The Madras High Court has held that the absence of a separate notification under Section 6 of the GST law does not prevent Central and State tax officers from exercising powers of cross-empowerment.
The Bench of Justice Dr. Anita Sumanth and Justice S. Raveekumar clarified that the notification contemplated by the provision is intended to impose conditions on the exercise of those powers, rather than bring the statutory authorisation into existence.
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The Bench set aside the challenged writ court orders and remanded the matters for reconsideration, except the appeal concerning Sree Amman Traders, which was closed because the relief sought had already been granted during the proceedings.
The disputes arose from challenges to the exercise of cross-empowerment by Central and State GST authorities under Section 6 of the Central Goods and Services Tax Act, 2017.
Although the taxpayers had raised several grounds in their writ petitions, the writ court, through orders dated March 11, 2024, ruled in their favour on the notification issue. It quashed the impugned proceedings, including summons and assessments, on the ground that a notification authorising cross-empowerment had not been issued.
The tax authorities challenged those orders before the Division Bench. The central question was whether the statutory powers under Section 6 could operate without a separate notification.
The taxpayers maintained before the Division Bench that cross-empowerment remained unavailable in the absence of a notification. They also argued that this specific issue had not been addressed by the Supreme Court in Armour Security.
The Bench rejected the contention. It found that the Supreme Court had addressed the issue from paragraph 44 onwards and had referred to a clarification issued by the GST Policy Wing of the Central Board of Indirect Taxes and Customs on June 22, 2020.
That clarification explained that Section 6 itself authorises the relevant Central and State tax officers to act as proper officers under the corresponding GST enactments. A notification is required where the Government wishes to subject that authorisation to conditions.
The High Court reasoned that the mere non-issuance of a notification could not make Section 6 ineffective or leave it indefinitely awaiting implementation. It consequently held that the absence of a notification stipulating conditions did not restrict the statutory power of cross-empowerment.
The Bench reproduced the Supreme Court’s conclusions distinguishing routine tax administration from intelligence-based enforcement.
Under those conclusions, action arising from an audit of accounts or detailed scrutiny of returns must be initiated by the tax administration to which the taxpayer is assigned.
Intelligence-based enforcement, however, may be initiated by either the Central or State tax administration, even where the taxpayer is administratively assigned to the other.
The distinction means that administrative allocation does not, by itself, prevent the other tax administration from undertaking intelligence-based enforcement. At the same time, the exercise of cross-empowerment remains subject to safeguards against duplication.
The Court emphasised the Supreme Court’s interpretation of Section 6(2)(b), which prohibits the initiation of proceedings on the same subject matter by the other tax administration.
The expression “subject matter” concerns a tax liability, deficiency or obligation arising from a particular contravention that the department seeks to assess or recover.
Where two proceedings seek to assess or recover an identical liability, or a partially overlapping liability arising from the same contravention, the statutory bar is attracted. Conversely, proceedings relating to distinct infractions do not become proceedings on the same subject matter merely because the resulting tax liability is the same or similar.
The Supreme Court’s twofold test, reproduced in the judgment, requires examination of whether an authority has already proceeded against the taxpayer on an identical tax liability or alleged offence based on the same facts, and whether the demand or relief sought is identical.
Another distinction highlighted in the judgment concerns when “proceedings” are considered to have been initiated for the purpose of Section 6(2)(b).
The Supreme Court’s conclusions state that inquiries and evidence-gathering measures do not, by themselves, constitute proceedings within the meaning of that provision. The formal commencement of adjudicatory proceedings occurs through the issuance of a show cause notice.
Accordingly, the issuance of summons or the conduct of a search or seizure does not automatically amount to the initiation of adjudicatory proceedings for the statutory bar.
However, the guidelines reproduced by the High Court separately require authorities to coordinate when overlapping inquiries or investigations come to light, preventing needless duplication even at the investigative stage.
The Bench reproduced the Supreme Court’s guidelines governing situations where a second authority begins an inquiry or investigation into a matter already being examined by another authority.
A taxpayer receiving a summons or show cause notice must initially comply by appearing or furnishing the required response. If the taxpayer becomes aware that the same matter is already under inquiry or investigation elsewhere, it must promptly inform the authority conducting the subsequent inquiry in writing.
The authorities must then communicate with each other and verify the claimed overlap. If they conclude that the investigations concern different subject matters, they must convey that conclusion to the taxpayer in writing, with reasons identifying the distinct issues.
Where the overlap is established, the authorities must decide which administration will continue the inquiry or investigation. The other authority must transfer the relevant information and material to the authority taking the matter forward.
If they cannot agree, the authority that first initiated the inquiry or investigation is empowered to carry it to its logical conclusion. The guidelines also recognise that courts may order transfer to that authority.
The taxpayer has protection against duplication but cannot choose which administration should conduct the investigation. Where authorities fail to comply with the guidelines, the taxpayer may approach the concerned High Court under Article 226 of the Constitution.
The Division Bench also relied on Gannon Dunkerley and Co. v. State of Rajasthan, reported in (1993) 1 SCC 364, to support its reasoning.
That decision distinguished an existing legislative power from a provision enabling restrictions or conditions to be imposed upon its exercise. The absence of a law prescribing those restrictions did not prevent the underlying power from being exercised.
Applying that reasoning, the Bench held that Section 6 could not be restricted merely because a notification prescribing conditions had not been issued.
The Court further noted that a Division Bench of the Kerala High Court, in Pinnacle Vehicles and Services Private Limited v. Joint Commissioner (Intelligence & Enforcement) and Others, had differed from the reasoning adopted in the challenged writ court orders.
The Division Bench set aside the writ court orders and remanded the matters for disposal in accordance with the detailed conclusions and guidelines in Armour Security.
Since pleadings remained incomplete in some cases, the appellant authorities were granted a final opportunity of four weeks from the date of judgment to file counter affidavits wherever they had not already done so. Copies were required to be served in advance on the respondent taxpayers.
The Court recorded that the Central Government had filed a statutory appeal against that adjudication order under Section 107 of the CGST Act, which remained pending. Consequently, nothing survived in the writ appeal, and it was closed.
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