By Priyamwada Sinha and Drishty Sakhuja

Overview

The Goods and Services Tax (GST) regime was introduced with the objective of creating a seamless and unified taxation framework. It aimed to enable cross-empowerment between the Central and State Tax authorities while safeguarding the taxpayers from being subject to multiple proceedings on a same subject matter. Despite this intent, instances of parallel proceedings by both Central and State authorities on the same subject matter continue to create unnecessary litigation and financial hardship for taxpayers.

Legal Provisions

Under the Central Goods and Services Tax Act, 2017 (‘the CGST Act’)[1]. apart from the officers appointed under the CGST Act, the officers appointed under the State Goods and Service Tax Act (‘SGST Act’) or the Union Territory Goods and Services Tax Act (‘UTGST Act’) are also authorized to act as proper officers to conduct proceedings under the CGST Act. Similarly, under the SGST/UTGST Act, apart from the officers appointed under the SGST/UTGST Act, officers appointed under the CGST Act are also authorized to act as proper officers and conduct proceedings under the SGST/UTGST Act.

To prevent parallel proceedings, Section 6(2)(b) of the CGST Act provides that:

“where a proper officer under the State Goods and Services Tax Act and 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.”

A similar provision exists under the SGST/UTGST Act, restricting the SGST/UTGST officers to initiate proceedings once the proceedings have already initiated by the CGST officers on the same subject matter. This provision aims to prevent taxpayers from being subjected to multiple proceedings for the same issue.

To provide further clarity, the Central Board of Excise and Customs issued a Letter[2] stating that officers from both Central Tax and State Tax can initiate intelligence-based enforcement actions. However, the authority initiating the enforcement action must conclude the entire process, including investigation, issuance of SCNs, adjudication, recovery, appeals, and any related proceedings. For instance, if a Central Tax officer initiates an investigation, they are required to conclude all related proceedings without transferring the matter to the State authorities, and vice versa.

Court Rulings

Several cases have addressed the issue of parallel proceedings initiated by Central and State Tax authorities. In one of the notable cases[3], the Karnataka High Court dealt with a situation where the State Tax authorities initiated proceedings and issued a show cause notice (SCN) on a subject matter that had already been initiated by the Central Tax Authorities. The taxpayer challenged the second SCN before the Karnataka High Court, arguing that once the Central Tax authorities had initiated proceedings by issuing letters and notices, the State Tax authorities were precluded from initiating further action on the same subject matter.

The Karnataka High Court observed that Section 6(2)(b) of the Karnataka Goods and Services Tax Act, 2017, bars State Tax authorities from initiating proceedings if the Central Tax authorities have already initiated proceedings on the same subject matter. Consequently, the Court quashed the SCN issued by the State Tax officer, holding it to be without jurisdiction.

Similarly, the Calcutta High Court addressed a case[1] where the State Tax authorities issued an SCN under the West Bengal GST Act, 2017, followed by an adjudication order, despite the Central Tax authorities having already initiated proceedings for the same tax period. The petitioner contended that they had participated in the proceedings initiated by the Central Tax officer.

Relying on Section 6(2)(b) of the Act, the Court held that the SCN issued by the State Tax authorities was unsustainable since an SCN had already been issued by the Central Tax authorities on the same subject matter. Consequently, the Court set aside the demand and quashed both the SCN and the adjudication order issued by the State Tax officer.

Conclusion

Judicial precedents have reiterated the legislative intent behind Section 6 of the CGST Act and its counterparts under the SGST/UTGST Acts. Courts have consistently quashed SCNs and adjudication orders issued in violation of this provision. However, the persistence of these issues reflects systemic challenges, including inadequate coordination between Central and State authorities.

The root cause of these challenges lies in the lack of effective communication and coordination mechanisms between the two authorities. This not only undermines taxpayers’ confidence in the GST regime but also increases the burden on the judicial system due to unnecessary litigation.

To address this issue, it is imperative to introduce a centralized mechanism for tracking cases, where both Central and State authorities are updated in real-time basis regarding the ongoing proceedings. This could significantly reduce the overlap of the jurisdictions and would prevent parallel proceedings.

[1] Bazaar Style Retail Ltd. v. Deputy Commissioner of State Tax, W.P.A. No. 16185 of 2024, decided on 19/08/2024

[1] Section 6(1) of the Central Goods and Services Tax Act, 2017

[2] Letter D.O.F. No. CBEC/20/43/01/2017-GST (Pt.) dated 05/10/2018

[3] M/s Toyota Kirloskar Motor Pvt. Ltd. v. Union of India & Ors., W.P. No. 22952 of 2023, decided on 21/08/2024