Goods & Services Tax (GST) in IndiaIn the Absence of Notification of Cross Empowerment, action taken by counterparts are without Jurisdiction

The Hon’ble Madras High Court, in the recent case of Tvl. Vardhan Infrastructure v. The Special Secretary and others, in [W.P. No. 34792 of 2019], decided on 11.03.2024, held that in the event of a lack of notification regarding cross-empowerment, actions carried out by counterparts are deemed to be outside their jurisdiction.

FACTS

The Writ Petition arose because  Tvl. Vardhan Infrastructure (hereinafter referred to as  “Petitioner”), was assigned either to the State Authorities or to the Central Authorities for administrative purposes under the provisions of the respective GST Enactments, namely the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”), Tamil Nadu Goods and Services Tax Act, 2017 (hereinafter referred to as “TNGST Act”) , and Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as “IGST Act”) and were subjected to proceedings by their counterpart.

Consequently, the Petitioner contested these proceedings on the basis that, in the absence of a proper notification under section 6 of the CGST/ TNGST Act for cross-empowerment, the contested proceedings by their respective counterparts lacked jurisdiction.

ISSUE BEFORE THE SUPREME COURT

Whether the Petitioner, who falls under the jurisdiction of either the central or state tax authorities under the CGST Act and/or TNGST Act, could be subjected to investigation and further proceedings by their counterparts?

CONTENTIONS OF THE PARTIES

The Petitioner contended that due to the absence of a valid Notification under Section 6 of CGST/ TNGST Act pertaining to cross-empowerment, the proceedings initiated by the respective counterparts lacked jurisdiction.

The Petitioner further contended that Section 6(1) of the CGST/ TNGST Act confers authority upon the Government to issue notifications, upon the recommendation of the GST Council, regarding cross-empowerment. However, even though officers from both the CGST and SGST are recognized as proper officers under the respective GST statutes, no notifications have been issued for cross-empowerment under the guidance of the GST Council, except for the purpose of tax refund as delineated in Chapter-XI of the respective GST statutes read with Chapter X of the respective  Goods and Service Tax  Rules, 2017.

The Petitioner asserted that the deficiency of formal notifications pursuant to Section 6 of the relevant GST statutes for cross-empowerment invalidates the contested proceedings undertaken by the respective authorities.

The Petitioner further argued that the Model Notifications disseminated subsequent to the enactment of the GST statutes have not been officially promulgated, resulting in the disputed proceedings being conducted without proper jurisdiction. Moreover, the Petitioner emphasize the necessity of notifications to facilitate tax refund procedures and raise concerns regarding ongoing disagreements pertaining to cross-empowerment provisions under the IGST Act.

DECISION AND FINDINGS

The Hon’ble High Court observed that if a taxpayer has been assigned to the jurisdiction of the Central Authorities in accordance with the decision made by the GST Council as notified by Circular No.01/2017, bearing Reference F.No.166/Cross Empowerment/GSTC/2017 dated 20.09.2017 (hereinafter referred to as “the Circular”), then, the State Authorities lack the jurisdiction to intervene in the assessment proceedings unless a corresponding Notification under Section 6 of the respective GST statutes is in effect. Likewise, if the assessee has been allocated to the jurisdiction of the State Authorities pursuant to the decision taken by the GST Council as communicated through the Circular, then the officers of the Central GST are precluded from interference, even if they possess information regarding alleged violations of the Acts and Rules by the assessee.

In light of the aforesaid contentions, the High Court held that in the absence of a notification for cross-empowerment, the actions undertaken by the Respondents lack legal authority. Officers within the State or Central Tax Administration, depending on the circumstances, are not permitted to assume investigative or adjudicative powers over a taxpayer who is not under their jurisdiction.

However, the Hon’ble High Court while quashing the proceedings against the Petitioners, directed the relevant Central Authority/State Authority, as applicable, to whom the respective Petitioner have been administratively assigned, to commence fresh proceedings against them, adhering strictly to the provisions outlined in the respective GST statutes and accompanying rules and circulars. The period from the initiation of the impugned proceedings in these writ petitions until the receipt of this order shall be disregarded for the purpose of calculating the limitation period.

AMLEGALS REMARKS

This landmark decision addresses a significant gap in the issuance of notifications concerning cross-empowerment. As a result of this ruling, the proceedings in the case in question have been deemed to lack jurisdiction.

It is imperative to emphasize that until the requisite Notifications for cross-empowerment between the Central and State GST authorities are promulgated, a taxpayer can only be subjected to any actions or proceedings under the GST law by the proper officer under whose administrative jurisdiction they have been assigned. This ruling will, therefore, subject all ongoing proceedings initiated by authorities other than the administrative authority of the taxpayer to scrutiny.

– Team AMLEGALS,  assisted by Ms. Deepanshi Kapoor