pvt. Ltd. through Kush Aggarwal Orbit Spinning Pvt. Ltd. through Sajan Marriya Green Textorium Pvt. Ltd. through Rajesh Kumar Versus Union of India and others.

HC dismissed the petitions. It held Section 6(1) CGST confers automatic cross-empowerment on State/UT GST officers as proper officers for CGST unless the ... Violation of principles of natural justice - impugned SCN as well as its summary are without any authority - proper officers under CGST Act have no jurisdiction to initiate any proceedings under the Act - the petitioner is assigned to the State Tax Authorities of J&K - jurisdiction of Joint Commissioner, CGST Jammu to issue the impugned notices in view of the circular dated 09.02.2018 issued by the Government of India, Ministry of Finance, Department of Revenue as the amount involved is below Rs.1.00 crore - bunching of SCN for five assessment years - fraudulent availment and utilization of bogus Input Tax Credit (ITC) of GST on the basis of mere paper transactions. Whether the issuance of a specific notification for cross-empowerment under Section 6 of CGST, 2017 and SGST Act, 2017 is mandatory, and in the absence thereof, whether a proper officer under CGST Act can exercise jurisdiction in respect of an assessee assigned to the State/UT authorities and vice versa? - HELD THAT:- The issue as to whether the mandate of cross- empowerment contemplated under Section 6 has been validly brought into force or not, has been the subject matter of debate before various High Courts, and the opinion on the issue is divided. Before adverting to the case law on this issue and the two contrary views taken by the High Courts, it is deemed appropriate to look at the provisions of Section 6 of the CGSCT Act and to give the words used therein their natural meaning. Sub-section (1) of Section 6 of CGST Act, 2017 speaks of cross-empowerment and unequivocally prescribes that the officers appointed under the State GST Acts or UT GST Acts are authorized to act as proper officers for the purpose of CGST Act, 2017, and this cross-empowerment envisaged in Sub-section (1) of Section 6 is without prejudice to other provisions of the Act and, therefore, does not interfere with the powers of officers conferred under the provisions of the CGST Act of 2017. The expression ‘without prejudice to the provisions of this Act’ would mean that Sub-section (1) does not override, limit, or conflict with the provisions of the main Act, and in case of any inconsistency, the provisions of the Act would prevail. By virtue of the provisions of Sub-section (1) of Section 6 of the CGST Act, the officers appointed under the State Goods and Services Tax Acts and the Union Territory Goods and Services Tax Acts are deemed to be proper officers for the purposes of the CGST Act, 2017. The cross-empowerment is, therefore, inherent and automatic under the Sub-section. The Government is only empowered to subject cross-empowerment of officers to such conditions as it shall, on the recommendations of the Council, specify by notification. Unless such a notification, specifying the conditions subject to which the cross-empowerment envisaged under Sub-section (1) shall be effectualted, is issued by the Government on the recommendations of the GST Council, the officers appointed under the State GST and UT GST Acts shall be the proper officers for the purposes of the CGST Act. The plain language of Section 6 along with the CBIC circular dated 22.06.2020 which has been noticed and approved by the Supreme Court in M/S Armour Security India Limited vs Commissioner CGST Delhi East Commissionerate and another, [2025 (8) TMI 991 - SUPREME COURT], removes ambiguity, if any, entertained by some of the High Courts, with regard to the true import and interpretation of the cross-empowerment provision contained in Sub-section (1) of Section 6 of the CGST Act. Without entering into a detailed analysis of the different opinions rendered by certain High Courts, we are of the considered view that the cross-empowerment envisaged under sub-section (1) of Section 6 is automatic and a result of legislative mandate. No separate notification by the Government on the recommendations of the GST Council is required to effectuate cross-empowerment. The power to issue a notification arises only if the Government seeks to impose conditions on such empowerment. In the absence of any such notification, officers appointed under the State and UT GST legislations automatically act as proper officers for the purposes of the CGST Act - However, with a view to ensure a single interface and to avoid dual control over taxpayers, the Central Government vide Circular No. 01/2017 dated 27.09.2017, has laid down the guidelines for allocation of taxpayers between the Centre and the States, providing further that in case of intelligence-based enforcement action in respect of the entire value chain, both the Central and State tax administrators shall have concurrent powers. Whether bunching of show cause notice under Section 74 of the CGST Act is permissible under law? - HELD THAT:- From a plain reading of Section 74 of the CGST Act, 2017, it does not prima facie come out that there is any prohibition against the issuance of a show cause notice for evasions that have taken place in more than one financial year. There were rival contentions from both sides on this issue, but the question is left open to be determined in appropriate proceedings - In the instant case, the petitioners, while replying to the show cause notice and contesting the proceedings initiated by way of the impugned notice, would be well within their rights to raise this issue before the concerned authority. Whether the Joint Commissioner is an authority competent to issue a show cause notice to the assessee where the amount involved is less than Rs.1.00 crore under the CGST Act? - HELD THAT:- It is trite that an intelligence-based enforcement action is edificed on information of tax evasion emanating from the value chain or chain of transactions rather than from any administrative scrutiny by way of audit of accounts or returns. As is apparent from reading of paragraphs 47 to 51 of the judgment supra, the gathering of intelligence is intended to be a non-intrusive exercise. The Department relies on data analytics, validation with third-party data, and other methods to collect actionable intelligence via analytical tools, human intelligence, modus operandi alerts as well as information through past detections - On the contrary, the proceedings arising from audit of accounts or detailed scrutiny of returns are to be initiated by the tax administration to which the taxpayer is assigned. However, the proceedings which are based on intelligence relating to tax evasion, can be initiated either by the Central or the State tax administration. There are no merit in these petitions and the same are, accordingly, dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the cross-empowerment envisaged by Section 6 of the CGST Act is dependent on a specific notification by the Government (on recommendations of the GST Council) to become operative, or whether such cross-empowerment is inherent and operative without issuance of any notification, notification being required only to impose conditions. 2. Whether 'bunching' (consolidation) of show cause notices under Section 74 of the CGST Act for evasions spanning multiple financial years is impermissible as a matter of law. 3. Whether a Joint Commissioner of Central Tax lacks competence to issue show cause notices where the amount involved is less than Rs. 1.00 crore in view of administrative circulars prescribing monetary thresholds. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Necessity of a notification to effectuate cross-empowerment under Section 6 of the CGST Act Legal framework: Section 6(1) authorises officers appointed under State/UT GST Acts to be 'proper officers' for the purposes of the CGST Act 'subject to such conditions as the Government shall, on the recommendations of the Council, by notification, specify.' Sub-section (2) contemplates consequential single-interface and non-duplication of proceedings, including bar on initiation of proceedings by one administration when the other has initiated on the same subject matter. Precedent treatment: High Courts are divided-some held notification is a sine qua non for cross-empowerment; others held cross-empowerment is inbuilt and notification needed only to impose conditions. Administrative circulars and subsequent clarifications have treated notification as necessary only to impose conditions. The Supreme Court has approved clarificatory exposition that intelligence-based enforcement may be initiated by either administration. Interpretation and reasoning: The natural reading of Section 6(1) shows cross-empowerment is conferred by the sub-section itself; the phrase 'subject to such conditions... by notification' empowers the Government to impose conditions via notification but does not convert notification into a precondition for cross-empowerment. The saving phrase 'without prejudice to the provisions of this Act' preserves harmony with other provisions. Administrative circulars and CBIC clarification support that notification is required only when conditions are to be imposed; absent any such notification the cross-empowerment is absolute. The legislative purpose - single interface, avoidance of dual control and robust enforcement (including intelligence-based action) - supports an interpretation that allows both Central and State officers to act across the value chain without prior notification unless restrictions are expressly specified. Ratio vs. Obiter: Ratio - Section 6(1) effects automatic cross-empowerment; notification is required only to specify conditions on that empowerment. Obiter - historical background and policy discussion supporting single interface and enforcement objectives. Conclusion: Cross-empowerment under Section 6(1) is automatic and operative without a separate notification; a Government notification on recommendations of the GST Council is required only where the Government intends to impose conditions or restrictions on that cross-empowerment. In intelligence-based enforcement, officers of either administration may initiate proceedings notwithstanding assignment of a taxpayer to the other administration (see cross-reference to Issue 2 reasoning and Supreme Court principles reproduced in the judgment). Issue 2 - Permissibility of bunching of show cause notices under Section 74 Legal framework: Section 74 deals with determination of tax and imposes adjudicatory proceedings for cases of evasion involving fraud, suppression, or mis-statement. It does not, on its face, expressly prohibit issuance of show cause notices for evasions spanning multiple financial years. Precedent treatment: The Court observed divergent submissions and left the question open for detailed adjudication before the adjudicating authority; the Court referenced broader principles distinguishing intelligence-based enforcement from audit/scrutiny actions and the prohibition on parallel proceedings under Section 6(2)(b). Interpretation and reasoning: A plain reading of Section 74 does not prima facie forbid consolidation of alleged evasions across years into a single show cause notice. Whether consolidation is permissible in a particular case depends on factual matrix and legal characterization of 'subject matter' and whether consolidated claims result in overlapping or identical adjudicatory proceedings that would trigger the bar in Section 6(2)(b). The petitioners remain free to raise the objection before the competent authority and the adjudicating authority is to examine the propriety of bunching in the light of facts and law. Ratio vs. Obiter: Obiter - the Court expressly left the legal question open for determination in appropriate proceedings and provided guidance rather than a definitive ruling on permissibility in all circumstances. Conclusion: The Court declined to categorically rule that bunching under Section 74 is impermissible. Section 74 does not, on its face, prohibit issuance of a consolidated show cause notice for multiple years; the validity of bunching is to be examined in adjudicatory proceedings on facts and law (petitioners may raise the objection before the authority). Issue 3 - Competence of Joint Commissioner to issue show cause notices for amounts below Rs. 1.00 crore Legal framework: Section 5(2) of the CGST Act allows central tax officers to exercise powers of subordinate officers. Administrative circulars assign distribution of work and may set monetary thresholds for routine allocation but do not create substantive bar on exercise of statutory powers by senior officers. Precedent treatment: Administrative circulars designate ranks and limits for issuance of show cause notices as managerial/allocation measures; such circulars do not divest officers of statutory powers conferred by Act provisions like Section 5(2). Interpretation and reasoning: The circular prescribing a Rs.1.00 crore threshold is an administrative allocation for optimal distribution of work. Section 5(2) expressly empowers higher-ranked central officers to exercise subordinate powers; hence a Joint Commissioner may lawfully issue show cause notices even where the monetary amount is below the administrative threshold. The circular's assignment does not oust statutory competence; it only guides administration. Ratio vs. Obiter: Ratio - Joint Commissioner is competent to issue show cause notices for amounts below Rs.1.00 crore by virtue of Section 5(2) and the administrative character of monetary thresholds; Obiter - commentary on administrative allocation and optimization of work. Conclusion: The Joint Commissioner is a competent authority to issue the impugned show cause notice notwithstanding that the amount involved is less than Rs.1.00 crore; the monetary limits in the circular are administrative guidelines and do not divest statutory authority. Cross-References and Ancillary Observations 1. Intelligence-based enforcement: The Court reaffirmed the principle that intelligence-based enforcement actions-predicated on actionable intelligence from the value chain rather than audit/scrutiny of returns-may be initiated by either Central or State tax administrations. Actions arising from audit/scrutiny must be initiated by the administration to which the taxpayer is assigned. Parallel adjudicatory proceedings on the same subject matter are barred by Section 6(2)(b). 2. Scope for challenges before adjudicating authority: Questions relating to bunching, applicability of Section 122 penalty, and other factual/technical defenses are left open for the petitioners to agitate before the authority and adjudicate on merits; the Court's conclusions on Section 6 interpretation do not preclude raising other contentions in the proceedings. Final Disposition (ratio limited to issues decided): The Court dismissed the petitions on the grounds that Section 6 cross-empowerment operates without a prior notification (notification required only to impose conditions), bunching under Section 74 was left open for adjudication (no categorical bar found on its face), and the Joint Commissioner has competence under Section 5(2) to issue show cause notices even where amounts are below Rs.1.00 crore; other contested issues remain open for determination by the statutory authorities.