While clarifying that Clause (b) of sub-section (2) of Section 6 of the CGST Act, along with its equivalent provisions in State enactments, bars the initiation of any proceedings on the “same subject matter”, the Supreme Court today clarified that actions arising from audits or detailed scrutiny of returns must be initiated by the Commissionerate to which the taxpayer is assigned, but intelligence-based enforcement actions can be initiated by either the Central or State tax Commissionerate, regardless of the taxpayer’s assigned Commissionerate.
The Division Bench comprising Justice J B Pardiwala and Justice R Mahadevan observed that parallel proceedings should not be initiated by one tax administration when the other has already taken intelligence-based enforcement action. Since “Initiation of any proceedings” refers to the formal commencement of adjudicatory proceedings, such as the issuance of a show cause notice, but does not include actions like the issuance of a summons or conducting searches or seizures, the Bench explained that probing, inquiry, or gathering of evidence does not constitute “proceedings” under Section 6(2)(b) of the CGST Act.
The Bench went on to explain that “subject matter” refers to the tax liability, deficiency, or obligation arising from a particular contravention being assessed or recovered, and if two proceedings seek to assess or recover the same or overlapping tax liability or deficiency, the bar under Section 6(2)(b) of the CGST Act is applicable. However, the Bench cautioned that if the proceedings concern distinct infractions, the bar does not apply, even if the tax liability or deficiency is similar. The two-fold test for determining if a subject matter is “the same” involves assessing whether the authority has already addressed the identical liability or offence and whether the demand or relief sought is identical.
Briefly, the petitioner, engaged in the business of providing security services, received an SCN u/s 73 of the CGST Act, through which a demand of about Rs 1.24 Crores was raised along with the applicable interest and penalty u/s 50 u/s 74 of the CGST Act, respectively. The SCN was served on the ground that (i) net tax was under-declared due to non-reconciliation of turnovers in other returns and e-way bill information; and (ii) excess claim of ITC. Later, a search was conducted at the registered premises of the petitioner, culminating in the seizure of electronic gadgets and documents. When the petitioner company received another summons u/s 70 of the CGST Act directing one of its directors to produce relevant documents, it addressed to the Commissioner (respondent no. 1) stating that it was already being investigated by the respondent no. 2, on similar grounds, including ITC claimed from cancelled suppliers.
When the matter reached the High Court of Delhi on the ground that as the respondent no. 2 had already made the investigation in respect of the same issue and the respondent no. 1 did not have the jurisdiction given Section 6(2)(b) of the CGST Act, the High Court declined to interfere with the summons, and held that the expression “any proceeding” u/s 6(2)(b) cannot be construed to include a search or investigation. The High Court took the view that a summons or investigation pursuant to a search constitutes only a precursor to the formal proceedings. Not satisfied, the petitioner taxpayer approached the Apex Court.
Therefore, in cases where, after the commencement of an inquiry or investigation by one authority, another inquiry or investigation on the same subject matter is initiated by a different authority, Justice Pardiwala, speaking for the Bench, issued various guidelines, as mentioned below:
1. Where a summons or a show cause notice is issued by either the Central or the State tax authority to an assessee, the assessee is, in the first instance, obliged to comply by appearing and furnishing the requisite response, as the case may be, as mere issuance of a summons does not enable either the issuing authority or the recipient to ascertain that proceedings have been initiated.
2. After the assessee becomes aware that the matter being inquired into or investigated is already the subject of an inquiry or investigation by another authority, he shall inform the authority, and upon receipt of such intimation, the respective tax authorities shall communicate with each other to verify the veracity of the assessee’s claim.
3. If the claim of the taxable person regarding the overlap of inquiries is found untenable, and the investigations of the two authorities pertain to different “subject matters”, an intimation to this effect, along with the reasons and a specification of the distinct subject matters, shall be immediately conveyed in writing to the taxable person.
4. The taxing authorities are well within their rights to conduct an inquiry or investigation until it is ascertained that both authorities are examining the identical liability to be discharged, the same contravention alleged, or the issuance of a show cause notice. Any show cause notice issued in respect of a liability already covered by an existing show cause notice shall be quashed.
5. However, if the Central or the State tax authority, as the case may be, finds that the matter being inquired into or investigated by it is already the subject of inquiry or investigation by another authority, both authorities shall decide inter se which of them shall continue with the inquiry or investigation. This is so because the taxable person, except for being afforded the statutory protection from duplication of proceedings, otherwise has no locus to claim which authority should proceed with the inquiry or investigation in a particular matter.
6. However, where the authorities are unable to decide as to which of them shall continue with the inquiry or investigation, then in such circumstances, the authority that first initiated the inquiry or investigation shall be empowered to carry it to its logical conclusion, and the courts in such a case would be competent to pass an order for transferring the inquiry or investigation to that authority.
While concluding its decision, the Apex Court calls it imperative that the Departments act in harmony and maintain heightened vigilance with respect to intelligence inputs received by them, to give full effect to the legislative intent underlying the GST regime. Such coordination would also serve to mitigate the unnecessary hardship caused to taxpayers by overlapping proceedings and a lack of inter-departmental communication.
Appearances:
Senior Advocate Sridhar Potaraju, AOR Gaichangpou Gangmei, a/w Advocates Srinivas Kotni, Rishabh Dev Dixit, Rohit Dutta, Arjun D Singh, Akshay Kumar, Lalit Mohan, Niharika Singh, and Gurdeep Singh, for the Appellant
AOR Gurmeet Singh Makker, for the Respondent
