GST Updates

Powers of the State and Central Tax Officers to issue notice to taxpayers falling in others Jurisdiction-Analysis of the Ambiguity

There have been lots of notices being received by the taxpayers for varied reasons. The taxpayers are receiving notice from Centre even though they are falling under State Jurisdiction and vice versa. There has been a complete lack of clarity on issue of

  1. When a State Tax Officer issue notice to the taxpayers falling in the Central Jurisdiction or Central Tax Officer issue notice to the taxpayers falling in the State Jurisdiction and
  2. Cross empowerment of the State Tax Officers to assess liability of Central Tax for taxpayers falling within their Jurisdiction and cross empowerment of Central Tax Officers to assess State Tax for Taxpayers falling in their Jurisdiction.

The article tries to throw light on the issue with relevant extracts from Minutes of the meeting of GST Council, Notifications and Circulars and further tries to highlight the issues wherein more clarity is required. This article would surely not be the last word but would require a debate over the one of the most controversial issues to arise in the time to come.

Part –A:-References to Circulars, Notifications, Minutes of GST Council Meeting and Administrative Orders

 

  1. Minutes of the 9th meeting of GST Council held on 16 January 2017: Single Interface for the Taxpayers

Single Interface for the taxpayers with the tax administration was at the centre of every discussion in the GST Council Meeting. GST Council was apprehensive of the issue and therefore the issue had to be taken care very swiftly. The issue took time to resolve and discussions were held at length for the same.  In this background, relevant extract of the Minutes of the 9th Meeting of GST Council are as follows:

 

“12. The Honble Deputy Chief Minister of Gujarat suggested to first arrive at the ratio for division and the rest could follow. He stated that as the theme of GST was ‘one tax-one nation, the theme of GST administration should be ‘one businessmanone registration-one tax administration.”

                                                                                                                             (Emphasis supplied)

“13. … The Principal Secretary (Finance), Odisha stated that it was important to fix responsibility for individual taxpayer to one of the two tax administrations. He stated that several processes would arise in GST like cancellation of registration for truant dealers and that one tax administration should have the responsibility to take all necessary legal steps in this regard. The CCT, Andhra Pradesh also supported a vertical division and stated that one tax administration would need to be responsible for issuing show cause notice etc. for one taxpayer. He expressed an apprehension that if dealers were not assigned to one administration, each would blame the other for lack of action.

… CCT, Telangana supported a vertical division in a pre-defined ratio so that all tax-payers had one interface. He suggested that division should be done randomly by the computer.”

(Emphasis supplied)

“15. The Secretary summed up the deliberations during the lunch break meeting with the officers and informed the Council that the overwhelming view of the States was to have a division of tax-payers for administrative purposes between the Central and the State tax administrations.

…He said that the second option was to divide the tax payer base across the entire value chain through a stratified random sampling by computer and also taking into account the geographical location of the tax payers. He observed that this would give certainty to the tax payer as to which tax administration he had to deal with.”

(Emphasis supplied)

“17. The Hon’ble Minister from Tamil Nadu suggested that in order to avoid dual interface for tax payers, there should be a cut off of Rs. 1.5 crore turnover and audit of a certain percent of ‘tax payer falling below this threshold could be done by the Central tax administration but otherwise, the control of the taxpayers in this segment should rest with the States. He added that taxpayers above the turnover of Rs. 1.5 crore should be divided equally between the Central and the State tax administrations. He stated that the overall percentage of sharing should be 75% for the States and 25% for the Centre and that small taxpayers should remain with the State administration except for a small number to be audited by the Central tax administration. He also suggested to have a higher percentage of audit, say 20%, for taxpayers with turnover of more than Rs. 1.5 crore. He added that all three taxes, i.e. SGST, CGST and IGST should be treated in the same way.

(Emphasis supplied)

“22. The Hon’ble Chairperson summed up the suggestions and the possible solutions:

(i)there should be a vertical division of taxpayers where two-third share should go to the States and one-third share should go to the Centre (Gujarat’s suggestion); (ii) for taxpayers below Rs. 1.5 crore, the administrative control should vest with the States and only 10% of units to be audited by the Central tax administration (Tamil Nadu’s proposal); (iii)administration of taxpayers below Rs. 1.5 crore turnover to rest with the States and those above Rs. 1.5 crore to be divided between the Centre and States; …(v) Intelligence based action could be taken by both tax administrations without any division;

(Emphasis supplied)

The Finalized Minutes of GST Council on this issue was as follows:

“i There shall be a division of taxpayers between the Central and the State tax administrations for all administrative purposes.

ii 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;

iii. 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 5O% each for the Central and the Statetax administration;

iv The division of taxpayers in each State shall be done by computer at the State level based on stratified random sampling and could also take into account the geographical location and type of the taxpayers, as may be mutually agreed;

v 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 SO% each for the State and the Central tax administration;

vi The division of the taxpayers may be switched between the Centre and the States at such interval as may be decided by the Council;

vii. The above arrangement shall be reviewed by the Council from time to time;

viii. 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;”

(Emphasis Supplied)

 

  1. The 21st GST Council Meeting discussed and finalized how the figure of turnover would be taken for Division of taxpayers between State and Centre.

 

  1. Guidelines notified by GST Council for division of the taxpayers or assessee between the Centre and the State

 

Pursuant to the discussions, as provided in the above stated minutes of the meetings, GST Council notified guidelines for division of the taxpayers or assessee between the Centre and the State vide Circular No. 01/2017 dated 20 September 2017. The relevant extracts are reproduced below:

 “Subject: Guidelines for division of taxpayer base between the Centre and States to ensure Single Interface under GST – regarding”

“Based on the decisions taken in the 9th Meeting of the GST Council held on 16th January, 2017 and 21st Meeting of the GST Council held on 9 September, 2017, the following criteria should be followed for the division of taxpayer base between the Centre and the States to ensure single interface:

  1. 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;
  2. 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;

iii. The division of taxpayers in each State shall be done by computer at the State level based on stratified random sampling and could also take into account the geographical location and type of the taxpayers, as may be mutually agreed;”

(Emphasis supplied)

“3. The State Level Committees Commercial Taxes of respective comprising Chief Commissioner/Commissioner States and jurisdictional Central Tax Chief Commissioners/Commissioners are already in place for effective coordination between the Centre and the States. The said Committees may now take necessary steps for division of taxpayers in each State keeping in view the principles stated above. Supplementary decisions, if any, may be taken by the said Committees to implement the decision of the GST Council, keeping in view the broad principles stated hereinabove.”

(Emphasis supplied)

  1. Emphasis on Single Interface for the Taxpayers

It can be clearly observed GST Council had decided to implement single interface and one taxpayer one authority, with some exceptions such as intelligence based actions, for the smooth administration of the taxpayers. Thus, the division methodology for same had been discussed in various GST Council meetings and the resolved methodology was provided vide Circular No. 01/2017 dated 20 September 2017 keeping the objective of single interface on the forefront. The resolved methodology provided for division of taxpayers on the basis of turnover and computer based stratified random sampling.

 

  1. Order issued for Division of Taxpayers: (An Example Take of Division of assessee in the State of Rajasthan)

Based on principles and directions laid down by Circular No. 01/2017 dated 20 September 2017 of the GST Council, Rajasthan Government issued Order No. 01/2017 dated 17th November 2017 for division of taxpayers between the Central Government (Jaipur Zone) and the State Government of Rajasthan. Also, the said order directed the taxpayers to check the details of their administrating authority i.e., Centre or State on the following websites:

  1. centralexcisejaipur.nic.in; and
  2. rajtax.gov.in

 

Based on the aforementioned direction of the Rajasthan Government, supposedly administrating authority in case of Taxpayer is Centre.

 However, there might be an issue that how administrative order which has been issued on the guidelines issued by the GST Council would have a binding effect on the provisions of CGST Act, 2017 and RGST Act, 2017. Here it would be pertinent to highlight that the administrative order which provides for division of the taxpayers between the Centre and State does not refer to any of the provisions of CGST Act, 2017/RGST Act, 2017 but only refers to the guidelines of the GST Council. Although system of assignment/allocation is nothing new in GST as in case of new application of registration, application is assigned by GSTN either to State or Centre Jurisdiction to the exclusion of other. This process of assignment either to State or Centre, excludes the jurisdiction of Centre or State Respectively.

 

  1. Exercise of Powers by the Proper Officer from Centre Jurisdiction:

Further from the provisions of CGST Act, 2017, various administrative powers are assigned to proper officer under various Sections of the Act. Thus, it is pertinent to understand the definition of proper officer as provided under the said Act:

 

“(91) “proper officer” in relation to any function to be performed under this Act, means the Commissioner or the officer of the central tax who is assigned that function by the Commissioner in the Board;

(Emphasis supplied)

Centre has issued following Circulars for vesting of various powers in the Proper Officers under CGST Act, 2017

Date Circular No. Particulars
26th June 2017 01/2017 Proper officer for provisions relating to Registration and Composition levy under the Central Goods and Services Tax Act, 2017 or the rules made thereunder – Reg
5th July 2017 03/2017 Proper officer relating to provisions other than Registration and Composition under the Central Goods and Services Tax Act, 2017–Reg
9th February 2018 31/2018 Proper officer under sections 73 and 74 of the Central Goods and Services Tax Act, 2017 and under the Integrated Goods and Services Tax Act, 2017.

 

  1. Exercise of Powers by the Proper Officer from State Jurisdiction:

 

Further from the provisions of Rajasthan Goods and Services Tax Act, 2017, various administrative powers are assigned to proper officer under various sections of the Act. Thus, it is pertinent to understand the definition of proper officer as provided under the said Act:

 

“(91) ) “proper officer” in relation to any function to be performed under this Act, means the Commissioner or the officer of the State tax who is assigned that function by the Commissioner;

 

Exercising the above powers, Rajasthan State has issued following circulars exercising the above powers under the RGST Act, 2017

 

Date Circular No. Circular
1st July 2017 F.16(21)Tax/Juris(GST)/CCT/2017/3187 Order for proper officers having pecuniary jurisdiction
1st July 2017 F.16(21)Tax/Juris(GST)/CCT/2017/3196

 

Order for proper officers having territorial jurisdiction
1st July 2017 F.16(21)Tax/Juris(GST)/CCT/2017/3170 Assignment of the functions of the proper officer under different sections within their jurisdiction
1st July 2017 F.16(21)Tax/Juris(GST)/CCT/2017/3179 Assignment of the functions of the officer under different sections within their jurisdiction.
10th April 2018 F.126-129 Regarding the proper officer to intercept any conveyance to verify the e-way bill
23rd May 2018 F.17(131)ACCT/GST/2017/3560 Notification to authorize the proper officer to intercept any conveyance to verify the e-way bill.

 

 

  1. Section 6 of Rajasthan Goods and Services Tax Act, 2017: Authorisation of officers of central tax as proper officer in certain circumstances

 

Section 6(1) of the Rajasthan Goods and Services Tax Act, 2017(hereinafter referred as RGST Act, 2017):

 “(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.”

 

Section 6 of RGST Act, 2017 gives authorisation to officers appointed under the CGST Act, 2017 to be the proper officer for the purpose of RGST Act, 2017. However, this authorisation would be subject to such conditions as the Government shall on recommendation of the council specify.

 

Section 6(2) of RGST Act, 2017 provides that

 

(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.

 

The section provides that wherein proper officer issues an order under RGST Act, 2017 he would also issue an order under CGST Act, 2017. Further, where a proper officer under CGST Act, 2017 has initiated any proceedings on a subject matter, no proceedings can be initiated by the proper officer under RGST Act, 2017. However, both of these riders would be subject to notification issued under section 6(1) of RGST Act, 2017.

 

There has been another view forthcoming that there is no need for notification to be issued under section 6(1) to cross empower as the language of the section provides that officers appointed under CGST Act are proper officer under RGST Act. Notification if issued would only be relevant for prescribing any condition or restriction. The absence of such notification does not affects the power of the CGST Officer under RGST Act, 2017. The Language of section is again being reproduced herewith:

 

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.”

                                                                                                                                       (Emphasis supplied)

 However, if such would have been the case then there was no need to issue notification under section 6(1) of respective laws for cross empowerment of State Officers to process CGST Refund and CGST Officers to process RGST Refund under section 54 and 55.

 

  1. Cross Empowerment of Proper officers under CGST Act, 2017 to process refunds under RGST Act, 2017:

In pursuance of Section 6(1) of RGST Act, 2017, State Government has till now notified following vide Notification No. F.No.12(56)FD/Tax/2017-pt-II-116 dated 13th October 2017:

 

“In exercise of the powers conferred by sub-section (1) of section 6 of the Rajasthan Goods and Services Tax Act, 2017 (Act No. 9 of 2017), on the recommendations of the Council, the State Government hereby specifies that the officers appointed under the Central Goods and Services Tax Act, 2017 (Central Act No. 12 of 2017) who are authorized to be the  proper officers for the purposes of section 54 or section 55 of the Central Goods and Services Tax Act, 2017 by the Commissioner in the Board , shall act as proper officers for the purpose of sanction of refund under section 54 or section 55 of the Rajasthan Goods and Services Tax Act, 2017 read with the rules made thereunder…”

(Emphasis supplied)

 

Part-B:-Division of Tax-payers for single Interface and Power of proper officers under SGST/CGST Act, 2017:

 

If we go through minutes of the GST Council and definition and powers given to the proper officer, then following picture emerges:

 

  1. CGST Act, 2017 and RGST Act, 2017 vests power with officers under the respective Statute to be the proper officer for the taxpayer falling under their respective jurisdiction.

 

  1. The orders under RGST Act and CGST Act, 2017 could be passed by the respective officer under the Statute.

 

  1. There are two proper officers for a taxpayer under the GST Regime i.e. State Tax Officer and Central Tax Officer. Section 6(2) also recognizes the fact that there would be two proper officers by stating that 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.

 

Both Centre and State have issued their respective Circular for the proper officers for respective sections along with the pecuniary limit. This is also where the major bone of contention lies. As both Centre and State have issued their respective circulars, one of the contention is that power to issue notices is vested with the Statue to State Officers for RGST Act, 2017 and Central Officers for CGST Act, 2017. As per there understanding, it is an unfettered power which cannot be taken away from them.

 

  1. This was so far so good till the administrative order for division of taxpayers between the taxpayers has not come into force. Once that order comes into force, administration under which the taxpayer falls only has the power to administer the taxpayer. This can be well understood from the language of the Circular No. 17/17/2017-GST Dated 15th November 2017.

 

“2.5 The registered person needs to file the refund claim with the jurisdictional tax authority to which the taxpayer has been assigned as per the administrative order issued in this regard by the Chief Commissioner of Central Tax and the Commissioner of State Tax. In case such an order has not been issued in the State, the registered person is at liberty to apply for refund before the Central Tax Authority or State Tax Authority till the administrative mechanism for assigning of taxpayers to respective authority is implemented…”

 

The circular also admits that until administrative order for division of taxpayer between Centre and State has not been issued in the State, registered person is at liberty to apply for refund before the Central Tax Authority or State Tax Authority. Once this is issued registered person needs to file the refund claim with the jurisdictional tax authority to which the taxpayer has been assigned as per the administrative order issued in this regard by the Chief Commissioner of Central Tax and the Commissioner of State Tax.

 

The issue for single interface and division of taxpayers plays its own role and comes into the foray. Taking forward from herein onwards, the officer under the Central/State Administration to which the taxpayer has been assigned has the power to administer the tax payer and issue notices.

 

Reference to the minutes of the meeting of 9th GST Council Meeting also throws this picture wherein the minutes provide that Principal Secretary (Finance), Odisha stated that several processes would arise in GST like cancellation of registration for truant dealers and that one tax administration should have the responsibility to take all necessary legal steps in this regard. The CCT, Andhra Pradesh also supported a vertical division and stated that one tax administration would need to be responsible for issuing show cause notice etc. for one taxpayer.

 

This also can be well ascertained with language of Circular No.  17/17/2017 as reproduced above that once a taxpayer has been assigned to Centre/State, that particular administration has the right to administer that tax payer.

 

Thus, once a taxpayer has been assigned to Centre/State then it excludes State/Centre respectively from taking the action. Further, with regard to the Jurisdiction of a taxpayer being assigned to both Centre and State in case of Intelligence Based Action, Guidelines of GST Council provide that Intelligence based action could be taken by both tax administrations without any division. However, administrative order for division of the taxpayers does not contain any such details. Order No. 01/2017 Dated 17 November 2017 for division of taxpayers between Centre and State in the State of Rajasthan provides as follows:

 

“In terms of guidelines issued by the GST Council Secretariat vide Circular No. 01/2017, issued vide F. No. 166/Cross Empowerment/GSTC/ 2017 dated 20.09.2017 with respect to the division of taxpayer base between the Central Government and State Government to ensure single interface under GST, the State Level Committee comprising of Dr. S.L. Meena, Chief Commissioner of Central Tax, Jaipur Zone AND Shri Alok Gupta, Commissioner of State Tax, Rajasthan decided to assign the taxpayers registered in the State of Rajasthan between the Centre and the State authorities as detailed in the booklets separately for each district for the number of taxpayers as mentioned below:”

 

(Empahsis supplied)

 

Further Trade Notice No. 05/2017 issued on dated 21st November 2017by the Office of  the Chief Commissioner CGST & Central Excise (Jaipur Zone), Jaipur provided that

“As regards legacy issues, the Trade is further informed that the legacy issues/ matters of erstwhile Tax Regime viz. Central Excise & Service Tax will be looked after by the respective jurisdictional Central Excise & service Tax Commissionerates as notified vide Trade Notice No. 01/2017 dated 20.06.2017 issued under C. No. CCO(JZ)Tech/23/2017 dated 20.06.2017 (issued in compliance of Notification No. 13/2017(NT) dated 09.06.2017) to which it pertained, irrespective of the fact even if consequent upon division of Tax Payers a particular Tax Payer has been assigned to the administrating authority of the State.

  1. This Trade Notice is being issued to facilitate the Trade to know the details including the name of their administrating authority for the purpose of Tax administration under GST regime as well as for the issues pertaining to erstwhile Tax Regime.”

                                                                                                                                                (Emphasis supplied)

The administrative order for division of taxpayer provides that to ensure single interface taxpayers are being divided between Centre and State. The trade notice which was issued later on, whilst clearly lays guidelines about the legacy issues, at the same time it also provides that division has been made for the tax administration under the GST Regime.

 

Now the words “Single Interface” and “Tax Administration” have not been defined and create confusion about their exact scope and nature. Which were the intelligence based actions which GST Council had referred to and whether it would include penalty levied for vehicles detained in transit, survey, Notices seeking general information etc.

 

Whether “Tax Administration” includes intelligence based action and if it does not include how a SGST Officer while conducting a survey would assess the CGST Part in the absence of notification under section 6(1) of the CGST Act, 2017. Until notification is issued under section 6(1) of CGST Act, 2017, if he cannot assess CGST Part then whether he would assess the SGST Part and forward the details of the CGST Part to the proper officer under CGST to pass the order under CGST Act, 2017.  Thus, whether in such case there would be two assessment orders for a single person till that date. Ambiguity Persists.

 

  1. To my view, but for taxpayers falling under Central Jurisdiction and Centre to assess the SGST Portion or taxpayers falling under State Jurisdiction and State to assess the CGST portion, there has to be a notification to cross empower officers under CGST by the State and SGST by the Centre under Section 6(1) of respective GST Laws.

 

Section 6 of the RGST Act, 2017 and CGST Act, 2017 authorise officers of CGST Act, 2017 to be the proper officers for RGST Act, 2017 and officers of RGST Act, 2017 to be the proper officers under CGST Act, 2017 respectively. Till date, that notification under section 6 of respective laws for cross empowerment of Central Officer for SGST and State Officer for CGST has only been issued for Section 54 and 55 of CGST Act, 2017 and Section 54 and 55 of RGST Act, 2017.

 

If and when so authorise proper officer under CGST Act, 2017 for a taxpayer can pass orders under the RGST Act, 2017 for that taxpayer and vice versa. Until such powers are vested with the proper officer under the relevant statue, no proper officer under CGST Act, 2017 can pass any order under RGST Act, 2017 and vice versa. Till date that power has only been given under Section 54 and 55 of CGST/RGST Act, 2017.

 

In the above backgrounds, it be concluded that

a) Taxpayers falling under the State Jurisdiction cannot be assessed by Centre Jurisdiction and vice versa. To ensure single interface, administration of taxpayers assigned to Centre/State jurisdiction rests with the Centre/State excluding the State/Centre respectively.

 

However, what is “Tax administration” and what is “single interface” is not yet very clear and broadly meaning can be taken out from the minutes of the meeting of GST Council and Circular issued by GST Council for division of taxpayers. Unless it is clarified, there might be bizarre instances of double trouble for the taxpayers and notices would be received from the Centre and State Proper officers by the assessee. Clarification in this regard is required at the earliest possible.

 

b). Further, where the taxpayers have been assigned to Centre and State then for the Centre to assess the SGST Portion and State to assess the CGST Portion, there has to be an order for cross empowerment under section 6 of the respective statute just as was issued in the case of Section 54 and 55. Otherwise, there would be separate orders being passed by the officer through separate proceedings. Ambiguity Persists.

Thus, in my view, there remains a big vacuum as taxpayers falling under jurisdiction i.e. CGST/SGST cannot get notices from the other administration i.e. SGST/CGST respectively. Further for assessee falling within their own jurisdiction, how can the officer assess the tax under other Act until notification for cross empowerment under the relevant act is issued. Ambiguity Persists.

Part–C-Concluding Remarks with an Example for Exercise of Jurisdiction:

Therefore, take for instance a taxpayer falling under the Centre Jurisdiction gets a notice for verification of Transitional VAT Credit by the State.

At the outset, he cannot get notice from the State for verification Transitional VAT Credit as he is falling under the Central Jurisdiction. If states would start exercising powers for verification of transitional VAT credit for taxpayers falling under Central Jurisdiction, then the entire relevance for administrative order for division of assessee would lose its significance. However, as there is lack of clarity on this issue, taxpayers would continue to receive such notices in the name of verification or prevention of evasion of tax by availing wrong credit.

Further also, for verification of Transitional VAT Credit of taxpayers falling under Central Jurisdiction, proper officer of Centre would have the power to assess VAT portion for the taxpayers once the same is entrusted with them through notification issued by the Commissioner of State Tax. As provided above, State has till date notified the same only in relation to Section 54 and 55 of the RGST Act, 2017 and is yet to notify for rest of the Sections of the said Act. Therefore, till date SGST portion in case of assessee falling under Central Jurisdiction cannot be assessed by Central Officer (other than for refund cases) and could be assessed by Proper Officer of Central Administration once notification for the same is issued by the Commissioner of State Tax under Section 6 of RGST Act, 2017.

To Conclude, series of clarification awaits. Ambiguity Persists.

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