CROSS-EMPOWERMENT- IS IT WORKING AT CROSS PURPOSE?

     

By Adv. Ram Chander Sankhla, Managing partner at Sankhla Law Associates and Former Chief Commissioner of CGST & Customs

    

Adv. Indu Sankhla Paliwal, partner at Sankhla Law Associates

Authors can be reached at www.rrsla.com

INTRODUCTION:

  1. GST known as the goods and service tax is a consumption based, indirect tax which is imposed on the supply of goods and services. Under this model, tax is levied concurrently by the Centre (CGST) as well as by the states/union territory with legislature on a common base (SGST/UTGST) respectively, i.e. supply of goods or services, or both.
  2. The dual GST model can be concurrent and non -concurrent. India being a federal in nature has adopted the dual but concurrent, GST structure wherein both the Central and State governments levy and collect taxes simultaneously, while the administration is run separately and independently. Under the concurrent dual GST model, the rule of PLACE OF SUPPLY is applied wherein, the taxes are levied by both the Centre and States simultaneously but independently. This, however, leads to many conflicts and difficulties of parallel and simultaneous proceedings, of assessment and enforcement on the same issue by the Central and State governments.
  3. In order to safeguard a taxpayer from multiple proceedings on same subject matter and to achieve a harmonized tax system, with single inter-face, the concept of CROSS EMPOWERMENT was introduced through SECTION 6 of the CGST ACT.
  4. Thus, in common parlance cross empowerment means, when a different tax administration, initiates proceedings against a tax payer who has been administratively assigned to another tax administration. For example, when State tax administration takes action under GST law against an assessee falling under Central tax administration or vice versa.

HISTORY OF CROSS EMPOWERMENT:

  1. The concept of cross empowerment emerged during the formulation of the GST framework, thereby aiming to streamline the assessment and enforcement actions. It provided a unified approach for both Central and State tax officers.
  1. In the 9th GST council meeting held on 16.01.2017, decision with regard to the concept of CROSS EMPOWERMENT was first taken up in order to ensure a single interface with authorities to the future GST laws. In this meeting guidelines was issued for division of taxpayers between the central and state authorities to ensure a single interface for the purpose of tax administration. It was also provided that suitable notifications regarding cross-empowerment of state and central tax authorities under the respective CGST, IGST, and SGST Acts would be issued separately.
  1. The relevant extract of the Minutes of the 9th GST Council Meeting held on 16.01.2017 is extracted as: –

“28. After further discussion, the Council agreed to the decisions as recorded below in respect of cross-empowerment to ensure single interface under GST.

  • There shall be a division of taxpayers between the Central and the State tax administrations for all administrative purposes;
  • Of the total number of taxpayers below Rs. 1.5 crore turnover, all administrative control over 90% of the taxpayers shall vest with the State tax administration and 10% with the Central tax administration;
  • In respect of the total number of taxpayers above Rs. 1.5 crore turnover, all administrative control shall be divided equally in the ratio of 50% each for the Central and the State tax administration;
  • The new registrants shall be initially divided one each between the Central and the State tax administration and at the end of the year, once the turnover of such new registrants was ascertained, those units with turnover below Rs. 1.5 crore shall be divided in the ratio of 90% for the State tax administration and 10% for the Central tax administration and those units above the turnover of Rs.l.5 crore shall be divided in the ratio of 50% each for the State and the Central tax administration;
  • Both the Central and the State tax administrations shall have the power to take intelligence-based enforcement action in respect of the entire value chain;
  • Powers under the IGST Act shall be cross empowered to the State tax administration on the same basis as under the CGST and the SGST Acts either under law or under Article 258 of the Constitution but with the exception that the Central tax administration shall alone have the power to adjudicate a case where the disputed issue relates to place of supply, or when an affected State requests that the case be adjudicated by the CGST authority and for such issues of export and import as may be discussed in the Law Committee of officers and brought back to the Council for decision; -While the concept of intelligence based enforcement was introduced specific guidelines were not provided leading to room for interpretation, allowing both central and state officers to initiate proceedings regardless of their allocated jurisdiction.”
  1. The above decision was given effect by way of issuance of circular no. 1/2017-GST (Council) dated 20.09.2017 bearing reference F.No.166/Cross Empowerment/GSTC/2017 containing the guide lines for Division of Tax payers between the Centre and State Authorities to ensure single interface for the purpose of tax administration under the respective GST Enactment.
  1. On what can be considered as intelligence-based enforcement actions, clarifications were further issued vide D.O.F.NO. CBEC/20/43/01/2017-GST(PT) dated 05-10-2018 wherein the authority which initiates such action will be empowered to complete the entire process of investigation till filing of appeal, arising out of such action. One of the most important points to be taken is that this empowerment was independent of the administrative assignment of the taxpayer to any specific authority. The said letter is reproduced as:

“D.O. F.No. CBEC/20/43/01/2017-GST (Pt.)                                                                                                                                                                                                                Dated 5-10-2018

 Dear Colleague,

          It has been brought to the notice of the Board that there is ambiguity regarding initiation of enforcement action by the Central tax officers in case of taxpayer                               assigned to the State tax authority and vice versa.

  1. In this regard, GST Council in its 9th meeting held on 16.01.2017 had discussed and made recommendations regarding administrative division of taxpayers and concomitant issues. The recommendation in relation to cross-empowerment of both tax authorities for enforcement of intelligence based action is recorded at para 28 of Agenda note no. 3 in the minutes of the meeting which reads as follows: –

                    “viii. Both the Central and State tax administrations shall have the power to take intelligence-based enforcement action in respect of the entire value chain”

  1. It is accordingly clarified that the officers of both Central tax and State tax are authorized to initiate intelligence-based enforcement action on the entire taxpayer’s base irrespective of the administrative assignment of the taxpayer to any authority. The authority which initiates such action is empowered to complete the entire process of investigation, issuance of SCN, adjudication, recovery, filing of appeal etc. arising out of such action.
  2. In other words, if an officer of the Central tax authority initiates intelligence-based enforcement action against a taxpayer administratively assigned to State tax authority, the officers of Central tax authority would not transfer the said case to its state tax counterpart and would themselves take the case to its logical conclusions.
  3. Similar position would remain in case of intelligence-based enforcement action initiated by officers of State tax authorities against a taxpayer administratively assigned to the Central tax authority.
  4. It is also informed that GSTN is already making changes in the IT system in this regard.

             With best Wishes,”

  1. Further, in a letter dated June 22, 2020 bearing No. CBEC-20/10/07/2019-GST issued by the CBIC it has been clarified to DGGI that the powers under section 6(1) of the CGST Act are absolute and not conditional. It requires no separate notification. The said letter reads as,

F.No. CBEC-20/10/07/2019-GST

Government of India

Ministry of Finance

Department of Revenue

Central Board of Indirect Taxes Customs

                                                                                       GST Policy Wing                                                                                     

Dated: 22nd June, 2020

To

The Principal Director General,

Director General of GST Intelligence

Sir,

Subject: Reference form DGGI on Cross empowerment under GST. reg.

 I am directed to refer to DGGI letter F.No.574/CE/66/2020/Inv./15308 dated 26.05.2020 on the issues related to cross empowerment of officers in terms of provisions of section 6 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “the CGST Act”).

  1. 2. Issue raised in the reference is whether intelligence based enforcement actions initiated by the Central Tax officers against those taxpayers which are assigned to the State Tax administration gets covered under section 6(1) of the CGST Act and the corresponding provisions of the SGST/UTGST Acts or whether a specific notification is required to be issued for cross empowerment on the same lines as notification No. 39/2017-CT dated 13.10.2017 authorizing the State Officers for the purpose or refunds under section 54 and 55 of the COST Act.

3.1 The issue has been examined in the light of relevant legal provisions under the CGST Act, 2017. It is observed that Section 6 of the CGST Act provides for cross empowerment of State Tax officers and Central Tax officers and reads as:- “6. (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.”

3.2 Thus in terms of sub-section (1) of section 6 of the CGST Act and subsection (1) of section 6 of the respective State GST Acts respective State Tax officers and the Central Tax officers respectively 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 under the provisions of the State GST Act. It is noteworthy in this context that the registered person in GST are registered under both the CGST Act and the respective SGST/UTGST Act

 3.3 The confusion seems to be arising from the fact that, the said subsection provides for notification by the Government if such cross empowerment is to be subjected to conditions. It means that notification would be required only if any conditions are to be imposed. For example, notification No. 39/2017-CT dated 13.10.2017 restricts powers of the State Tax officers for the purposes of refund and they have been specified as the proper officers only under section 54 and 55 of the CGST Act and not under rule 96 of the CGST Rules, 2017 (IGST Refund on exports). If no notification is issued to impose any condition, it means that the officers of State and Centre have been appointed as proper officer for all the purpose of the CGST Act and SGST Acts.”

  1. Further, it may kindly be noted that a 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 or any such conditions, the power of Cross- empowerment under section 6(1) of the CGST Act is absolute and not conditional.”

Yours faithfully,

(sumit Bhatia)

Deputy Commissioner (GST)

 

 

CROSS EMPOWERMENT AND THE RELEVANT SECTION:

  1. The analysis pertaining to cross empowerment will remain incomplete without reproducing section 6 of the CGST Act.

“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.”

  1. Similarly, Section 4 of IGST Act talks about cross-empowerment of state/UT officials.

“Section 4. Authorisation of officers of State tax or Union territory tax as proper officer in certain circumstances-

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 exceptions and conditions as the Government shall, on the recommendations of the Council, by notification, specify.”

  1. Thus, the letter dated 22.06.2020 of the CBIC rightly stated the position as existed in the CGST and IGST Act, where officials stand AUTHORISED to take action on the assesses falling under different tax administration.

RECENT JUDICIAL PRONUNCEMENTS

  1. In the W.P.No.34792 of 2019 and others WPs in the case of Tvl. Vardhan Infrastructure, Chennai vs The Special Secretary, Head of the GST Council Secretariat, The Honourable High Court of Madras vide its order reserved on 15.09.2023 and pronounced in 2024, decided otherwise, as has been discussed in paras 11 and 12 supra. In this case The Hon’ble Court examined at length various provisions of CGST and TNGST Act besides deliberations and recommendations of GST Council in various meetings. However, with due respect, the Hon’ble Court could not take into account the AUTHORISATION as already existing in Section 6 of CGST Act and Section 4 of IGST Act. This authorisation is subject to any notification issued under these sections on the recommendation of the council. Let us see the relevant paras of this judgement:

“60. Section 6 of the respective Central GST Act, 2017 and TNGST Act, 2017 are relevant for cross-empowerment. It read slightly differently from Section 7 of the respective Model Central and State GST laws which were in circulation in February, 2016. Section 6 of the respective GST Enactments and the corresponding provisions from the Model GST Law are reproduced below:

Section 6 of the Central Goods and Services Tax Act, 2017

  1. 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.

Section 6 of the Tamil Nadu Goods and Services Tax Act, 2017

  1. Authorisation of officers of Central tax as proper officer in certain circumstances–

 (1) Without prejudice to the provisions of this Act, the officers appointed under the Central 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 Central Goods and Services Tax Act, as authorised by the said Act under intimation to the jurisdictional officer of Central tax; (b) where a proper officer under the Central 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 Central Goods and Services Tax Act.

 Section 7 of the Model Central Goods and Services Tax

  1. Powers of SGST/CGST officers under the Act

(1) Notwithstanding anything contained in this Act, the proper officers for the purposes of any one or more Sections (……..) of the {SGST/CGST Act}, shall be deemed to be the proper officers for the purposes of the corresponding section or sections, as the case may be, of this Act to such extent and subject to such conditions as may be prescribed in the rules made in this behalf.

(2) Where any proper officer issues an order or acts under any one or more sections ………. of this Act, he shall also issue an order or take action, as he may deem fit, under the corresponding section of the {SGST/CGST} Act as being the proper officer under sub-section of the SGST/CGST Act as a part of his order or action under this Act, under intimation to jurisdictional officer.

(3) Any proceeding for rectification, appeal and revision, wherever applicable, of any order issued under sub-section (2) shall lie before the officer appointed under section 4 of this Act. (4) Where a proper officer under the SGST/CGST Act has initiated a proceeding on a subject matter under any one or more sections (………) of this Act, no action under the relevant section shall be initiated under this Act on the same subject matter.

 Section 7 of the Model State Goods and Services Tax, 2017

7.Powers of SGST/CGST officers under the Act The officers appointed under the SGST Act shall, to such extent and subject to such conditions, as may be prescribed in the rules made in this behalf, be the proper officers for the purposes of sections (……) of this Act.

61.  Thus, Section 6(1) of the respective GST Enactments empowers Government to issue notification on the recommendation of GST Council for cross-empowerment. However, no notification has been issued except under Section 6(1) of the respective GST Enactments for the purpose of refund although officers from the Central GST and State GST are proper officers under the respective GST Enactments.

62.  Since, no notifications have been issued for cross-empowerment with advise of GST Council, except for the purpose of refund of tax under Chapter-XI of the respective GST Enactments r/w Chapter X of the respective GST Rules, impugned proceedings are to be held without jurisdiction. Consequently, the impugned proceedings are liable to be interfered in these writ petitions.

63.  Thus, if an assessee has been assigned administratively with the Central Authorities, pursuant to the decision taken by the GST Council as notified by Circular No.01/2017 bearing Reference F.No.166/Cross Empowerment/GSTC/2017 dated 20.09.2017, the State Authorities have no jurisdiction to interfere with the assessment proceedings in absence of a corresponding Notification under Section 6 of the respective GST Enactments.

64.  Similarly, if an assessee has been assigned to the State Authorities, pursuant to the decision taken by the GST Council as notified by Circular No.01/2017 bearing Reference F.No.166/Cross Empowerment/GSTC/2017 dated 20.09.2017, the officers of the Central GST cannot interfere although they may have such intelligence regarding the alleged violation of the Acts and Rules by an assessee.

65.  The manner in which the provisions have been designed are to ensure that there is no cross interference by the counterparts. Only exception provided is under Section 6 of the respective GST enactment. Therefore, in absence of a notification for cross-empowerment, the action taken by the respondents are without jurisdiction. Officers under the State or Central Tax Administration as the case may be cannot usurp the power of investigation or adjudication of an assessee who is not assigned to them. Therefore, the proceedings initiated by the respondents so far against the respective petitioners by the Authorities other than the Authority to whom they have been assigned to are to be held as without jurisdiction. Therefore, the impugned proceedings warrants interference.” (Emphasis supplied)

15.  As is clear to all of us that Tax is a complex matter and keeps evolving being living and dynamic. It can not be kept static. So long the nature of tax remains so, there will be interpretational issues and various types of judgements by different fora. However, the concept of cross empowerment is not without its benefits and challenges.

16.   ADVANTAGES:

 Efficiency and Uniformity: Cross empowerment ensures a single interface for taxpayers. Both Central and State officers can take action, streamlining processes and avoiding duplication. It promotes uniformity in enforcement across the country, preventing discrepancies due to jurisdictional boundaries.

Effective Enforcement: Officers can initiate intelligence-based enforcement actions based on real-time data and risk assessment. The authority that begins an action has the power to complete the entire process, including investigation, issuing show-cause notices, adjudication, recovery, and filing appeals.

Legal Safeguard: Section 6(1) of the CGST Act provides that if a proper officer under the CGST Act initiates proceedings on a subject matter, no other officer under the same Act can initiate proceedings on the same subject matter.

Avoiding Parallel Proceedings for the same subject matter:

Ease of doing business: By minimizing bureaucratic hurdles, it facilitates trade, especially in cases of refunds and compliance.

CURRENT CHALLENGES: Lack of Clear Guidelines: Specific guidelines for intelligence-based enforcement need further clarity. Taxpayers may face notices from different offices during ongoing investigations.

Potential Overlapping Proceedings: While investigation is ongoing, taxpayers may receive notices from different offices. Section 6(2)(b) of the CGST Act prohibits parallel proceedings on the same subject matter, but practical challenges may arise.

In summary, while cross empowerment streamlines processes, its limitations include the lack of specific guidelines and the potential for overlapping actions. Clarity and effective implementation are crucial for its success in the GST framework. At the end of the day, same Taxpayers are receiving Notices from both the tax administration on same or arising out of same transactions. Sometimes, one wing of the department say Audit or DG Intelligence has initiated proceedings on the same subject as of CGST administration. So, many a times it seems Cross Empowerment is working at cross purpose.

DISCLAIMER:  The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the official policy or position of any other individual, organization, employer or Firm. The information provided in this article is accurate and true to the best of the author’s knowledge, but there may be omissions, errors, or mistakes. The authors shall not be liable for any damages, losses, or injuries arising from the use of or reliance on the information presented in this article. Readers are advised to verify any information provided here and to consult with appropriate professionals for specific advice tailored to their individual circumstances.

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