Prefatory Note
Various powers are vested in Goods and Services Tax Officers to ensure the effective implementation of the Goods and Service Tax ('GST') law and to prevent tax evasion. Assessment of a taxpayer under the GST regime is typically administratively assigned to either the central department, viz., the Directorate General of GST Intelligence ('DGGI') or the respective state GST department, viz Directorate General of State Goods and Service Tax ('State DGST'). However, intelligence-based enforcement actions can be initiated by any department based on information, regardless of the taxpayer's administrative assignment.
This issue predominantly arises because of the dual GST Model adopted by India, wherein taxation is imposed concurrently by both the Central and State governments on the supply of goods and services or both. Due to this dual administrative structure, both the Central and State Governments possess the jurisdiction to impose GST and initiate related investigations, resulting in the emergence of concurrent tax investigations by authorities at both levels. This duality of investigative power vested in the GST authorities leads to parallel proceedings.
Under such circumstances, a pertinent question arises – whether the GST officers are conferred with the power to initiate proceedings on a similar subject matter where the central or state tax authority's Proper Officer ('PO') has already initiated the investigation. This article seeks to provide an answer to this question by interpreting and analyzing the provisions of the Central Goods and Services Tax Act, 2017 ('CGST Act') and various State Goods and Services Tax Acts ('SGST Acts').
Bar on Parallel Proceedings
S. 6(2)(b) of the CGST Act and the SGST Acts prohibits a proper officer from initiating any proceedings on a subject matter for which another proper officer has already initiated. The objective behind s.6(2)(b) is to shield taxpayers from a multiplicity of Show Cause Notices ('SCNs') issued by various authorities for the same subject matter.
S. 6 of the CGST Act is based on the principle of comity of courts, which enshrines that a court will not pass an order that would otherwise conflict with an order passed by another competent court of law.1 The principle further derives its basis from Art. 20(2) of the Constitution of India, 1950, which accords protection against 'double jeopardy' whereby a party that has been subject to a proceeding before an authority cannot be subject to proceeding on the same subject matter before another authority having competent jurisdiction.
The terms 'proceeding' or 'subject matter' have not been defined within the GST legislation, which has resulted in ambiguity regarding the interpretation of S. 6(2)(b). Consequently, numerous taxpayers have sought judicial recourse in instances where they have been subjected to parallel investigations, summonses, inquiries, etc., pertaining to the same subject matter or tax period by different wings of Centre and State GST departments.
In M/s G.K Trading Company v Union of India,2 the High Court of Allahabad, while interpreting the term 'subject matter' and 'proceeding' under s.6(2)(b), has held that the word 'subject matter' with reference to any proceedings, means the same cause of action for the same dispute involved in a proceeding before the PO under GST Laws.
The word 'proceeding' is qualified by the words 'subject-matter,' which indicates an adjudication process/proceedings relating to assessment, audit, demands, recovery, offences and penalties, etc. The court, in this case, concluded that issuing of summons is the initiation of an inquiry and not proceedings under s.6(2)(b) and therefore, such issuances of summons would not be barred by s.6(2)(b).
In order to clarify and ensure harmonious construction of the powers of Central and State departments, the Central Board of Indirect Taxes and Customs ('CBIC'), vide letter dated 05.10.2018,3 clarified that both the Central Tax officers and State Tax officers have the power to initiate intelligence based investigation irrespective of the administrative assignment of the taxpayer to any authority. However, the authority initiating the action has the power to complete the entire process of investigation, issue of SCN, adjudication, recovery, and filing of appeals arising from such action. Thus, the conjoint reading of s.6(2)(b) with the aforementioned letter clarifies that there can be no overlap of jurisdictions between the centre and state GST authorities.
Further, on the aforementioned, the GST Council4 has recommended that as a more efficient alternative, recurring SCNs should ideally be issued by the concerned jurisdictional tax authorities administering the taxpayer. For instance, if the state department conducts the initial investigation and issues the initial SCN, the subsequent recurring SCN may be issued solely by the DGGI, given that it is the jurisdictional tax authority responsible for administering the taxpayer. The intent is to streamline the process and ensure that the authority issuing the recurring SCN has direct access to the taxpayer's historical records, enabling them to make informed assessments based on the facts pertaining to the relevant period.
In relation to the above, there are circumstances where the State Investigating Officer is conducting the investigation with respect to taxpayers assigned to State and Centre Jurisdiction, and SCNs have been issued by the investigating officers for the issues identified during the investigation period. However, the same issues may recur during subsequent periods, and for such periods, recurring SCNs are required to be issued for further adjudication.
As the culmination of an ongoing investigation that results in an SCN being issued if multiple years are involved, the state authorities would preferably issue the SCN for the remaining years. The idea is that only once the investigation is complete, and all that is required is to check for recurrence of the issue in subsequent years that were not a part of the investigation, the jurisdictional authority should issue the subsequent SCNs.
Furthermore, in the case of Anurag Suri v. DGGST 5, the Orissa High Court held that if Central Government authorities are proceeding with a matter, State Government authorities should refrain from interference. The High Court of Patna, in the case of Fondement Bitumenous Industries (P) Ltd. v State of Bihar,6 also held that there is no prohibition on the State Tax Authority initiating an action when the Central Tax Authority is already seized of the matter. However, only one assessment can be made for the same transaction, and it is appropriate for the authority that initiated the action first to continue with it while the other authority refrains from proceeding.
However, the Madras HC in M/s VGN Projects Estates Private Limited v. Assistant Commissioner (State Taxes) and others7 directed the taxpayer to file a reply to the SCN issued by the State Tax Authorities, wherein the State Tax Authorities initiated parallel proceedings on a similar matter which was already pending before the Central Tax Authority. The HC held that if the defects were similar in the SCNs, the proceedings shall be omitted, and proceedings shall be initiated against the assessee for the defects already the subject matter of consideration before the Central Tax Authority.
For the sake of completeness, it is relevant to consider a scenario where the DGGI or the State DGST comes up either with (i) different issue(s) or (ii) different quantification for the same year(s) or period for which the DGGI or the State DGST authorities have issued SCN.8
In the first case, where the DGGI (or the DGST) issues a different issue for the same year, nothing prevents the in-law and statutory instructions issued by the CBIC or the GST Council from issuing another SCN.
In the second case, where the DGGI (or the DGST, as the case may be) quantifies the tax liability differently than the DGST (or the DGGI) on the same issue for the same year/period, it would be prevented from issuing another SCN. However, the law provides (and so do the various instructions issued by the Central and State authorities regarding coordination between themselves inter se) that in such a case, the DGGI (or the DGST) can and should share information with the DGST (or the DGGI).
Hence, where the DGGI or the State DGST receives additional information from the other department, and the PO is of the opinion that the demand must be raised, the PO can issue an addendum/corrigendum to the previously issued SCN. Further, where the difference in quantum is because of some computational error, the concerned authority may pass a rectification order under s.161 of the CGST Act, 2017.
Investigation Initiated by Two Wings of the Same Department
In some instances, proceedings may be initiated by two different wings of the same department on the same subject matter for the same assessment periods. Under such circumstances, it is pertinent to understand whether the bar under s.6(2)(b) of the CGST Act and SGT Acts would be applicable to such proceedings. In the judgment discussed below, the Calcutta HC has held that the proceedings by different wing wings of the same department are barred by s.6(2)(b) of the CGST Act. However, the Kerela HC has held that audit proceedings and investigation are independent and not barred by the said provision.
In M/s R.P Buildcon Private Limited & Anr. V. The Superintendent, CGST & CX Circle-II Group 10 & Ors.9 the Superintendent, CGST & CX had initiated an audit proceeding under s. 65 of the CGST Act. Meanwhile, the Anti Evasion Wing and the Range office also conducted scrutiny of returns for the same tax period under s. 61 of the SGST Act. Before the HC, the issue was whether different departments' wings could conduct parallel proceedings for the same period. The Appellant contended that even when the matter has not reached its logical end in proceedings initiated by the Audit Commissionerate, two other wings initiated the proceedings on the same subject matter, which was in contravention of s.6(2)(b) of the CGST Act.
The HC held that once the audit proceedings have been initiated, it is appropriate that the Audit Commissionerate itself take them to the logical end. Hence, the proceedings commenced by the other two wings for the very same period, and the same subject matter shall not be proceeded with.
In Suresh Kumar P.P. v Deputy Director,10 the challenge was to conduct simultaneous investigation proceedings when the audit was already in progress. The Kerela HC held that the audit under s.65 of the CGST Act was a routine procedure independent of investigation under s.67 of the CGST Act. Hence, simultaneously carrying out audit and investigation proceedings was not illegal or arbitrary. The Supreme Court dismissed the appeal against the said judgment.11
Though the HCs have given divergent views on the initiation of proceedings by different wings of the same department, relying on the judgment of the Kerela HC in Suresh Kumar P.P (Supra), the appeal against which was dismissed by the Apex Court, it can be conclusively said that the audit proceedings under s.65 of the CGST Act & State GST Act are independent of the investigation conducted under s.67 of the said enactments. Hence, the simultaneous initiation of audit proceedings and investigation would not be barred by s.6(2)(b) of the CGST Act and the State GST Act.
Transfer of Investigations
As stated above, India follows a dual GST Model, resulting in concurrent jurisdiction with both the centre and state authorities to impose taxes and conduct investigations in relation thereto. Hence, there might be circumstances where one department has already initiated the investigation; the other department may also proceed to investigate the same subject matter, maybe because of a lack of information with the department subsequently initiating the investigation.
However, subsequently, the department which initiated the investigation later must be acquainted with the ongoing investigation by the other department having concurrent jurisdiction. Under such circumstances of overlapping proceedings or issuance of summons by departments possessing concurrent jurisdiction, it would be logically prudent for one authority to drop the proceeding, preferably which initiated the investigation later in time, and transfer the proceedings to the other authority. Such an approach would be more feasible as it would prevent duplicity of investigation against the taxpayer.
Furthermore, this would also allow optimal utilisation of revenue's resources and time, as it is a settled principle under the CGST Act and respective SGST Acts that regardless of which department conducts the investigation and recovers from the taxpayer, both authorities would be entitled to their share as per the applicable provisions of the law.
In the case of Watermelon Management Services (P) Ltd. v. Commissioner of Central Tax, GST,12 the Commissioner of Delhi GST conducted a search on the premises of the assessee, but as the investigation was already being conducted by the DGGI, the Commissioner of Delhi, GST, transferred the investigation to the DGGI. Subsequent to the transfer of the investigation, the Commissioner of Delhi, GST, passed provisional attachment orders. The assessee challenged the said order before the Delhi HC. The HC directed the transfer of the investigation to DGGI.
In Indo International Tobacco Limited v. Vivek Prasad, Additional Director General (DGGI),13 an investigation was initiated by various jurisdictional authorities against different entities. A common thread involving the petitioner in that case was found in the investigation, and subsequently, such investigations were transferred to DGGI, AZU, to bring all investigations under one umbrella. The question was whether the issuance of multiple summons and initiation of investigations by multiple agencies was violative of s.6(2)(b) and the CBIC circular dated 05.10.2018 on intelligence-based enforcement action.
The Delhi HC held that under such circumstances, there was no prohibition on transfer from one authority to the other. It was further held that the transfer of investigations conducted by multiple authorities to a single agency is not prohibited under the CGST Act and SGST Act for the reason that multiple investigations and proceedings may lead to contradictory conclusions. Transfer of investigation for a PO with limited territorial jurisdiction to a PO with pan-India jurisdiction depends on the facts of each case. Consequently, Section 6(2)(b) of the CGST Act and the Circular dated 05.10.2018 would have no application in such cases.
A perusal of the above judicial pronouncement reveals that the revenue authorities have preferred the transfer of investigation to a single authority where multiple investigations were initiated on the same subject matter. This approach is more logistical for the revenue and the taxpayer as it protects the taxpayer from being vexed twice on the same subject matter. As held in Indo International (Supra), a transfer of investigation conducted by multiple authorities to a single agency is not prohibited because multiple investigations and proceedings may lead to contradictory conclusions.
Conclusion
India's dual GST model confers concurrent power upon the centre and state authorities to levy tax. This has led to the initiation of simultaneous investigations by the tax authorities against the taxpayer on the same subject matter. Under such a scenario, s.6(2)(b) of the CCGST Act serves as a bulwark by barring proceedings by other authorities if the proceedings on the same subject matter have already been initiated by an authority having concurrent jurisdiction.
The provision prohibits a PO from initiating proceedings on the same subject matter for which another PO has already initiated the proceeding. It protects individual rights from vexatious investigations by different authorities on the same subject matter.
A perusal of s.6(2)(b) read with DO dated 05.10.2018 issued by CBIC, the consequential instructions issued by the central and state authorities, and an analytical reference to the decisions of various High Courts as iterated above, clarifies that once intelligence-based enforcement is initiated by a specific authority for a particular issue for a particular year/period. The other authorities are refrained from any interference.
Though the Allahabad HC in M/s G.K Trading Company (supra) has defined the scope of the word 'proceeding' as relating to assessment, audit, demands, recovery, offences and penalties, etc., there remains an ambiguity around the interpretation of the word 'proceeding' unless the scope of the word as laid down by the Allahabad HC in confirmed by the Apex Court.
Further, the Delhi HC, in Indo International (supra), held that neither s.6 of the CGST and SGST Act nor the DO dated 05.10.2018 operate in a situation where intelligence-based enforcement action has repercussions or involvement of taxpayer beyond the territorial limit of the jurisdictional officer initiating the investigation. The HC also observed that the provision of the Act and the DO do not address the situation where the officer possessing concurrent jurisdiction has initiated separate intelligence-based action but has a common thread or involvement of multiple taxpayers, like a case of conspiracy.
In such a scenario, strictly enforcing s.6 of the CGST Act and SGST Acts and the above-mentioned DO would lead to compelling the officer to restrict the investigation, findings and resultant action only to taxpayers within his territorial jurisdiction, thereby leading to an incomplete and inconclusive investigation. However, if multiple proceedings are allowed, it would lead to a multiplicity of proceedings against the taxpayer, which is against the law's legislative intent and will further lead to multiple authorities expending their time, energy and resources investigating the same input and even reaching contradictory findings. Under such circumstances, it is quintessential that a harmonious construction of the provision is adopted, ensuring smooth and harmonious working of the statute.
Hence, the GST landscape must evolve to address the ambiguities around the interpretation of the provision while balancing the interest of revenue for administration and efficacious implementation of the statute.
Footnotes
1 India Household and Healthcare Ltd. v LG Household and Healthcare Ltd (2007) 5 SCC 51.
2 Writ Tax No. - 666 of 2020.
3 DO letter bearing F No. CBEC/20/43/01/2017-GST dated 05.10.2018 has the force of instruction to field officers and formation.
4 OM F. No. 757/Follow-up/GSTC/2018 dated 19.10.2022.
5 (2021) 88 GST 632.
6 [2023] 153 http://taxmann.com/taxmann.com 452 (Patna).
7 W.P. No. 2391 of 2023 (Madras HC).
8 It would mean that the state authorities have initiated the action, irrespective of the jurisdictional assignment of the taxpayer.
9 WPA 20025 of 2022 (Cal HC).
10 [2020] 120 taxmann.com 173 (Kerala).
11 [2021] 125 taxmann.com 61 (SC).
12 [2020] 117 taxmann.com 572 (Delhi).
13 [2022] 134 taxmann.com 157 (Delhi).
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