The Supreme Court has clarified that an assessee is legally bound to comply with summons and respond to show cause notices issued by either the central or state tax authorities under the Income Tax Act, 1961.
A bench of Justices J.B. Pardiwala and R. Mahadevan, in a judgment delivered on August 14, laid down guidelines to avoid duplication of proceedings between central and state GST authorities. The court emphasized that the mere issuance of a summons does not automatically indicate that adjudication proceedings have been initiated, but the recipient must nonetheless comply in the first instance.
Duty of Assessee
The court explained that an assessee — defined under the Income Tax Act as any individual or entity liable to pay taxes or meet other financial obligations under the Act — must appear and furnish a response when summoned. If the assessee becomes aware that the subject of inquiry is already under investigation by another authority, they must promptly inform the subsequent authority in writing.
Coordination Between Tax Authorities
The bench directed that, upon such intimation, central and state tax authorities must communicate with each other to verify the veracity of the assessee’s claim. This step, the court noted, would prevent duplication of inquiries, save departmental resources, and ensure consistency in proceedings.
“If the claim of overlap is found untenable, and the inquiries relate to distinct subject matters, the authorities must convey this to the assessee in writing, specifying the reasons and the distinct scope of inquiry,” the judgment said.
Protection Against Duplicate Proceedings
The Supreme Court further held that if a show cause notice is issued in respect of a liability already covered by an existing notice, such subsequent notice must be quashed. Where overlapping inquiries are found, the two authorities must decide which of them will continue with the matter. The other authority is obligated to forward all relevant materials to the designated authority for logical completion of the investigation.
Case Background
The ruling came in a plea filed by Armour Security, a public limited company engaged in providing security services and registered with the Delhi GST authorities. The company was embroiled in a dispute involving tax demands and overlapping investigations by different authorities.
The apex court’s decision provides a clear framework for coordination between central and state tax authorities while reiterating that assessees cannot evade compliance with summons and notices under the garb of overlapping proceedings.
