PROPRIETY IN ADJUDICATION

–    Single administrative interface;
–    Efficient use of respective administrative expertise;
–    Vertical and quantitative division of taxpayer base (except for enforcement and vigilance action); and
–    Cross-empowerment of critical administration functions (except matters involving the place of supply).

SUMMARY OF ADMINISTRATION OF GST ACT
Sections 3, 4 and 5 provide for the administration of the Act – Section 3 handles appointments at various levels of officers and deemed officers appointed under the erstwhile enactment as GST officers; Section 4 empowers the Board / Commissioner to appoint such other persons as GST officers; Section 5 enables the Board to equip any officer appointed under sections 3 or 4 with functions and duties under the Act. It also enables the Commissioner to delegate his powers to any subordinate officer. Section 6 codifies the cross-empowerment principle as agreed by the GST Council, enabling the appointed GST officers to cross-administer the functions conferred under the correspondent enactments. In this background, three phrases have been adopted for the purpose of assignment of administrative functions, viz., ‘adjudicating authority’, ‘proper officer’ and ‘authorised officer’. This article attempts to decode whether these terms are mutually exclusive or overlapping with each other. It is to be noted that this article only decodes the Central Tax Notifications / Circulars. One may have to examine the flow of the respective State Notifications in order to fix the jurisdiction of said officers.

PROPER OFFICER – DEFINITION AND ROLE
As a starting point, let us look at the respective definitions under the GST Act:

Proper Officer – Section 2(91) defines ‘proper officer’ in relation to any function to be performed under this Act, which means the Commissioner or the Officer of the Central Tax who is assigned that function by the Commissioner in the Board;

In order to confer specific jurisdiction to individual officers, the respective Commissioners have, through instructions / Notifications, identified the ‘proper officers’ on the principle of cross-empowerment, functional and geographical division and vested them with the requisite functions. The role of proper officer has been envisaged as follows:

ADJUDICATING AUTHORITY – DEFINITION AND ROLE

The term ‘adjudicating authority’ has been used in ‘Chapter XVIII-Appeals & Revisions’. The section provides for the remedy of appeal only against the orders of the ‘adjudicating authority’. The critical point to be noted is that this phrase is being used for the first time under the Chapter of Appeals and is conspicuously absent in the provisions granting powers to issue orders under the Assessment / Adjudication provisions of the enactment. There seems to be a prima facie disconnect in empowerment of execution and decision-making functions under the Act. It appears that certain functions have been distributed to proper officers but the issuance of orders (decision-making) has been conferred on a separate category of officers called ‘adjudicating authority’. One therefore has to look into the enactment to identify whether the said terms are overlapping or mutually exclusive to each other.

Authorised Officer – Role
In several instances, the enactment empowers senior officer(s) to ‘authorise’ a Central Tax Officer with specific functions. Section 67 empowers the Joint Commissioner to authorise officers to inspect the premises of a taxpayer. Section 65 empowers the Joint Commissioner to authorise the audit of a taxpayer by a particular officer including visiting the said premises. Therefore, these are officers who are permitted to perform a specific task under an authorisation having a limited operation over a ‘particular taxpayer for a specific function’.

Identification – ‘Proper Officer’
An officer after having been appointed under the Act, is required to be granted jurisdiction to perform his task under the Act. Proper officers are conferred powers on the following basis: (a) Geography, (b) Cross-empowerment / division, (c) Functions, and (d) Monetary limits (if any).

A) Geographical jurisdiction
Notification 2/2017-CT dated 19th June, 2017 appoints Central Tax Officers for the purpose of section 3 of the CGST Act and assigns geographical jurisdiction to Commissioners (aka Executive Commissionerate), Commissioners (Appeals) and Commissioners (Audit). The said Notification divides the entire Central Administration at State / District levels for the purpose of administration. Each Commissioner has issued public notices assigning jurisdiction to various ranges based on geographical parameters (such as PIN codes, etc.). Correspondingly, State Commissioners are expected to exercise similar powers and assign such jurisdiction to officers in their administration. Similarly, Notification 14/2017-CT dated 1st July, 2017 seeks to appoint officers of the Directorate-General of GST Intelligence / Audit as Central Tax Officers with all-India jurisdiction and confers powers corresponding to the specified level of Central Tax Officers. Section 3 of the GST Act also deems officers appointed under the legacy laws as officers appointed under the said Act.

B) Cross-empowerment jurisdiction
In terms of the 9th GST Council minutes, the Centre and States have mutually agreed to a ‘vertical division’ of the taxpayer base in each State (except for enforcement and vigilance functions). Vertical division of the taxpayer base entails clear demarcation of taxpayers being administered by the Centre and the State at each State’s level. The GST Council vide CBEC Circular No. 1/2017-GST dated 20th September, 2017 provided for such division based on turnover, business and geographical parameters. State-level committees have issued trade notices demarcating the taxpayer base between both the administrations. Having been assigned respective administrative powers for a set of taxpayers, section 6 of the CGST Act empowers the ‘cross-empowered proper officer’ to administer in parallel the corresponding GST law, i.e., the proper officer issuing orders under the CGST Act shall be empowered to issue parallel orders under the SGST Act with due intimation to the jurisdictional officer1. The GST Council has also decided that cases involving ‘place of supply’ would have to be handled by the Central Tax administration even if the taxpayer has been assigned to the State administration.

Notification 39/2017 dated 13th October, 2017 has been issued u/s 6(1) of the CGST Act empowering State officers for the purpose of sanction of refund u/s 54 or 55 except Rule 96 of the CGST Rules, 2017 in respect of registered persons located in the territorial jurisdiction of the said State officers. CBIC letter dated 22nd June, 2020 states that the said Notification has been issued only to place a restriction on State officers from issuing refunds under Rule 96 of the CGST Rules. In the absence of a Notification it should be understood that all powers are cross-empowered to the corresponding administration by virtue of section 6.

C) Functional jurisdiction
CBEC Circular No. 3/3/2017 dated 5th July, 2017 has assigned functions to specified class of officers in exercise of powers u/s 2(91). The summary of the functions assigned to the Central Tax Officers is as follows:

(Note – Assignment of powers to a specified officer would include assignment of such powers to the superiors of the specified officers.)

CBEC Circular dated 31st May, 2018-GST, dated 9th February, 2018 has also clarified that Audit Commissionerates and DGGSTI shall exercise powers
of issuance of show cause notices but the adjudication of
the same would be done by the Executive Commissionerates having jurisdiction over the principal place of business.

D) Monetary jurisdiction
The Central Tax administration (vide CBEC Circular dated 31st May, 2018-GST, dated 9th February, 2018) has assigned monetary jurisdiction to Superintendents, Assistant / Deputy Commissioners and Additional / Joint Commissioners for the purpose of adjudication of matters. A significant point is that the said monetary limits would extend only to matters of adjudication and other powers (such as summary assessments, etc.) are not subjected to any monetary limits.

ANALYSIS
The prima facie observation emerging from the above Notifications / Circulars is that though ‘proper officers’ have been conferred certain powers, the phrase ‘adjudicating authority’ u/s 2(4) has not been mentioned anywhere. Generally, one may hasten to conclude that none of the officers have been empowered to adjudicate (i.e., issue orders) in terms of section 2(4) of the GST Act. The adjudication function, being a special and distinct function, has not been conferred on any officer and hence no orders can be issued until the adjudication function is conferred on officers.

The said argument may face stiff resistance when one probes further into the enactment. Chapter II on Administration provides for identification of ‘proper officers’ for various functions of the Act. As tabulated above, various sections under the enactment empower the proper officers to perform certain functions. While some sections specifically empower officers with issuance of orders, others transfer the proceedings to its conclusion. For example, though sections 61, 65 and 66 entrust certain functions / powers, the respective provisions do not empower them to issue orders for the purpose of concluding the proceedings. Section 61 empowers the proper officer to scrutinise the GST returns and seek related clarifications from the taxpayers, but directs that any adverse observation should result in appropriate action such as audit, adjudication, etc. The proper officer does not derive the power of issuance of orders under the said section and the ascertainment of proper officer for issuance of orders would have to be performed under a separate section. Similar implications appear to operate in case of audits conducted u/s 65. The audit function may be entrusted to a specific group of officers but the section does not specifically empower them to adjudicate the matter, and the issue is required to be adjudged only by the proper officer empowered to issue orders in terms of section 73/74 of the GST Act.

The corollary is that all proper officers may not be adjudicating authorities but all adjudicating authorities would necessarily have to be proper officers under the section. The empowerment of a person as a proper officer is delegated to the respective Commissioner but the empowerment of the person as an adjudicating authority emerges from the provisions of the statute and is not the subject matter of delegation.

Another corollary of this approach is that not all actions of proper officers are appealable under the provisions of Chapter XVIII of the GST Act. It is only orders issued by an adjudicating authority which are eligible for a statutory appeal under the Chapter of Appeals / Revisions. For example, section 65(6) requires the proper officer performing the audit to issue his ‘findings’ from the audit. The Act has consciously used the phrase ‘findings’ in contradistinction to ‘orders’. These findings would not be appealable orders for the purpose of XVIII since these are not decisions of adjudicating authorities or arising out of an adjudication proceeding under the Act. However, orders which are issued under sections 62, 63 or 64 in the case of assessment of non-filers, summary assessments or protective assessments, are in the nature of a decision-making function (adjudication function) and hence would be appealable before the respective appellate authority.

To reiterate, assignment of ‘proper officer’ is a consequence of the Commissioner’s order but the assignment of a decision-making function is consequent to the statutory provision itself. Conferment of the status of adjudicating authority stands at a higher pedestal and cannot be altered by any order / Notification. Thus one may conclude that the carving out of a separate category of ‘adjudicating authorities’ is for the purpose of tagging their orders as appealable orders under the Act. Adjudicating authorities are a ‘sub-set’ of proper officers and not a distinct category of officers.

SUPREME COURT’S VERDICT IN THE SAYED ALI & CANNON INDIA CASES
The Supreme Court in Sayed Ali (2011) 265 ELT 17 (SC) examined the aspect of appointment of Customs (Preventive) officers and assignment of functions as proper officers for administration of the Act. The Court observed that appointment of officers of customs for a particular geographical area does not ipso facto confer powers of a ‘proper officer’ and in the absence of specific adjudication functions being assigned, Customs (Preventive) officers were held as incompetent to issue show cause notices.

Applying the Sayed Ali case, the Supreme Court once again in Cannon India [2021 (376) E.L.T. 3 (S.C.)] examined a bill of entry assessed by the Customs Officer (Appraising) and cleared for home consumption. The Director of Revenue Intelligence (DRI) subsequently raised the issue of short assessment of duty in terms of section 28(4) of the Customs Act. Section 28(4) r/w/s 2(34) assigned the function of demands and recovery to ‘the proper officer’. The Court emphasised on the article ‘the’ as conveying that ‘the proper officer’ is the specified officer who has been assigned the function u/s 28(4) and not any other officer. Section 28(4) being a power of re-assessment of the original assessment ought to be conferred only on ‘the officer’ who performed the original assessment and not on any other officer. According to the Court, where the same powers are conferred to different officers on a particular subject matter, then the exercise of powers by one of the officers would be to the exclusion of the other, and hence any subsequent reassessment ought to be made by the original officer who exercised jurisdiction over the subject matter. Moreover, the Court stated that DRI officers were not conferred powers of administration of the Customs Act since the Notification conferring powers did not trace itself back to section 6 of the Customs Act which empowered the Central Government to appoint other Central officers for the purpose of the Customs Act. Accordingly, adjudication proceedings initiated by the DRI officers were quashed in the absence of jurisdiction. The analogy emerging from these decisions is that there has to be a specific conferment of powers for performance of a function under the law and once such power is conferred to a particular officer, it operates to the exclusion of all other officers even though they may exercise jurisdiction over the taxpayer.

The Proper Officer – As adjudicating authority
To understand the interplay between ‘Proper officer’, ‘Authorised officer’ and ‘Adjudicating authority’, one may take the example of audit proceedings. Section 65 specifies that the Commissioner may, by general / special order, authorise any officer to perform an audit of a taxpayer. The provision uses the phrase ‘authorised officer’ in the section, i.e., officer who has been assigned the audit of the taxpayer. However, in section 65(6) the provisions state that on conclusion of the audit, ‘the proper officer’ shall inform the audit findings and their reasons. In section 65(7), it has been stated that where audit results in short payment of taxes, ‘the proper officer’ may initiate action u/s 73/74 which states that the ‘proper officer’ in such cases shall issue a show cause notice directing the taxpayer to pay the said amount. The reference to ‘the proper officer’ continues in the said section and 73(9) enables the said proper officer to issue appropriate orders.

Two questions arise here: (a) Firstly, which Commissioner is authorised to perform the task of assignment of audit cases. While practically the Commissioner (Audit) performs this task, Notification 2/2017-CT does not specify such powers being granted to the Commissioner (Audit). The said Notification merely states that the Commissioner (Audit) would exercise powers over the ‘territorial jurisdiction’ of the corresponding Commissioner(s). The nature of the powers to be exercised has not been specified in the said Notification. Even Board Circular No. 3/3/2017 only appoints the Commissioners with the proper officer functions and does not specifically grant an audit function to the Commissioner (Audit). In contrast, the Central Excise law contained Notification 30/2014-CT dated 14th October, 2014 r/w Notification 47/2016 dated 28th September, 2016 which specifically granted Audit and SCN issuance functions (adjudication powers introduced subsequently) for conferring jurisdiction. The GST provisions appear to have some shortcomings to this extent;

(b) Secondly, who is the ‘proper officer’ for conclusion of audit proceedings and adjudication of the subject matter? It is fairly clear that ‘authorised officers’ u/s 65(1)/(2) are distinct from ‘proper officers’ referred in 65(6)/(7) and 73/74. It also appears that the proper officer referred to in both sections implies ‘the’ proper officer who is assigned the adjudication function. Therefore, ‘the proper officer’ referred to in 65(6)/(7) should be the same officer as is being referred to in 73/74. Notification 2/2017 r/w Circular 3/3/2017 dated 31st May, 2018 implies that the Executive Commissionerate has been vested with both powers, i.e., ‘conclusion of audit proceedings’ [section 65(6)/(7)] as well as ‘adjudication of demands’ (section 73/74). It appears that the function of the Audit Commissionerate / officers terminates with the performance of the audit (i.e., visit, examination, etc.) but reporting of audit findings and adjudication (where required) would need to be performed by the Executive Commissionerate only. Alternatively, it appears that the ‘proper officer’ who is assigned the function of conclusion of audit u/s 65(6)/(7) should be the same officer issuing the show cause notice u/s 73(1), and in view of Circular dated 3rd March, 2017, the proper officer for adjudication u/s 73(9) should be the officer functioning in the Executive Commissionerate. Despite this ambiguity, the conclusion remains that ‘authorised officers’ are distinct from ‘the proper officer’ and those proper officers functioning as decision-making authorities u/s 73/74(9) would function as adjudicating authorities, making their orders amenable to statutory appeal.

State Administration – CGST Act
State administration has been conferred with powers to administer the Central enactment in respect of taxpayers assigned to the State. Section 6(1) of the CGST Act considered ‘officers’ appointed under the SGST Act as being authorised to be ‘proper officers’ for the purpose of the CGST Act. The respective State Commissioners in terms of the powers drawn from section 3 of the respective State enactments have designated proper officers on functional and geographical basis. Though the Commissioner exercising powers from the SGST Act appoints them as proper officers for the purpose of the SGST Act, the said State officers have not been assigned functions for the purpose of the CGST Act. Moreover, section 6(1) does not explicitly confer the rights of assignment of proper officer functions to the Commissioners (State) for the purpose of Central enactment. This probably should continue to be the prerogative of the Commissioner (Central Tax) only. This is because the phrase ‘proper officer’ under the CGST Act is an appointment u/s 2(91) of the CGST Act and the said section only permits the assignment of functions by the ‘Commissioner in the Board’. Commissioner in the Board only refers to Commissioner as designated by the Central Board of Indirect Taxes. State Commissioners would not be the Commissioners as understood in terms of section 2(91) of the CGST Act and hence the assignment of functions to their subordinates for the purpose of the SGST Act does not automatically result in assignment of functions for the purpose of the CGST Act. In simple terms, section 6 enables the Central enactment to authorise the State administration as proper officers (i.e., borrow the man-power) but the power of assignment of functions (supervisory powers) to these sets of officers would continue to vest with the Commissioner in the Board and such power of assignment has not been delegated to the State Commissioner.

State Administration – IGST Act
Section 4 of the IGST Act is pari materia to section 6(1) of the CGST Act. A similar issue would emerge when a State officer administers the IGST Act. This would be so insofar as the State administration is presiding over the state of registration of the taxpayer. But an additional issue that also emerges is where a State administration exercises its powers over a taxpayer who is not registered in their State. For example, any movement of goods from Mumbai to Chennai could entail movement through an intermediate State (say, Karnataka, Andhra Pradesh, etc.). The ‘place of supply’ of such transaction would be Tamil Nadu and the taxable person would be administered in Maharashtra. Strictly speaking, no revenue accrues (directly or indirectly) from this transaction to the State of Karnataka, though in practice the State administration has exercised its power to intercept goods which originate from Mumbai and are destined for Chennai.

Section 4 of the IGST Act appoints officers of the SGST as proper offices for the IGST Act. SGST has been defined under 2(111) of the CGST Act as ‘respective’ State GST officers. Therefore, section 4 of the IGST Act borrows the State administration from the ‘respective’ State only and so the respective State GST officer should ideally refer to the State administration having jurisdiction over the registration of the taxpayer. Though the State of Karnataka cannot exercise its domain over the said movement by virtue of ‘place of business’ or ‘place of supply’, the practice has been to exercise domain by virtue of the ‘geographical presence’ of the goods under movement. None of the Central Tax notifications confer proper officer functions on the basis of geographical presence of goods. Rather, they appear to have been assigned with reference to the place of business of the taxpayer. On a reading of section 68 r/w/s 129 of the CGST Act, it appears that ‘the proper officer’ referred therein cannot extend to all States’ proper officers and would be limited only to the ‘respective State proper officers’ from the movement that emerges. But the High Court in Advantage India Logistics Private Limited vs. UOI (2018) 19 GSTL 46 (MP) held otherwise. The Court upheld the jurisdiction of an MP State officer to intercept goods moving from Gurgaon (Haryana) to Mumbai (Maharashtra). This results in a very precarious situation and it is important that all stake-holders take cognisance of this issue.

DGGSTI as ‘proper officer’
In this context, the Notifications empowering the Directorate-General GST Intelligence (an arm of DRI) would be worth examining:
– Notification 14/2017-Central Tax invokes its powers from sections 3 and 5 of the CGST Act and appoints the officers of the Director-General of GST Intelligence (erstwhile Director-General of Central Excise Intelligence) as officers with all-India jurisdiction;
– The said Notification invests them with all the powers as have been invested in the corresponding rank of officers under the Central Tax Administration;
– However, the Notification appointing DGGST officers as Central Tax officers has not been issued u/s 4 of the GST Act. The officers of the DGGI, which is a special wing of the DRI, have not been appointed as ‘Central Tax Officers’ in terms of section 4 of the CGST Act.
– Moreover, the Commissioner in the Board has not conferred the ‘proper officer’ function to the officers of the DGGI.
– This gives rise to a similar anomaly as was prevalent under the Customs legislation and under consideration in the Cannon India case.

Thus, DGGSTI being officers appointed directly by the Central Government, are not officers specified in section 3 of the GST Act though a Notification has been issued invoking the said power. Section 4 has not been invoked by the said Notification for appointment of the DGGSTI officer for purposes of the CGST Law. To this extent, Notification 14/2017 carries the similar lacuna as was being considered in the aforesaid case and consequently the said officers cannot be termed as ‘proper officers’ in terms of section 2(34) of the said Act.

COMPTROLLER & AUDITOR-GENERAL OF INDIA (C&AG)
There has been a recent trend where C&AG officers have been seeking information from taxpayers on the Transitional Credit Claim under GST. Neither section 3 nor 4 have appointed the officers of the C&AG as Central Tax Officers under the statute. Accordingly, such officers cannot be categorised as ‘proper officers’ under either the CGST or the SGST Act. Except section 108 of the CGST Act, none of the sections even mentions officers of the C&AG to verify the books of accounts of the taxpayer. It is only section 108 of the CGST Act which makes reference to the objections of the C&AG for the purpose of enabling the revisional authority to revise any orders of proceedings conducted under the GST Act. But this does not enable the C&AG to directly scrutinise, assess or even adjudicate the records of the taxpayers. Thus, the C&AG cannot be permitted to directly seek or audit the records of the taxpayers and form any conclusion on the legality of their tax liability.

CONCLUSION
The onus of proving sufficient jurisdiction is on the officer asserting it. Unless the jurisdiction has been conclusively established, the officer cannot proceed on the subject matter. In conclusion, one may recollect the decision of the Supreme Court in Hukum Chand Shyam Lal (1976 AIR 789) which observed as follows: ‘It is well settled that where a power is required to be exercised by a certain authority in a certain way, it should be exercised in that manner or not at all, and all other modes of performances are necessarily forbidden. It is all the more necessary to observe this rule where power is of a drastic nature and its exercise in a mode other than the one provided will be violative of the fundamental principles of natural justice.’ The complex legal and administrative systems adopted under GST have to be meticulously handled by the Administrators in order to ensure the smooth and efficient function of the administration. Though this has been undertaken to a large extent, certain gaps need to examined and addressed so that there is clarity on the proper officer before whom the taxpayers are answerable.