The introduction of the Goods and Services Tax in India marked a paradigm shift in the country's indirect tax structure, aiming to create a unified and efficient taxation system. The 101st amendment established the constitutional framework for the GST by giving the Centre and the States simultaneous legislative authority, with the exception of interstate trade and commerce, where the Centre retained sole authority.
However, the implementation of GST has not been without challenges. One of the major legal disputes revolves around is whether State GST officers have the authority to take action against the assessees who are administered by the Centre. This has led to confusion and legal battles, as it raises critical questions about the division of powers between the Centre and the States.
Recently Kerala High Court in Pinnacle Vehicles and Services Pvt. Ltd. v. Joint Commissioner, has sparked debate over the issue of cross-empowerment. The court’s decision stands against the ruling by the Madras High Court, raising fundamental questions about the interpretation of Section 6(1) of the CGST Act.
Is the power of SGST officers to initiate proceedings against the taxpayers who are allocated under the central administration or vice versa is automatic, or does it require a separate government notification form GST Council? This case not only impacts taxpayers facing enforcement actions but also shapes the future of GST administration in India.
Will it bring the clarity businesses need, or is it just the start of a bigger legal battle?
Background:
The petitioner is a registered person under the Central Goods and Services Tax/State Goods and Services Tax Acts, 2017 (CGST/SGST Acts) allocated to the jurisdiction of the Central Tax Authorities. The petitioner has approached this Court challenging the show cause notice on a short ground that the show cause notice has been issued by the State Tax Authority without jurisdiction and without there being any notification as contemplated by the provisions of Section 6(1) of the Central Goods and Services Tax Act, 2017 (CGST Act).
High Court's Findings:
The division bench of the Kerala High Court, , rejected the petitioner’s argument, affirming the jurisdiction of SGST officers under the CGST Act. The court’s key findings were:
- Legislative Intent and Interpretation of Section 6(1): The court held that the officers appointed under the state goods and Services Tax Act are proper officer for the purpose of the Central Goods and Services Tax Act. The need for a notification arises only to impose conditions or limitations, not to grant jurisdiction.
- Rejection of Madras High Court’s View: The court disagreed with the Tvl. Vardhan Infrastructure judgment, emphasizing that the statutory framework already ensured cross-empowerment. It cited the Delhi High Court’s ruling in Indo International Tobacco Ltd. v. Additional Director General, DGGI, which supported this interpretation.
- Letter issued by GST policy wing of CBIC: The court relied on a letter issued by CBIC (F.No.CBEC-20/10/07/2019-GST) on 2020, which clarified that SGST officers are deemed proper officers under the CGST Act without requiring a separate notification.
- Harmonized Tax Administration: The court underscored the need for a seamless GST regime, where state and central authorities work in coordination rather than creating jurisdictional disputes that would hinder tax enforcement.
Our Analysis
GST-One nation one Tax
- GST was implemented as a dual taxation system, with clear separation of powers between the Central and State governments.
- The intent behind Section 6(1) is to prevent businesses from being subjected to dual investigations and conflicting demands from both State and Central tax officers. By establishing a structured mechanism for cross-empowerment, the provision aims to minimize disputes, enhance compliance, and create a simplified enforcement process under GST.
Why there is a Notification 39/2017
- The Notification 39/2017 empower the state tax officer to issue refund of central tax and state tax and impose certain conditions. It cannot be construed as merely for imposing the conditions it also empower the state tax officer to issue refund of CGST under Section 54 of the CGST Act, 2017. The same is authenticated vide Minutes of 22nd council meeting Agenda item 9.
Deeming fiction for sections 73&74
- In terms of section 26(2), 28(3) ,29(4) there is a deeming fiction that the provision of registration, cancellation of registrations etc. done under State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act, as the case may be, shall be deemed to be a cancellation of registration under this Act.
- However, there is no such provision under section 73 or 74 which implied indicated that there need a notification for the cross empowerment.
- The purpose of section 6(1) is to allow the Central tax officer to issue notice which pertain to state tax liability and IGST liability and it explicitly prescribes a need for separate notification for cross empowerment.
Is it a substantive provision or procedural provision
- Section 6 is purely a procedural provision which provides the mechanism for administrative convenience, allowing officers of the Central Government to exercise powers under State GST laws and vice versa. This delegation ensures smooth functioning and avoids duplication of efforts and it does not impose new obligations or grant additional rights—it merely facilitates enforcement of existing laws. Hence, it should be interpreted in that manner only.
Conclusion
Therefore, the cross-empowerment issue is still a contemporary one, wherein presently the taxpayers in the State of Tamil Nadu enjoys the benefit of the decision of Hon’ble Madras HC[1] and the taxpayers in the State of Kerala are alas bound by the decision of division bench of the Hon’ble Kerala HC.
Since the administration of the said law must be done in conjunction and co-operation a mechanism of GST council has been enshrined in Article 279A of the Constitution of India. Accordingly, the council was established and a circular[2] was issued based on the outcome of the 21st council meeting, with regard to the administration of the taxpayers and division of powers under GST between Centre and States to ensure single interface. It is very much need of the hour to implement such single interface in the background of parallel proceedings and multiple forums initiating proceedings against a single taxpayer.
For any clarifications or feedback in this regard, please feel free to reach us [email protected].