The Goods and Services Tax (GST)
system in India is a collaborative structure, featuring two parallel
administrations: the Central GST (CGST) authorities and the State GST (SGST)
authorities. While this dual control system is designed for effective revenue
collection, it has historically created confusion and legal disputes over a
fundamental question: Can a CGST officer initiate action against a taxpayer
exclusively assigned to State jurisdiction, and vice-versa?
A significant legal interpretation has
now clarified this issue, reinforcing the principle of 'cross-empowerment'
and validating the unified enforcement capabilities of the GST regime.
The Legislative Foundation: Section 6
of the CGST Act, 2017
The power struggle between Central and
State officers boils down to the interpretation of Section 6 of the CGST
Act, 2017, which deals with the authorization of officers under the
SGST/UTGST Act.
In essence, this section is meant to
grant every officer appointed under the State/Union Territory GST Act the
authority to act as an officer under the CGST Act as well. The underlying
legislative intent was to avoid redundant proceedings by both administrations
for the same tax period. However, the specific wording of the section led to a
legal challenge: Does this cross-empowerment require an explicit
notification from the government to take effect, or is it automatic?
The Core Conflict: Notification
Required vs. Automatic Empowerment
Taxpayers often argued that for a CGST
officer to exercise powers over an assessee officially assigned to a State
officer (or vice-versa), a formal, specific notification outlining the
extent and conditions of this cross-empowerment was required. In the absence of
such a notification, any action taken by the "wrong" officer—such as
issuing a Show Cause Notice (SCN)—would be deemed ultra vires (beyond their
legal power).
The argument hinged on the need for
absolute clarity to prevent jurisdictional overlap and harassment of taxpayers.
The Definitive Court Ruling:
Cross-Empowerment is Automatic
In a pivotal ruling, the court
addressed this very challenge and dismissed the petitions questioning the
validity of GST show-cause notices issued by the Central authorities to
State-assigned assessees.
The court delivered a clear and
crucial interpretation of Section 6:
1. The Default Position: Automatic
Authority
The court held that cross-empowerment
under Section 6 is automatic. State/UT officers are deemed proper
officers for CGST and possess the full range of powers under the CGST Act
by default.
2. The Role of the Notification:
Restriction, Not Enlistment
Crucially, the court clarified that a
notification is required only to restrict or condition that automatic
empowerment, not to enable it. In other words, the full power exists by
default; the Central Government needs to issue a notification only if it
intends to limit or impose conditions on the exercise of these
powers, based on the GST Council's recommendations.
3. Unified Enforcement for
Intelligence-Based Cases
The ruling strongly validates the
unified nature of GST enforcement. It established that intelligence-based
enforcement—such as investigations into tax evasion or fraudulent
activity—may be initiated by either Central or State authorities across
the entire value chain, regardless of which authority the taxpayer was
originally assigned to for administrative purposes.
Practical Implications for Taxpayers
and Enforcement
This ruling has profound implications
for both the tax administration and the taxpayer community:
v Increased
Scrutiny: Taxpayers can no longer rely on jurisdictional boundaries as a
shield. An investigation initiated by the State Anti-Evasion wing cannot be
challenged merely because the taxpayer was administratively assigned to the
Central GST circle, or vice versa. This effectively means double the
potential scrutiny for tax evasion.
v Validity
of Enforcement: It validates the past and future actions taken by officers who
may have crossed jurisdictional lines in the course of investigations,
particularly those involving intelligence or suspected fraud.
v Competence
of Officers: The ruling confirmed the competence of designated officers, such
as the Joint Commissioner, to issue SCNs, even for amounts below the typical
prescribed thresholds (like ₹1 crore), further solidifying the enforcement
chain.
v Focus on
Substance: The judiciary is clearly pushing for an environment where the
focus is on the substance of the tax liability and not on technical,
procedural challenges related to the designated officer.
While the administrative allocation of assessees is designed for convenience in filing and general compliance, the court’s interpretation of Section 6 ensures that the machinery of tax enforcement remains robust and cohesive. The door is firmly shut on the argument that officers are barred from investigating beyond their administrative assignment, reinforcing the principle of 'One Nation, One Tax, One Enforcement Team.'
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