SEPTEMBER 05, 2018

By Vijay Kumar

The Dividing Wall between Centre and State GST Administrations collapses in Andhra Pradesh

Cross empowerment was meant to ensure single interface under GST and maybe to facilitate trade in case of refunds. But now, the Andhra Pradesh Government wants to encroach on taxpayers under the administrative control of the Central GST - for investigation. The Andhra Pradesh State GST Chief Commissioner issued a Circular CCT's Ref. No. CCW/GST/74/2015, dated 23 08 2018. The Circular is reproduced below:

It is noticed that the officers of the Department have been conducting audit of tax payers allotted to state authorities and whenever any modus operandi is noticed in evading tax in a particular trade, the audits are confined to State allotted taxpayers only leaving the tax payers allotted to central tax authorities unattended. This results in not realizing the SGST dues to the State from the taxpayers allotted to Central Tax Authorities.

In this regard, the GST Council in its 9 th Meeting approved to the following decisions on cross empowerment.

1.  Both the Central and State tax administration shall have the power to take intelligence based enforcement action in respect of the entire value chain.

2.  Powers under IGST Act shall be cross empowered to the State tax administration on the same basis as under the CGST and SGST Acts either under law or under Article 258 of the Constitution but with the exception that the Central tax administration shall alone have the power to adjudicate a case where the disputed issue relates to place of supply, or when an affected State requests that the case be adjudicated by the CGST authority and for such issues of export and import as may be discussed in the Law Committee of officers and brought back to the Council for decision:

Further in the coordination meeting of the Central Tax and State Tax authorities of Andhra Region the following decisions relate to Enforcement Activities are taken.

a)  Intelligence based irregularities: - The authority detecting the evasion will take up the complete follow up action of investigation adjudication etc. The incident reports will be sent to the counterpart Chief Commissioner soon after the inspection or search.

b) TRAN-I Verification: - All pending legacy issues will be handled by respective authorities in respective of to whom tax payer is allotted.

c)  Non- Filers: - The authority to whom tax payer is allotted will issue notices to non- filers.

It is also clarified that any taxpayer can be inspected under Section 67 if condition of Section 67 are satisfied.

Hence all the Joint Commissioners (ST) are requested to initiate action against the tax payers allotted to Central Tax Authorities in specific cases duly following the above mentioned decisions of GST Council and Coordination Committee of State and Central Tax Authorities.

Thus, the Chief Commissioner wants all the State Joint Commissioners to initiate action against the taxpayers allotted to Central Tax Authorities in specific cases. And for this, he wants to invoke the decisions of GST Council and Coordination Committee of State and Central Tax Authorities.

Maybe, we often forget that this is a Nation where taxation is by law and Law comes into existence by a due process (unfortunately, a Chief Commissioner's opinion, is not considered law). A decision in the GST Council or a meeting between the CGST Chief Commissioner and SGST Chief Commissioner will not become Law just like that. If that was the case, there was no need for the hundreds of Notifications issued by the Central Government and the State Governments and amendment of GST Acts by Parliament. Somebody should have brought to the notice of the Chief Commissioner something like Notification No. 39/2017-Central Tax, dated 13.10.2017 which cross-empowered the State GST officers to grant refund. So, if the State GST officers want to raid a unit under the control of the Central GST, there should be some notification for it.

These extracts from minutes of the 22 nd GST Council meeting will make the issue more clear -

Agenda item 9: Proposal for issuing notifications on cross-empowerment for ensuring single interface under GST

35. The Commissioner (GST Policy), CBEC stated that it was proposed to issue notification on cross-empowerment prepared in accordance with the decisions of the Council taken during its 9th Meeting (held on 16 January 20 17) and 21st Meeting (held on 9 September 20 17). He stated that while there was a broad agreement for cross-empowerment under the CGST and SGST Acts, there was disagreement on the issue of cross-empowerment under the IGST Act in relation to the Place of Supply Rules. The Secretary stated that notification of cross-empowerment was urgently required to enable refund to the taxpayers and this notification could be issued. He added that due to persistent differences on cross empowerment for the Place of Supply Rules issues under IGST, notification regarding cross empowerment in respect of other matters could be deferred.

The AP State GST Chief Commissioner has gone above the GST Council and allowed cross-empowerment to his officers to go and raid units which are not under their control. He has achieved this feat by a simple circular which has no legal base. He also clarifies, "It is also clarified that any taxpayer can be inspected under Section 67 if condition of Section 67 are satisfied."

So, we have a situation where each unit under the Central Tax Administration is under threat of investigation by the State Tax officers. By reverse logic, the same would apply to units under the State Tax administration, where Central Tax officers can poke their long noses. As of now, this applies to only Andhra Pradesh, but if other States find it an interesting and profitable proposition, all that they have to do is follow the AP State GST Chief Commissioner's Circular and all over the country, we will have all the units under dual control both by Central and State GST authorities which will end the Single Interface concept.

Can GST Rules be amended retrospectively?

It is widely believed that only Parliament has the power to make laws retrospectively, but now it seems an Under Secretary in the Board also has that power. Yesterday, the Government by Notification No. 39/2018 - Central Tax, dated 04 09 2018, amended several CGST Rules. While most of the amendments came into force yesterday, one part - amendment to Rule 96 came into effect from the 23rd October, 2017. Can the Rules be amended retrospectively by Government? The answer is YES.

As per Section 164 of the CGST Act,

164. (1) The Government may, on the recommendations of the Council, by notification, make rules for carrying out the provisions of this Act.

(2) Without prejudice to the generality of the provisions of sub-section (1), the Government may make rules for all or any of the matters which by this Act are required to be, or may be, prescribed or in respect of which provisions are to be or may be made by rules.

(3) The power to make rules conferred by this section shall include the power to give retrospective effect to the rules or any of them from a date not earlier than the date on which the provisions of this Act come into force.

So, this is a power given to the Government by the Parliament and the Government can happily amend all the rules with effect from any date on or after 1.7.2017.

Is this not excessive legislation?

The Supreme Court observed some sixty years ago,

The power conferred on Parliament is a legislative power, and such a power conferred on a Sovereign Legislature carries with it authority to enact a law either prospectively or retrospectively, unless there can be found in the Constitution itself a limitation on that power.

The Supreme Court thought that a Sovereign Legislature had the power to legislate retrospectively. The GST Act has conferred identical powers on that Under Secretary!