Cross-Empowerment of GST Officers allowable in Intelligence-based Enforcement Action, Have Concurrent Powers: J&K HC [Read Order]

The petitioners, ten companies engaged in manufacturing and trading of various goods, challenged the show cause notices issued on April 17, 2024, and their summaries dated March 31, 2024, which alleged fraudulent availment and utilization of bogus Input Tax Credit (ITC) through paper transactions without actual supply of goods. The notices were based on intelligence inputs and search operations conducted at the business premises of twelve companies, including the petitioners, all located within the Jammu and Kashmir Integrated Textile Park, Kathua.

All-in-One Manual with Updated GST Laws & Provisions, Click here

It is evident that the Authorities under the CGST Act, 2017 acted upon the intelligence inputs and conducted search operations under Section 67(2) of the Act at the business premises of all twelve companies/firms, including that of the petitioner. The intelligence inputs and materials collected during the search operations clearly indicated that all the 12 units, including the petitioner, were involved in fraudulent availment and utilization of bogus ITC of GST through paper transactions, without actual receipt or supply of goods among themselves.

The petitioners raised three main contentions: (i) that CGST officers lacked jurisdiction as the petitioners were assigned to State Tax Authorities; (ii) that the Joint Commissioner lacked jurisdiction as the amount involved was below Rs. 1 crore; and (iii) that bunching of show cause notices for five assessment years was impermissible under Section 74 of the CGST Act.

The Division Bench comprising Justice Sanjeev Kumar and Justice Sanjay Parihar addressed these issues. Regarding cross-empowerment under Section 6 of the CGST Act, the court held that it is automatic and inherent in the provision, not requiring a separate notification by the Government.

The court clarified that notifications are only necessary when the Government intends to impose conditions on such cross-empowerment. The court relied on CBIC circulars and Supreme Court precedents to support this interpretation.

On the issue of bunching of show cause notices, the court left the question open to be determined in appropriate proceedings, noting that petitioners could raise this issue before the concerned authority while responding to the show cause notice.

Concerning the jurisdiction of the Joint Commissioner for amounts less than Rs. 1 crore, the court held that the monetary limit specified in the circular was merely an administrative measure for work distribution and did not restrict the Joint Commissioner's authority, especially considering Section 5(2) of the CGST Act which empowers officers to exercise powers of subordinate officers.

Step by Step Handbook for Filing GST Appeals, Click Here

Any action arising from the audit of accounts or detailed scrutiny of returns falls within the first category, and proceedings in such cases are to be initiated by the tax administration to which the taxpayer is assigned. In contrast, when proceedings are based on intelligence relating to tax evasion, they can be initiated by either the Central or the State tax administration;

Section 6 of the CGST Act provides for the cross empowerment of powers between the Central and State tax administrations. However, for the purpose of administrative convenience, the GST Council has sought to divide the taxpayer base between the two administrations through a circular. Nonetheless, with respect to intelligence-based enforcement actions, both the Central and the State tax authorities are empowered to act across the entire value chain.

The bench held that, “when we say intelligence-based enforcement action is any action that does not arise from audit of accounts or detailed scrutiny of returns, we do not for a moment say that there is no scope for tax administration to undertake scrutiny of returns or audit of accounts. Both the Central and the State tax administration are well empowered to undertake such actions, as long as these actions are initiated on the basis of any intelligence relating to tax evasion.”

It was observed that clause (b) of sub-section (2) of Section 6 of the CGST Act and the equivalent State enactments bars the “initiation of any proceedings” on the “same subject matter”. Any action arising from the audit of accounts or detailed scrutiny of returns must be initiated by the tax administration to which the taxpayer is assigned.

Intelligence based enforcement action can be initiated by any one of the Central or the State tax administrations despite the taxpayer having been assigned to the other administration. Parallel proceedings should not be initiated by another tax administration when one of the tax administrations has already initiated intelligence-based enforcement action. All actions that are initiated as a measure for probing an inquiry or gathering of evidence or information do not constitute “proceedings” within the meaning of Section 6(2)(b) of the CGST Act.

The expression “initiation of any proceedings” occurring in Section 6(2)(b) refers to the formal commencement of adjudicatory proceedings by way of issuance of a show cause notice, and does not encompass the issuance of summons, or the conduct of any search, or seizure etc. Where any two proceedings initiated by the Department seek to assess or recover an identical or a partial overlap in the tax liability, deficiency or obligation arising from any particular contravention, the bar of Section 6(2)(b) would be immediately attracted.

Where the proceedings concern distinct infractions, the same would not constitute a “same subject matter” even if the tax liability, deficiency, or obligation is same or similar, and the bar under Section 6(2)(b) would not be attracted.

How to Audit Public Charitable Trusts under the Income Tax Act Click Here

The court viewed that the Department relies on data analytics, validation with third-party data, and other methods to collect actionable intelligence via analytical tools, human intelligence, modus operandi alerts as well as information through past detections. The proceedings which are based on intelligence relating to tax evasion, can be initiated either by the Central or the State tax administration.

The court also rejected the argument that the action was not intelligence-based enforcement, noting that the notices were issued based on specific intelligence inputs that were substantiated during search operations.

The court dismissed all petitions, clarifying that while its interpretation of Section 6 was binding, its other observations were prima facie and would not prejudice the petitioners from raising these issues before the concerned authority.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates