Parallel Proceedings in CGST and SGST: Cross Empowerment under GST

Section 6 of the CGST Act, dealing with the cross-empowerment of central and state tax authorities, has been the subject of extensive interpretation through case laws, circulars, and notifications. This Article is intended to analyze the provisions of section 6 of CGST Act, 2017 and attempts to answer the following questions:

1. What is Cross- empowerment under GST Law?

2.What are the specific implications of section 6(2)(b) of CGST Act, 2017?

3.Whether transfer of proceedings initiated by State authorities to Central authorities and vice versa possible under the GST Law?

4.Insight in to few important judicial positions taken in this regard

Before proceeding further, the extract of the section 6 of CGST Act, 2017 is reproduced herewith;

“Section 6: Authorisation of officers of State tax or Union territory tax as proper officer in certain circumstances.-

(1) Without prejudice to the provisions of this Act, the officers appointed under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act are authorised to be the proper officers for the purposes of this Act, subject to such conditions as the Government shall, on the recommendations of the Council, by notification, specify.

(2) Subject to the conditions specified in the notification issued under sub-section (1),-

(a) where any proper officer issues an order under this Act, he shall also issue an order under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act, as authorised by the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act, as the case may be, under intimation to the jurisdictional officer of State tax or Union territory tax;

(b) where a proper officer under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act has initiated any proceedings on a subject matter, no proceedings shall be initiated by the proper officer under this Act on the same subject matter.

(3) Any proceedings for rectification, appeal and revision, wherever applicable, of any order passed by an officer appointed under this Act shall not lie before an officer appointed under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act”

                ……………Emphasis Supplied

1. What is Cross Empowerment under GST Law?

• The term “Cross Empowerment” has not been defined in the GST Law and is a colloquial term used for establishing the concept where the officer of State/Center shall be treated on par with each other for certain purposes.
• The Cross empowerment as provided under section 6 of the CGST/SGST Acts has following divisions:
• Sec 6(1) provides that the officers appointed under SGST Act are authorised to be the proper officers for the purposes of CGST Act, subject to such conditions as the Government shall, on the recommendations of the Council, by notification, specify
• Sec 6(2) which itself is subject to the conditions specified in the notification issued under 6(1), provides under clause (a) that where any proper officer issues an order under CGST Act, he shall also issue an order under the SGST Act, as authorized by the SGST Act, under intimation to the jurisdictional officer of State tax
• U/s 6(2)(b) if a proper officer under the SGST Act has initiated any proceedings on a subject matter, no parallel proceedings shall be initiated by an officer under CGST Act on the same subject matter
• As per Sec 6(3) any proceedings for rectification, appeal and revision, wherever applicable, of an order passed by an officer appointed under CGST Act shall not lie before an officer appointed under SGST Act. Thus for rectification, appeal and revision proceedings, there will only be linear jurisdiction flowing from the administrative setup of same formation Centre or State under which the appointed officer passed the order.
• CBIC has clarified vide Circular D.O.F No CBEC / 20/43/01 /2017-Gst (Pt) dated 05.10.18 that Both the Central and State tax administrations shall have the power to take intelligence based enforcement action in respect of the entire value chain.
• CBIC has further clarified vide Circular F.No CBEC-20/10/07/2019-GST dated 22.06.2020 that in terms of section 6(1) of CGST/SGST Acts, State Tax officers and the Central Tax officers are authorised to be the proper officers for the purposes of respective Acts and no separate notification is required for exercising the said powers in this case by the Central Tax Officers and vice versa. Notification under section 6(1) of the CGST Act would be part of subordinate legislation which instead of empowering the officer under the Act, can only be used to impose conditions on the powers given to the officers by the section. In the absence of any such conditions, the power of Cross-empowerment under section 6(1) of the CGST Act is absolute and not conditional. Hence by way of this circular the air of confusion that was prevailing over interpretation of section 6(1) regarding whether a specific notification is required to enforce such cross empowerment, kindled even more after introduction of Notification No 39/2017 CT, has been resolved and clarified henceforth.

2.What are the specific implications of section 6(2)(b) of CGST Act, 2017?

• There is no ambiguity in the language of Section 6(2)(b) of the CGST/OGST Act, which bars initiation of proceeding by a proper officer under CGST Act where a proper officer under the State Goods and Services Act or the Union territory Goods and Services Tax Act has initiated proceeding on a subject matter
• The relevant fact to be borne in mind is the subject matter of the proceeding. If the subject matter of the proceeding is entirely different, there is no bar to the maintainability of the proceeding. What is barred is the initiation of the proceeding on the same subject matter by the proper officer.
• In this context it is imperative to understand the meaning of the term “subject matter”, which has not been defined under the GST law. In this regard we shall use the analysis of various courts to understand the same:
• As held by Hon’ble Apex Court in case of Vallabh Das v. Dr. Madan Lal I.R. 1970 SC 987 and recognized by the Hon’ble HC of Orissa in case of Satyam Castings (P.) Ltd V. DGGI 04.05.24, the expression “subject matter” includes the cause of action and the relief claimed.
• As held by Hon’ble HC of Punjab and Haryana in case of Stalwart Alloys India Private Limited V. Union of India 28.08.24 the word ‘subject matter’ used in Section 6(2)(b) of the Act would mean ‘the nature of proceedings’. The same view have been upheld by Hon’ble HC of Himachal Pradesh in case of M/s Kundlas Loh Udyog V. State of HP 17.09.2024

3. Whether transfer of proceedings initiated by State authorities to Central officers and vice versa possible under the GST Law?

• On the outset there is no power to transfer the proceedings between the State and the Centre under the CGST/SGST Laws. The scheme of the CGST/SGST Law nowhere provides for transferring the proceedings from one proper officer to another. On the other hand, bare reading of Section 6 of the CGST and Circular D.O.F No CBEC / 20/43/01 /2017-GST (Pt) dated 05.10.18, on first blush debars the same. In the circumstances, neither any authority has the power to transfer the case from its own jurisdiction to another nor any other authority can direct for transferring an investigation/ proceeding already undergoing before the proper officer in terms of Section 6(2)(b) of the Act.
• It is apparent that the State and the Central Governments have same powers under the CGST/ SGST Acts and if one of the officers has already initiated proceedings, the same cannot be transferred to another and he alone be allowed to issue process under the Act and on the same subject matter no proceedings shall be initiated by another officer.

However contrary view has been taken in the case of Amit Gupta vs. Union of India [2023] 156 taxmann.com 167 (Delhi)[04-09-2023] that transfer of proceedings is possible where due to complexity or vastness of the inquiry or proceedings or involvement of number of taxpayers or otherwise, one authority willingly cedes jurisdiction to the other which also has jurisdiction over such inquiry/proceedings/taxpayers. Thus an air of confusion revolves around this aspect which needs to be further clarified by the CBIC.

Insight in to few important judicial positions taken in this regard

M/S G.K. TRADING COMPANY VERSUS UNION OF INDIA AND 4 ORS [2021 – Allahabad HC]

Prohibition of Section 6(2)(b) of the CGST Act shall come into play only when any proceeding on the same subject-matter has already been initiated by a proper officer under the UPGST Act – Thus, the words “any proceeding” on the same “subject-matter” used in Section 6(2)(b) of the Act, which is subject to conditions specified in the notification issued under sub-Section (1); means any proceeding on the same cause of action and for the same dispute involving some adjudication proceedings which may include assessment proceedings, proceedings for penalties etc., proceedings for demands and recovery under Sections 73 and 74 etc.

The process of inquiry under Section 70 is specific and unified by the very purpose for which provisions of Chapter XIV of the Act confers power upon the proper officer to hold inquiry. The word “inquiry” in Section 70 is not synonymous with the word “proceedings”, in Section 6(2)(b) of the U.P.G.S.T. Act/ C.G.S.T. Act.

When action for assessment, demand and penalty etc. including action under Section 73 or 74 is taken, that shall amount to proceedings referable to Section 6(2)(b) of the Act but the inquiry under Section 70 is not a proceeding referable to Section 6(2)(b) of the Act.

Thus, the phrase “subject-matter”, or the phrase “on the same subject-matter”, used in Section 6(2)(b) of the U.P.G.S.T. Act/ C.G.S.T. Act with reference to any proceedings, means same cause of action for the same dispute involved in a proceeding before proper officer under the U.P.G.S.T. Act and the C.G.S.T. Act.

It is merely an inquiry by a proper officer under Section 70 of the CGST Act. Thus, there is no proceeding by a proper officer against the petitioner on the same subject-matter referable to Section 6(2)(b) of the UPGST Act.

M/S KUNDLAS LOH UDYOG VERSUS STATE OF H.P. and ANR. [2024 – Himachal Pradesh High Court]

In has been held that the word “subject-matter” used in Section 6(2)(b) of the Act would mean, “the nature of proceedings”. Hence in this case it has been held that in case proceedings in relation to determination of eligibility of ITC was pending with the state authorities the parallel proceedings for blocking the same credit under rule 86A cannot be initiated by the center authorities

AMIT GUPTA VERSUS UNION OF INDIA AND ORS [2023 – Delhi High Court]

It is settled principle of interpretation of statute that the court must adopt construction which will ensure smooth and harmonious working of the statute and eschew the other which will lead to absurdity or give rise to practical inconvenience or friction or confusion in the working of the system.

In this context, strict interpretation of Section 6(2)(b) read with Circular D.O.F No CBEC / 20/43/01 /2017-Gst (Pt) dated 05.10.18 would lead to multiple authorities expending their time, energy and resources investigating the same ‘intelligence’ input, maybe even reaching to conflicting findings which shall be totally against the intention of the law and henceforth transfer of proceedings shall be allowed considering an harmonious interpretation of the provisions in lines with practical difficulties involved

Hence it has been held that in case of transfer of proceedings from one authority to another, there exist no parallel or duplicate proceedings in this regard as prohibited u/s 6(2)(b) & hence shall be allowed

KUPPAN GOUNDER P.G. NATARAJAN V. DGGI [2022 – Madras High Court]

The very purpose and object of section 6(2) (b) of the Act is to ensure that on the same subject, the parallel proceedings are to be avoided. Once on a particular subject, the State authority has initiated action under the State Goods and Services Tax Act, then alone, the proper answer under the Central Goods and Services Tax Act are restrained to wait till the finalization of the proceedings initiated by the State authorities. However, in all circumstances, and in respect of various other proceedings, the benefit cannot be claimed by the assessees. It is to be established that subject matter is one and the same. Mere pendency of proceedings before the State authorities is not a ground to restrain the Central authorities from issuing summons and conduct investigation regarding certain allegations

Hence it has been held that the shield against parallel proceedings provided to the tax payer u/s 6(2)(b) shall not be used as a sword by the taxpayer to counter each & every proceeding which are not on the same subject matter.

Other latest Relevant Cases:

1. Dott Services Ltd. V State of Telangana W.P. NO. 5886 OF 2024 MARCH 21, 2024 [Telangana HC]

2. Huida Sanitaryware India (P) Ltd. vs. Deputy Commissioner of Central Tax (AE) GST West Ciommissionerate , Writ Petition No. 14068 OF 2023 (T-RES) 19-09-2024 [Karnataka HC]

Conclusion:

Even though it is evident that indeed no air of confusion revolves around the validity of cross empowerment as provided u/s 6(1), it has been observed that more often the taxpayers have been facing the wrath of multiple proceedings being issued from various venues more often even on the same issues.

It is to be understood that the reason behind barring the initiation of proceeding on the same subject matter by the proper officer under the CGST/SGST Acts, is that the possibility of the final decision in the two proceedings being different cannot be totally ruled out which would create confusion.

Further in a federal structure, the Central Government authorities and the State authorities would be required to act in tandem and not to operate in exclusion with one another. The investigation which may be conducted would, therefore, have to be based on one another and once the State or the Central authority has initiated proceedings, the other authority, State or the Central would act in support of the same and provide all necessary inputs so that the proceedings may reach to a final conclusion and achieve its results. This harmony will enhance the effectiveness of the tax proceedings and will also save the taxpayer from undue hardships faced in this regard.

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