The GST regime, implemented in 2017, turns seven years soon, stepping into its proverbial childhood. However, as Albert Einstein once said “Not everything that can be counted counts, and not everything that counts can be counted”; it aptly describes that growth statistics in tax collection numbers should not be the sole parameter to judge the success of GST. 

One of the reasons why GST is hailed as a landmark tax reform is the fact that the Centre and the States were given joint powers to levy tax and administer its collection. Although revolutionary at the time, this complex legal framework now suffers from certain growing pains, especially that of taxpayers facing overlapping inquiries, investigations, and audits by multiple GST authorities for the same tax period. This multiplicity of proceedings across Central and State agencies threatens to defeat one of the fundamental purposes that GST was envisaged to achieve i.e., reducing tax litigations. 

The Root of Overlapping Proceedings

The multiple proceedings arise due to the overlapping powers of various “proper officers” across Centre and States under the GST law, tracing back to the federal structure. While State Tax officers like the SGST Commissionerates have jurisdiction limited to their State territory, the Central Tax formations like Director General of GST Intelligence (DGGI) have pan-India jurisdiction. 

Moreover, the Central and State GST legislations provide for cross-empowerment – A CGST officer can issue orders under SGST Act and vice versa; however, once a particular officer has initiated a proceeding, they cannot. Therefore, currently – a jurisdictional SGST authority, jurisdictional CGST authority, and DGGI/DGGST/DG Audit – all have the competency to initiate independent inquiries on the same GST compliance aspect of a taxpayer. They can issue summons, conduct searches and seizures, examine documents, and recover taxes.

What makes this overlap even more cumbersome is that once “intelligence-based enforcement action” is initiated by one proper officer, they need not transfer it to the regular jurisdictional officer where the taxpayer is administratively assigned. So, for instance, a SGST officer in State ‘A’ can start “intelligence based” investigation into suppliers all over India and retain the case instead of passing it to CGST authority who oversees entities in that State! 

Similarly, a jurisdictional DGGI officer can start inquiry upon some intelligence input against a taxpayer in another State but not transfer proceedings to the CGST authorities in that State. This scatter creates a messy criss-cross of reporting summons, submissions, personal hearings, show cause notices, and orders on the very same compliance / legal aspects.

Impact on Taxpayers and Department

The taxpayers are at the receiving end due to the decentralized approach of “every authority for itself”, contrary to the ease of doing business! Frequent summons and multi-directional investigations by agencies for already scrutinized periods can prove to be a nuisance, hampering the regular business operations. Same records being repeatedly called for, verified and conclusions dissented upon by the authorities, and the inability to reconcile findings across formations is certainly causing headaches to the taxpayers. 

To add to the woes, the outcome is quite unpredictable, as it depends on which agency concludes and when. Directions to pay tax by some while others find no liability for the same transaction stretches working capital requirements. 

Duplicity of inquiries can be said to be a gross inefficient utilization of investigation resources, with inter-departmental communication gaps failing to connect the dots towards big picture analysis of GST fraud patterns. 

The Way Forward: Structural and Procedural Fix

While the “single proceeding per taxpayer” principle sounds logical, ground realities around complexities of GST transactions and structure obviates the selective case-based consolidation of overlapping investigations across agencies. The only pragmatic solution is systemic changes towards standardization and unification of GST audit, inquiries, and investigations under one umbrella.

Standardized Annual Audits should encompass all potential compliance risk parameters, ensuring uniform tax positions for taxpayers. Further, in case of taxpayers having more than three GST registrations across the country, the central Audit Commissionerate may be empowered to conduct audits for all the GSTINs. This would help standardize the tax positions being adopted by the tax authorities for similar kinds of transactions across the country. This would mitigate undue litigations owing to varying interpretations taken by audit authorities across states.

The GST Council / CBIC should also formulate binding Standard Operating Procedures and Investigation Manuals – for stringent guidance to the investigating units and mandating case transfers to respective jurisdictions. The GST Council may also recommend establishment of a central database for documenting the audit and investigation findings and a strict approval chain before any proceeding gets initiated against a taxpayer who has already been scrutinised.