Cross-empowerment Is Without Jurisdiction In Absence Of Any Notification Under GST Law 

Held by Hon’ble High Court of Madras 

In the matter of 

Tvl. Vardhan Infrastructre Vs Special Secretary (W.P. Nos. 34792, 29878, 30607, 30613, 30615 of 2019)

The Writ petition was filed to challenge the proceedings initiated against the taxpayer by the central authorities where the taxpayer is assigned to the State authorities and vice versa. The Petitioner contended that power of cross-empowerment was given under Model GST Law. However, GST Law enacted is different from the Model GST Law. Post enactment of GST law, i.e., 01.07.2017, the Circular No. 1/2017-GST (Council) clarified on the manner of distribution of taxpayers between central and state GST Authorities. However, as per Circular, the notification on cross-empowerment shall be issued separately. On recommendation of GST Council in the 22nd GST Counil meeting, the department issued the notification on cross-empowerment but with respect to refund only and no other matters. There are draft notifications on cross-empowerment. But these notifications are yet to be notified. 

Hon’ble High Court held that Section 6(1) of the respective GST Enactments empowers the Government to issue notification on the recommendation of GST Council for cross empowerment. However, no notification has been issued so far on cross empowerment except for the purpose of refund. Therefore, in absence of a notification for cross-empowerment, the action taken by the respondents are without jurisdiction.

1. Facts of the case

• There are several cases where the petitioner is assigned to the state authorities. However, proceedings against such taxpayers are initiated by the central authorities.
• Similar, in certain cases, petitioners are assigned to the central GST authorities, however, their proceedings are initiated by the State authorities.
• Therefore, in the cases where the petitioners were falling under state authorities, the petitioner challenged the notices and orders issued by central authorities and vice versa.
• The dispute in these Writ Petitions is that the petitioners who have been assigned either to the State Authorities or to the Central Authorities for administrative purposes under GST law are being subjected to proceedings by their counterpart.

2. Issue for consideration before Hon’ble High Court

A common issue arises for consideration before hon’ble High Court is to whether the petitioners who are assigned to CGST Authorities can be subject to investigation by state GST Authorities or vice versa?

3. Legal extract

Relevant extract of law is reiterated below for ready reference:

a. Minutes of 9th GST Council meeting held on 16th January, 2017:

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

…

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;

…”

b. Circular No. 1/2017-GST (Council) dated 20th September, 2017

“Subject: Guidelines for division of taxpayer base between the Centre and States to ensure Single Interface under GST-Regarding

…

4. Suitable notifications regarding cross-empowerment of State and Central Tax officers under CGST/IGST and SGST Acts respectively are being issued separately.”

4. Contention of the Petitioner

The petitioner contended that:

1. CGST Act, IGST Act and respective state and Union territories GST law came into force with effect from 1st July, 2017.
2. GST Law was enacted as per power granted under Article no. 279A of Constitution of India (inserted through amendment).
3. The GST Council had a difficult task to balance the concerns of the Trade and interest among different States. To avoid multiple assessments and to avoid confusion, the GST Council had to arrive at a consensus with State and Central Government.

4. Provision on Cross Examination prior to implementation of GST Law (In Model GST Law)

• Prior to enactment of the GST Law, i.e., 1st July, 2017, in the 9th GST Council 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.
• As per Para No. 28 of 9th GST council meeting held on 16th January, 2017, 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.
• However, at that stage, only model GST law was in circulation. At the time of 9th GST council meeting,  the GST Council was yet to approve the Draft Model GST Acts.

5. Provisions on Cross Examination after implementation of GST Law

• Post enactment of GST law, first discussion about cross-examination was made vide Circular No.1/2017-GST (Council) dated 20.09.2017.
• Circular No.1/2017-GST (Council) dated 20.09.2017 was issued for a division of taxpayers between the Centre and States to ensure a Single Interface under GST Enactments between tax officers of CGST/IGST and SGST.
• Circular No. 1/2017-GST (Council) specified the manner of division of taxpayers between the central tax administration and state tax administration.
• E.g. 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;
• However, as per Para No. 4 of the circular, notification regarding cross empowerment of state and central tax officers under CGST/IGST and SGST Acts shall be issued separately.
• Therefore, no provisions or clarification was provided for cross-empowerment through such circular.

6. Proposal for issuing notifications on cross-empowerment for ensuring single interface under GST 
   1. In 22nd GST Council meeting held on 6th October, 2017, the agenda of the meeting was to discuss issuance of notification on cross-empowerment under GST Law.
   2. In the meeting, GST council approved the proposal to issue a notification on cross empowerment to allow sanction of 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.

7. As recommended by the GST Council, the department issued the notification No. 39/2017- Central Tax on 13.10.2017 which was later on amended by Notification No.10/2018-CT dated 23.01.2018. 

8. As per Notification No. 39/2017 dated 13th october, 2017 (amended), the officers appointed under the respective SGST Act for the purposes of refund under SGST Act shall act as proper officers for the purpose of sanction of refund under CGST Act as well except sub rules (1) to (8) and sub rule (10) of rule 96.

9. However, as recommended by the GST Council in the 22nd GST Council meeting, a separate Model Notification was also circulated for cross empowerment of other purposes. However, Model Notifications which was circulated during September, 2017 immediately after the GST Enactments came into force with effect from 01.07.2017 have not been notified either under the CGST Act, 2017 or under the SGST Act, 2017.

10. These Notifications are draft Notifications till date. They have not been notified. Such draft notification provided for cross empowerment provisions.

11. In absence of any notification on cross-empowerment, there is no cross-empowerment.

5. Analysis by Hon’ble High Court

Hon’ble High court made following analysis:

1. Single GST Return under both State and Central GST Law
   1. As per GST Law enacted, the applicant is required to file only one GST return under both CGST Act and SGST Act. Such returns are to be filed in the common portal of GST Law.
   2. These returns capture output tax liability under CGST Act as well as respective State GST Act and IGST Act. 
   3. Payment of tax, whether under CGST Act or SGST Act, are made at the same rate. The only difference that may arise at the time of payment is on account of utilization of the Input Tax Credit (ITC).

2. Appointment of Officers under GST Law
   1. However, powers of assessment has been vested with the proper officers to whom the assessee have assigned by virtue of Circular No.01/2017-GST (council) dated 20.09.2017.
   2. Under Section 3 of the respective GST Law, both the Central Government and the State Government have appointed a “class of officers” for the purpose of enforcement of the respective GST Enactments of 2017.
   3. As per Section 4(1) and (2) of CGST Act,  the Board can appoint and delegate only to Central Tax Officers appointed under the CGST Act, 2017 for CGST Act, 2017. Similarly, as per Section 4(1) and (2) of CGST Act, the government or/and the commissioner can appoint and delegate only to State Tax Officers appointed under the SGST Act, 2017 for SGST Act, 2017.

3. Cross empowerment under GST Law
   1. Section 6 of the respective CGST Act and SGST Act are relevant for cross-empowerment. It read slightly differently from Section 7 of the respective Model Central and State GST laws which were in circulation in February, 2016. 
   2. Under GST Law enacted, the delegation can be done only to the officers under the respective GST Enactments. 
   3. These provisions are different from Section 6 of the Model GST Laws which contemplated wide powers with the Board/Commissioner to delegate the powers to officers from their counterpart Department. 
   4. Thus, Section 6(1) of the respective GST Enactments empowers the Government to issue notification on the recommendation of GST Council for cross-empowerment. 
   5. However, no notification has been issued so far on cross empowerment except for the purpose of refund. 
   6. Since, no notifications have been issued for cross-empowerment, except for refund,  impugned proceedings are to be held without jurisdiction.
   7. If an assessee has been assigned to CGST Authority, in accordance with Circular No.01/2017, then the State Authorities have no jurisdiction to interfere with the assessment proceedings and vice versa.
   8. GST provisions are designed in a manner to ensure no cross interference by the counterparts.
   9. Therefore, in absence of a notification for cross-empowerment, the action taken by the respondents are without jurisdiction. 
   10. 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.

6. Decision of Hon’ble High Court

The Hon’ble High Court held that:

1. The proceedings initiated so far by the Authorities, other than the Authority to whom the taxpayer has been assigned,are to be held as without jurisdiction. Therefore, the impugned proceedings warrants interference.
2. Further, Proceedings should be initiated against each of the petitioners by the Authority to whom they have been assigned for the purported loss of Revenue under the respective  GST Enactments.