M/s. Vardhan Infraastructure vs. Central Board of Indirect Taxes

The Madras High Court in Vardhan Infraastructure vs. Central Board of Indirect Taxes held that Centre Authority cannot initiate proceedings against taxpayers assigned to State Authority and vice versa in the absence of cross-empowerment notification.

The Petitioner had argued that Central authorities had initiated the proceedings even though petitioner was assigned to state authorities for all the administrative purposes. In few other cases, State authorities had initiated the investigation but taxpayer was assigned to center authorities. While challenging the jurisdiction of the authorities to conduct the proceedings, the petitioner had contended that there is no cross-empowerment enabled in the GST law in absence of the notification [except refund processing notification] To contend it, petitioner referred to GST Council meeting minutes [9th and 22nd GST Council meeting], circular for division of taxpayer in the manner in which it was decided to be distributed between the Centre and State. Support was also drawn from Section 3 and 4 of CGST and SGST Act to say that the powers assigned to Board or Commissioner are linear and not cross-empowered as was structured under the Model GST law.

Appreciating the arguments taken by the petitioner, the hon'ble Court held that there is no notification in place under Section 6 to cross-empower the authorities to initiate or pursue the proceedings against the Petitioner who is not assigned to it.  The hon’ble High Court issued the directions to jurisdictional authorities to pursue the appropriate investigation in case of assigned taxpayers and the limitation period will exclude the period of writ proceedings.

W&B Comments: The Hon’ble Madras High Court has clearly stated that in the absence of a notification under Section 6(1), authorities lack the cross-empowerment to initiate proceedings against a taxpayer who hasn’t been assigned. However, in a previous judgment (Kuppan Gounder P.G. Natarajan vs. Directorate General of GST Intelligence, New Delhi [2022 (58) G.S.T.L. 292 (Mad.)]), the same court emphasized the distinction between "proceeding" and "inquiry," as Section 6(2) qualified by the words “subject-matter” indicates an adjudication process/proceeding on the same cause of action and for the same dispute, which may be proceedings relating to assessment, audit, demands and recovery and offences and penalties etc. Such proceedings are subsequent to inquiry. Therefore, the proper officer may proceed with a parallel proceeding under Section 70 in any inquiry even when any proceeding on the same subject-matter had already been initiated by a proper officer under the State Act.

Dated: May 16, 2024

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