The Jammu and Kashmir High Court has held that the intelligence-based GST enforcement relating to tax evasion can be initiated by central or state tax administration.
The bench of Justice Sanjeev Kumar and Justice Sanjay Parihar has observed 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. 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.
The petitioners/assessee are either firms or companies registered under the Companies Act, 2013 and engaged in the business of manufacturing and trading of various goods falling within the purview of the Central Goods and Services Tax Act, 2017 and the State Goods and Services Tax Act, 2017.
The petitioner are aggrieved of and has challenged the show cause notice dated 17.04.2024 issued in Form GST DRC-01 by the Joint Commissioner, CGST Commissionerate, Jammu, and the summary issued in Form GST GRC-01 dated 31.03.2024.
The show cause notice, as well as its summary have been challenged by the petitioner on three grounds.
Firstly, the show cause notice as well as its summary are without any authority, inasmuch as the proper officers under CGST Act have no jurisdiction to initiate any proceedings under the Act, for the reason that the petitioner is assigned to the State Tax Authorities of J&K.
Secondly, the Joint Commissioner, CGST Jammu,also lacks jurisdiction 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;
Lastly, bunching of show cause notice dated 31.03.2024 for five assessment years, starting from 2017-18 to 2021-22, is not permissible in terms of Section 74 of the CGST Act, 2017.
Whether the issuance of a specific notification for cross-empowerment under Section 6 of CGST of 2017 and SGSTAct, 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 ?
From a plain reading of Section 6 as it is, without making any attempt to read it between the lines or to give it a contextual interpretation, it clearly transpires that the underlying objective of enacting Section 6 is to streamline tax administration, promote judicial accountability, eliminate duplicity in proceedings, and create a conducive environment for business operations. To ensure convenience and provide a single interface for the purpose of tax administration, every taxpayer has been assigned a jurisdiction of either the Centre or the State.However, the GST Acts also contemplate cross-empowerment of the Centre and the States over the taxpayers assigned to each other.
Recently, both the Central as well as the State administrations have been functioning under the belief that Section 6 authorises them to enforce GST laws on taxpayers assigned to the other jurisdiction.
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.
In Tvl. Vardhar Infrastructure vs. DGGSTI, the Madras High Court has taken the view that for effectuating cross-empowerment, the issuance of a notification by the Government on the recommendations of the GST Council is a sine qua non.
On the other hand, the Kerala High Court in Pinnacle Vehicles & Services Private Ltd vs. Joint Commisisoner and the Karnataka High Court in SLM Stationery vs. Union of India have taken a contrary view, holding that cross-empowerment under Subsection (1) of Section 6 the CGSCT Act is inbuilt and does not require a separate notification by the Government of India. It has been further opined in those judgments that a notification by the Government of India, on the recommendations of the GST Council, would be required only to impose riders and conditions on cross-empowerment.
The court held that 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?
The court held that as per 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. The petitioners, while replying to the show cause notice and contesting the proceedings initiated by way of the 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?
The court held that under Section 5(2) of the CGST Act, the central tax officer is empowered to exercise the powers of a subordinate officer, meaning thereby that the Joint Commissioner had the right to issue the notice, being the authority higher than the one empowered to initiate action.
The court held that the circular dated 09.02.2018 authorizes the Joint Commissioner to issue show cause notice where the amount involved exceeds Rs. 1 crore. However, this does not mean that the Joint Commissioner of Central Tax is not competent to issue a show cause notice where the monetary limit or the amount involved is less than Rs. 1 crore.
The circular makes it abundantly clear that all officers up to the rank of Commissioner and Joint Commissioner of Central Tax are assigned as proper officers for issuance of show cause notices and orders under Subsections (1), (2), (3), (5), (6), (7), (9), and (10) of Section 73 and Section 74 of the CGST Act, and that in light of the provisions of Section 5(2) of the CGST Act, an officer of central tax has been empowered to exercise the powers and discharge the duties conferred or imposed under the CGSCT Act on any other officer of central tax who is subordinate to him.
Case Details
Case Title: R.K.Ispat Ltd. Versus UOI
Case No.: WP(C ) No. 1074/2024
Date: 30.09.2025
Counsel For Petitioner: Jatin Mahajan Advocate
Counsel For Respondent: Jagpaul Singh CGSC
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