“GST Cross-Empowerment: Legal Limbo & Taxpayer Rights”

Cross-Empowerment of Central and State Authorities Under GST: Judicial Views

The Goods and Service Tax (GST) regime in India has brought about a new system of taxation, where both the central and state governments have concurrent powers to levy and collect tax. This has led to some ambiguity regarding which authority can initiate enforcement action against a taxpayer.

In 2018, the Central Board of Indirect Taxes and Customs (CBIC) issued a circular clarifying that either the central or state tax authority can initiate action against a taxpayer. This was done to avoid conflicting rulings from different jurisdictions and to ensure that taxpayers are not subjected to multiple investigations for the same offense.

However, there have been some judicial pronouncements that have challenged the CBIC’s circular. For instance, the Madras High Court held that the state tax authorities cannot initiate action against a taxpayer for offenses punishable with imprisonment.

The issue of cross-empowerment is complex and there is no easy answer. The courts will continue to play a role in clarifying the law in this area. It is important for taxpayers to be aware of their rights and obligations under the GST regime, and to seek legal advice if they are unsure about their tax liabilities.

Background of the Issue

Prior to the implementation of GST, there were separate tax regimes for goods and services levied by the central and state governments. This often led to double taxation and cascading of taxes, which made it difficult for businesses to operate efficiently. The GST regime was introduced to streamline the indirect tax system and create a single market for goods and services across India.

One of the key features of the GST regime is the concurrent powers of the central and state governments to levy and collect tax. This means that both the central and state governments have the authority to take action against taxpayers who violate the GST law.

CBIC’s Circular on Cross-Empowerment

In 2018, the CBIC issued a circular clarifying that either the central or state tax authority can initiate enforcement action against a taxpayer. This was done to avoid conflicting rulings from different jurisdictions and to ensure that taxpayers are not subjected to multiple investigations for the same offense.

The CBIC’s circular also clarified that the authority that initiates the action can complete the entire process, including assessment, demand, recovery, and penalty. This was intended to streamline the enforcement process and make it more efficient for both taxpayers and tax authorities.

Judicial Challenges to the CBIC’s Circular

The CBIC’s circular has been challenged in court by some taxpayers. For instance, the Madras High Court held that the state tax authorities cannot initiate action against a taxpayer for offenses punishable with imprisonment. The court reasoned that the power to impose imprisonment is a sovereign power that can only be exercised by the central government.

Other courts have upheld the CBIC’s circular. For instance, the Karnataka High Court held that the state tax authorities have the power to initiate action against taxpayers for all offenses under the GST law, including those punishable with imprisonment.

The issue of cross-empowerment is complex and there is no easy answer. The courts will continue to play a role in clarifying the law in this area. It is important for taxpayers to be aware of their rights and obligations under the GST regime, and to seek legal advice if they are unsure about their tax liabilities.

Conclusion

The cross-empowerment of central and state authorities under GST is a complex issue that has been the subject of much debate. The CBIC’s circular has been challenged in court, and it remains to be seen how the courts will ultimately rule on this issue. Taxpayers should be aware of their rights and obligations under the GST regime, and should seek legal advice if they are unsure about their tax liabilities.