Action Arising From Audit Or Detailed Scrutiny Of Returns Must Be Initiated By Tax Administration: Supreme Court Summarizes Points Under CGST Act

The Supreme Court has summarized certain important points under the Central Goods and Services Tax Act, 2017 (CGST Act).

The Court was deciding a Special Leave Petition (SLP) filed by a company against the Judgment of the Delhi High Court, which dismissed a Writ Petition and declined from interdicting the summons issued under Section 70 of CGST Act by the Commissioner.

The two-Judge Bench of Justice J.B. Pardiwala and Justice R. Mahadevan took note of the following points –

i. Clause (b) of sub-section (2) of Section 6 of the CGST Act and the equivalent State enactments bars the “initiation of any proceedings” on the “same subject matter”.

ii. Any action arising from the audit of accounts or detailed scrutiny of returns must be initiated by the tax administration to which the taxpayer is assigned.

iii. Intelligence based enforcement action can be initiated by any one of the Central or the State tax administrations despite the taxpayer having been assigned to the other administration.

iv. Parallel proceedings should not be initiated by other tax administration when one of the tax administrations has already initiated intelligence-based enforcement action.

v. All actions that are initiated as a measure for probing an inquiry or gathering of evidence or information do not constitute “proceedings” within the meaning of Section 6(2)(b) of the CGST Act.

vi. The expression “initiation of any proceedings” occurring in Section 6(2)(b) refers to the formal commencement of adjudicatory proceedings by way of issuance of a show cause notice, and does not encompass the issuance of summons, or the conduct of any search, or seizure etc.

vii. The expression “subject matter” refers to any tax liability, deficiency, or obligation arising from any particular contravention which the Department seeks to assess or recover.

viii. Where any two proceedings initiated by the Department seek to assess or recover an identical or a partial overlap in the tax liability, deficiency or obligation arising from any particular contravention, the bar of Section 6(2)(b) would be immediately attracted.

ix. Where the proceedings concern distinct infractions, the same would not constitute a “same subject matter” even if the tax liability, deficiency, or obligation is same or similar, and the bar under Section 6(2)(b) would not be attracted.

x. The twofold test for determining whether a subject matter is “same” entails, first, determining if an authority has already proceeded on an identical liability of tax or alleged offence by the assessee on the same facts, and secondly, if the demand or relief sought is identical.

Senior Advocate Sridhar Potaraju appeared on behalf of the Petitioner while AOR Gurmeet Singh Makker appeared on behalf of the Respondents.

Facts of the Case

The Petitioner was a public limited company incorporated under the Companies Act, 2013 and was registered with the Delhi GST authorities. It was engaged in the business of providing security services. In November 2024, the said company received a show-cause notice (SCN) issued under Section 73 of CGST Act which raised a demand of Rs. 1,24,92,162/- (aggregate of CGST, SGST, IGST) along with the applicable interest and penalty under Sections 50 and 74 of the CGST Act respectively. The SCN was served on the ground that – (i) net tax under declared due to non-reconciliation of turnovers in other returns and e-way bill information; (ii) excess claim of ITC. Thereafter in January 2025, a search was conducted at the registered premises of the company by the officers and a panchnama was drawn seizing electronic gadgets and documents.

Afterwards, summons was issued to four directors of the company requiring them to produce documents. Then the company received one another summons and hence, it submitted a letter to the Respondent-Commissioner seeking release of the seized electronic devices and documents. Being aggrieved by the summons, the company preferred a Writ Petition on the ground that Respondent no. 2 had already made the investigation and hence, the Commissioner does not have jurisdiction under Section 6(2)(b) of the CGST Act. However, the High Court dismissed its Petition, holding that the expression “any proceeding” in Section 6(2)(b) cannot be construed to include a search or investigation. Hence, the Petitioner was before the Apex Court.

Court’s Observations

The Supreme Court in the above regard, observed, “Upon crystallization of the subject matter through a show cause notice issued pursuant to an intelligence, no other tax authority may assume jurisdiction over it, provided it is ascertainable that the consequences of any further departmental action would be subsumed within the same subject matter.”

The Court said that inasmuch as the CGST Act vests the proper officer with authority to issue “orders” under various provisions, it becomes imperative that such officer duly apprises the jurisdictional counterpart of any action initiated by the Department in relation to a taxable person who may otherwise fall within the administrative domain of that officer.

“Given that the statutory framework envisages a regime of cross-empowerment amongst officers, the obligation so cast operates as a safeguard against the prejudice which may arise from the initiation of parallel or overlapping proceedings against the same taxpayer by different wings of the Department”, it added.

Guidelines

The Court further issued the following guidelines to be followed in cases where, after the commencement of an inquiry or investigation by one authority, another inquiry or investigation on the same subject matter is initiated by a different authority –

a. Where a summons or a show cause notice is issued by either the Central or the State tax authority to an assessee, the assessee is, in the first instance, obliged to comply by appearing and furnishing the requisite response, as the case may be. Mere issuance of a summons does not enable either the issuing authority or the recipient to ascertain that proceedings have been initiated.

b. Where an assessee becomes aware that the matter being inquired into or investigated is already the subject of an inquiry or investigation by another authority, the assessee shall forthwith inform, in writing, the authority that has initiated the subsequent inquiry or investigation.

c. Upon receipt of such intimation from the assessee, the respective tax authorities shall communicate with each other to verify the veracity of the assessee’s claim. This course of action would obviate needless duplication of proceedings and ensure optimal utilization of the Department’s time, effort, and resources, bearing in mind that action initiated by one authority enures to benefit of all.

d. If the claim of the taxable person regarding the overlap of inquiries is found untenable, and the investigations of the two authorities. pertain to different “subject matters”, an intimation to this effect, along with the reasons and a specification of the distinct subject matters, shall be immediately conveyed in writing to the taxable person.

e. The taxing authorities are well within their rights to conduct an inquiry or investigation until it is ascertained that both authorities are examining the identical liability to be discharged, the same contravention alleged, or the issuance of a show cause notice. Any show cause notice issued in respect of a liability already covered by an existing show cause notice shall be quashed.

f. However, if the Central or the State tax authority, as the case may be finds that the matter being inquired into or investigated by it is already the subject of inquiry or investigation by another authority, both authorities shall decide inter-se which of them shall continue with the inquiry or investigation. In such a scenario the other authority shall duly forward all material and information relating to its inquiry or investigation into the matter to the authority designated to carry the inquiry or investigation to its logical conclusion. The taxable person except for being afforded the statutory protection from duplication of proceedings, otherwise has no locus to claim which authority should proceed with the inquiry or investigation in a particular matter.

g. However, where the authorities are unable to reach a decision as to which of them shall continue with the inquiry or investigation, then in such circumstances, the authority that first initiated the inquiry or investigation shall be empowered to carry it to its logical conclusion, and the courts in such a case would be competent to pass an order for transferring the inquiry or investigation to that authority.

h. If it is found that the authorities are not complying with these aforementioned guidelines, it shall be open to the taxable person to file a writ petition before the concerned High Court under Article 226 of the Constitution of India.

i. At the same time, taxable persons shall ensure complete cooperation with the authorities. It is incumbent upon them to appear in response to a summons and/or reply to a notice.

Conclusion

Before parting with the case, the Court made certain suggestions concerning the common IT infrastructure shared by the Central and State tax authorities.

“It is imperative that the Departments act in harmony and maintain heightened vigilance with respect to intelligence inputs received by them, so as to give full effect to the legislative intent underlying the GST regime. Such coordination would also serve to mitigate the unnecessary hardship caused to taxpayers by overlapping proceedings and lack of inter Departmental communication”, it noted.

The Court concluded that the DGGI may consider adopting necessary measures to develop a robust mechanism for seamless data and intelligence sharing between the Central and State authorities, including provision for real-time visibility to both authorities of any action taken pursuant to an intelligence input, thereby advancing the objectives of harmony and cooperative federalism.

Accordingly, the Apex Court disposed of the SLP.

Cause Title- M/s Armour Security (India) Ltd. v. Commissioner, CGST, Delhi East Commissionerate & Anr. (Neutral Citation: 2025 INSC 982)

Appearance:

Petitioner: Senior Advocate Sridhar Potaraju, AOR Gaichangpou Gangmei, Advocates Srinivas Kotni, Rishabh Dev Dixit, Rohit Dutta, Arjun D. Singh, Akshay Kumar, Lalit Mohan, Niharika Singh, and Gurdeep Singh.

Respondents: AOR Gurmeet Singh Makker

Click here to read/download the Judgment