Parallel or Multiple proceedings - A case of double jeopardy

 

Debasish Bandyopadhyay, B. Com, LL.B, PGDFM

 

Introduction

In an era of self-assessment, verifying records through the methods of scrutiny, assessments, audits etc. play a central role against tax evasion as well as setting up of a constructive mechanism of engagement with taxpayers to improve compliance. In the legislative framework of GST, there are multiple provisions laid down separately under the CGST Act, 2017 to conduct such scrutiny, assessment, audit, special audit as may be prescribed and/or to be initiated by the appropriate authorities. With the passage of time in the GST regime, the area of verification of records has become a centre of controversy on the issue of duplication of litigation or parallel/multiple proceedings, cross-empowerment, methodology adopted by authorities etc. This article is to discuss on such important issues of parallel/multiple proceedings, cross-empowerment under the GST regime which has been troubling the trade across the country.

 

Scrutiny, assessment and audit under GST law

The relevant provisions under CGST Act, 2017 in respect of verification of records or prescribed proceedings are extracted here-under:

 

Section - 61, Central Goods and Services Tax Act, 2017- Scrutiny of returns:

 

(1) The proper officer may scrutinize the return and related particulars furnished by the registered person to verify the correctness of the return and inform him of the discrepancies noticed, if any, in such manner as may be prescribed and seek his explanation thereto.

 

(2) In case the explanation is found acceptable, the registered person shall be informed accordingly and no further action shall be taken in this regard.

 

(3) In case no satisfactory explanation is furnished within a period of thirty days of being informed by the proper officer or such further period as may be permitted by him or where the registered person, after accepting the discrepancies, fails to take the corrective measure in his return for the month in which the discrepancy is accepted, the proper officer may initiate appropriate action including those under section 65 or section 66 or section 67, or proceed to determine the tax and other dues under section 73 or section 74.

 

Section - 63, Central Goods and Services Tax Act, 2017- Summary assessment in certain special cases:

 

(1) The proper officer may, on any evidence showing a tax liability of a person coming to his notice, with the previous permission of Additional Commissioner or Joint Commissioner, proceed to assess the tax liability of such person to protect the interest of revenue and issue an assessment order, if he has sufficient grounds to believe that any delay in doing so may adversely affect the interest of revenue:

 

Provided that where the taxable person to whom the liability pertains is not ascertainable and such liability pertains to supply of goods, the person in charge of such goods shall be deemed to be the taxable person liable to be assessed and liable to pay tax and any other amount due under this section.

(2) On an application made by the taxable person within thirty days from the date of receipt of order passed under sub-section (1) or on his own motion, if the Additional Commissioner or Joint Commissioner considers that such order is erroneous, he may withdraw such order and follow the procedure laid down in section 73 or section 74

 

Section - 65, Central Goods and Services Tax Act, 2017 - Audit by tax authorities:

 

(1) The Commissioner or any officer authorised by him, by way of a general or a specific order, may undertake audit of any registered person for such period, at such frequency and in such manner as may be prescribed.

 

(2) The officers referred to in sub-section (1) may conduct audit at the place of business of the registered person or in their office.

 

(3) The registered person shall be informed by way of a notice not less than fifteen working days prior to the conduct of audit in such manner as may be prescribed.

 

(4) The audit under sub-section (1) shall be completed within a period of three months from the date of commencement of the audit:

 

Provided that where the Commissioner is satisfied that audit in respect of such registered person cannot be completed within three months, he may, for the reasons to be recorded in writing, extend the period by a further period not exceeding six months.

 

Explanation. -For the purposes of this sub-section, the expression "commencement of audit" shall mean the date on which the records and other documents, called for by the tax authorities, are made available by the registered person or the actual institution of audit at the place of business, whichever is later.

 

Section - 66, Central Goods and Services Tax Act, 2017-Special audit:

 

(1) If at any stage of scrutiny, inquiry, investigation or any other proceedings before him, any officer not below the rank of Assistant Commissioner, having regard to the nature and complexity of the case and the interest of revenue, is of the opinion that the value has not been correctly declared or the credit availed is not within the normal limits, he may, with the prior approval of the Commissioner, direct such registered person by a communication in writing to get his records including books of account examined and audited by a chartered accountant or a cost accountant as may be nominated by the Commissioner.

 

(2) The chartered accountant or cost accountant so nominated shall, within the period of ninety days, submit a report of such audit duly signed and certified by him to the said Assistant Commissioner mentioning therein such other particulars as may be specified:

 

Provided that the Assistant Commissioner may, on an application made to him in this behalf by the registered person or the chartered accountant or cost accountant or for any material and sufficient reason, extend the said period by a further period of ninety days.

 

(3) The provisions of sub-section (1) shall have effect notwithstanding that the accounts of the registered person have been audited under any other provisions of this Act or any other law for the time being in force.

 

(4) The registered person shall be given an opportunity of being heard in respect of any material gathered on the basis of special audit under sub-section (1) which is proposed to be used in any proceedings against him under this Act or the rules made thereunder.

 

(5) The expenses of the examination and audit of records under sub-section (1), including the remuneration of such chartered accountant or cost accountant, shall be determined and paid by the Commissioner and such determination shall be final.

 

(6) Where the special audit conducted under sub-section (1) results in detection of tax not paid or short paid or erroneously refunded, or input tax credit

 

It is clear from the aforesaid that there are separate and specific provisions for initiation and conducting of such process of scrutiny, assessment and audits enumerated under the GST law. Moreover, the power and jurisdiction of such proceedings have also been intricately laid down under the relevant provisions. Apart from the above, detail guidelines for conducting audit by the department as well as by the chartered accountant or cost accountant as nominated, have also been explained or clarified by the CBIC. In spite of the aforesaid, in many occasions it is observed that due to over-enthusiasm or highhandedness of the departmental officers, such provisions have often been exceedingly mis-used/abused in dealing with verifications of records resulting into overlapping of jurisdiction or repetition of conducting (un)necessary proceedings which are troubling the trade across the country. Therefore, it is pertinent to highlight such blazing issues trending in the trade.

 

Coordination Between State and Central Officers

 

It has been observed in many cases that two separate or parallel proceedings for the same period under the CGST Act, 2017 and SGST Act, 2017 have been initiated creating a huge compliance challenge for the related stakeholders. At this point, it is important to refer Section 6(2)(b) of the CGST Act, 2017. Many such matters were challenged before various High Courts across the country. One of such matter in Writ Petition in Case No. WP(C)/683/2024 - 2024-VIL-141-GAU, the Hon'ble Guwahati High Court held that Section 6(2) of the CGST and SGST Act which inter alia indicates that once a proceeding is initiated either of the above two acts, another proceeding for the same period under the other Act is not to be initiated. Here, it is important to highlight that there is no ambiguity in the language of Section 6(2)(b) of the CGST/SGST Act, which bars initiation of proceeding by a proper officer under CGST Act where a proper officer under the SGST Act or the UTGST has initiated proceeding on the subject matter. The said ruling sets a precedent, emphasizing the prohibition of dual proceedings for the same period.

 

However, it is more important to note that there must be a mechanism for coordination between State and Central officers, especially in cases involving similar businesses or operations. Ease of doing business gets a serious jolt due lack of such essential coordination in departmental internal processes leading to immense unease or compliance challenge for the assesee across the country. Thus, there should be a proper coordination between State and Central authorities in order to significantly improve efficiency, reduce duplication of efforts/processes in verification of records through scrutiny, assessments or audits. This coordination would promote collaborative strategies and the sharing of initiatives to strengthen collaboration and improve compliance efficiency.

 

Judicial Scrutiny on Parallel Proceedings

 

The occurrence of concurrent tax investigations or verification can be attributed to the dual administrative structure, where both, Central and State Governments have the authority to levy and administer tax. However, this duality can lead to the potential scrutiny of a single transaction or entity by both, Central and State Tax authorities leading to parallel or duplication of proceedings giving rise to many such judicial interventions. There are many divergent positions taken by the judiciary on this complex subject of parallel or multiple proceeding on the same issue.

 

In a recent case Hon'ble Madras High Court in matter of TVL. VARDHAN INFRAASTRUCTRE [2024-VIL-272-MAD], in the question of Cross-empowerment and validity of proceedings initiated by the Central Tax Authorities in respect to the taxpayers assigned to the State Tax Authorities, it was held that section 6(1) of the respective GST enactments empowers Government to issue notification on the recommendation of GST Council for cross-empowerment. Here, no notification has been issued except under Section 6(1) of the respective GST Enactments for the purpose of refund. In absence of any notification for cross-empowerment, impugned proceedings are to be held without jurisdiction

 

"......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."

In another significant judgment of Orissa High Court, in the matter of M/s SATYAM CASTINGS PVT LTD, CUTTACK Vs. DEPUTY DIRECTOR, DGGI, BHUBANESWAR AND ANOTHER [2024-VIL-321-ORI] it was held that there is no ambiguity in the language of Section 6(2)(b) of the CGST/SGST Act, which bars initiation of proceeding by a proper officer under CGST Act where a proper officer under the SGST Act or the UTGST has initiated proceeding on a subject matter. However, if the subject matter of the proceeding is entirely different, there is no bar to the maintainability of the proceeding. What is barred is the initiation of the proceeding on the same subject matter by the proper officer. The relevant portions of the observation are extracted below:

 

"...............If the subject matter of the proceeding is entirely different, there is no bar to the maintainability of the proceeding. What is barred is the initiation of the proceeding on the same subject matter by the proper officer. The words 'subject matter' can be equated with words 'cause of action'. The reason behind barring the initiation of proceeding on the same subject matter by the proper officer under the State Goods and Services Tax Act or the Union Territory Goods and Services Act seems to be that the possibility of the final decision in the two proceedings being different cannot be totally ruled out which would create confusion.........."

 

Thus, it has been made clear that that "subject matter" is the key as per Section 6 of CGST Act, and if the subject matter is different, then there is no bar on initiation of proceedings by different officers. It was also clarified that expression "subject matter" as this is the deciding factor as to whether the issues dealt with by SGST and CGST officers are the same or what constitutes multiple or parallel proceedings. Will the Board take notice of the aforesaid judicial positions and take necessary action to create an appropriate mechanism to eradicate the compliance challenges arising out of such parallel proceedings?

 

Conclusion

 

The judiciary has also always been critical of such acts of department's highhandedness in dealing with the verification provisions. it can be said that the provision of verification proceedings such as scrutiny, audits etc., a serious matter of controversy and compliance burden under the GST regime. In order to protect the interest of the revenue as well as genuine taxpayer, clarity and harmonization between authorities will be essential to strengthen the uprightness of the taxation system. It is pertinent to understand that the fundamental purpose of Section 6 of the CGST Act is to safeguard a taxpayer from being subjected to multiple authorities. Therefore, the central theme of compliance, should be guided by the constitutional principles of safeguarding all persons against double jeopardy. Another important principle i.e. doctrine of 'res judicata' is also required to be upheld, which means that parties that have been subject to proceedings before one authority cannot be subject to proceedings on the same subject matter before another competent authority. It is also important to highlight that too much of compliance burden on the assesees may negatively impact the revenue. In fact, too much proceedings such as scrutiny, audits etc. on a single period must be avoided to liberate the taxpayers from unnecessary compliance burden. Authorities must restraint them to prevent jurisdictional overlap. In the end, CBIC should intervene and make necessary arrangement to end to such ongoing mess and related confusion.

 

[Date: 03/05/2024]

 

(The views expressed are strictly personal)