GST Payment Collected During Raid is Coercive and Illegal; HC Orders Refund with Interest.

“57.. We are disposed to read “compelled testimony” as evidence procured not merely by physical threats or violence but by psychic torture, atmospheric pressure, environmental coercion, tiring interrogative prolixity, overbearing and intimidatory methods and the like — not legal penalty for violation. ”

“74. (1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-mis.statement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice.

(5) The person chargeable with tax may, before service of notice under sub-section (1), pay the amount of tax along with interest payable under section 50 and a penalty equivalent to fifteen per cent, of such tax on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.”

(1) No recovery in any mode by cheque, cash e- payment or adjustment of input tax credit should be made at the time of search/inspection proceedings under section 67 of the Central/Gujarat Goods and services Tax Act, 2017 under any circumstances.

(2) Even if the assessee comes forward to make voluntary payment by filing Form DRC 03, the assessee should be asked/advised to file such Form DRC 03 on the next day after the end of search proceedings and after the officers of the visiting team have left the premises of the assessee.

(3) Facility of filing complaint/grievance after the end of search proceedings should be made available to the assessee if the assessee was forced to make payment in any mode during the pendency of the search proceedings.

(4) If complaint/grievance is filed by assessee and officer is found to have acted in defiance of the afore stated directions, then strict disciplinary action should be initiated against the concerned officer.

“BUNDL TECHNOLOGIES PRIVATE LIMITED

Registered Office, 4th Floor, Annex Building, Maruthi Chambers, Survey N0.17/9B

Bequr Hobli, Roopana Aqrahara, Bengaluru, Karnataka, India 560068 CIN:U74110KA2013PTC096530

November 30, 2019

To,

The Office of the Commissioner,

Directorate General of Goods and Service Tax Intelligence, Hyderabad

H.No. 1-11 -222/4, Lane Opp.HDFC Bank

Nalli Silks, Begumpet, Hyderabad-500016.

Sub: Submission related to investigation

Ref: Inspection dt:28/29 November 2019 by DGGSTI Officials at BTPL’s offices situated at Bangalore, Gurugram and Hyderabad.

Dear Sir,

As an extension of our goodwill conduct and bonafide, we have deposited INR 15,00,00,000/- (Rupees Fifteen Crores Only) with the Exchequer of Government during the pendency of inspection proceedings. The above deposit is without prejudice to and with full reservation of our rights and contentions to seek necessary refund at the appropriate time and therefore, should not be regarded as an admission of liability. The challan of payment of the aforesaid deposit is enclosed herewith for your ready reference as Annexure E.

We assure you of our full co-operation in this matter going forward.”

8. Reasons, if any:

The above payment is made as an extension of our goodwill and bona fide. It is without prejudice to and with full reservation of our rights and contentions to seek necessary refund at the appropriate time and therefore should not be regarded as an admission of liability.”

“33. Besides this, the following circumstances reveal, that the amounts deposited [the cumulative sum being Rs.1,80,10,000/-] did not have an element of voluntariness attached to it.

33.1 There is no dispute, that Rs.1,80,10,000/- was deposited in four (4) tranches in the prescribed format i.e., GST DRC-03, on the dates and at the time set forth hereinbelow:

– – Rs. 35,00,000/- vide Form GST DRC-03 dated 17.02.2022 at 01:28 AM

– – Rs. 1,00,00,000 vide Form GST DRC-03 dated 17.02.2022 at 02:15 AM

– – Rs. 20,25,000/- vide Form GST DRC-03 dated 17.02.2022 at 05:04 AM

– – Rs. 24,85,000/- vide Form GST DRC-03 dated 17.02.2022 at 07:03 AM

34. It is also not in dispute, that the search proceedings commenced on 16.02.2022 at about 03:30 PM and were concluded on the following day i.e., 17.02.2022 at 09:30 A.M.

35. The fact, that deposits were made [during the early hours of 17.02.2022] when the search had not concluded, would show that the payments were not voluntary. The deposits made were not aligned with provisions of sub-section (5) of Section 73 or subsection (5) of Section 74.

36. As noted above, if the payments/deposits were voluntary, then an acknowledgement of having received the payment should emanate from the proper officer, as mandated in the prescribed form i.e., GST DRC-04, as prescribed under sub-section (2) of Rule 142 of the 2017 Rules.

36.1 The official respondents/revenue, in our opinion, have not been able to discharge this burden.

37. The malaise of officials seeking to recover tax dues (in contrast to voluntary payments being made by assesses towards tax dues) during search, inspection or investigation was sought to be addressed by the GST- Investigation, CBIC via Instruction No. 01/2022-2023 dated 25.05.2022. For the sake of convenience, the said instruction is extracted hereafter:

“Date:25th May, 2022

Instruction No. 01/2022-23 [GST – Investigation] Subject: Deposit of tax during the course of search, inspection or investigation- reg.

1. During the course of search, inspection or investigation, sometimes the taxpayers opt for deposit of their partial or full GST liability arising out of the issue pointed out by the department during the course of such search, inspection or investigation by furnishing DRC-03. Instances have been noticed where some of the taxpayers after voluntarily depositing GST liability through DRC-03 have alleged use of force and coercion by the officers for making ‘recovery’ during the course of search or inspection or investigation. Some of the taxpayers have also approached Hon’ble High Courts in this regard.

2. The matter has been examined. Board has felt the necessity to clarify the legal position of voluntary payment of taxes for ensuring correct application of law and to protect the interest of the taxpayers. It is observed that under CGST Act, 2017 a taxpayer has an option to deposit the tax voluntarily by way of submitting DRC-03 on GST portal. Such voluntary payments are initiated only by the taxpayer by logging into the GST portal using its login id and password. Voluntary payment of tax before issuance of show cause notice is permissible in terms of provisions of Section 73(5) and Section 74 (5) of the CGST Act, 2017. This helps the taxpayers in discharging their admitted liability, self-ascertained or as ascertained by the tax officer, without having to bear the burden of interest under Section 50 of CGST Act, 2017 for delayed payment of tax and may also save him from higher penalty imposable on him subsequent to issuance of show cause notice under Section 73 or Section 74, as the case may be.

3. It is further observed that recovery of taxes not paid or short paid, can be made under the provisions of Section 79 of CGST Act, 2017 only after following due legal process of issuance of notice and subsequent confirmation of demand by issuance of adjudication order. No recovery can be made unless the amount becomes payable in pursuance of an order passed by the adjudicating authority or otherwise becomes payable under the provisions of CGST Act and rules made therein. Therefore, there may not arise any situation where “recovery” of the tax dues has to be made by the tax officer from the taxpayer during the course of search, inspection or investigation, on account of any issue detected during such proceedings. However, the law does not bar the taxpayer from voluntarily making payment of any tax liability ascertained by him or the tax officer in respect of such issues, either during the course of such proceedings or subsequently.

4. Therefore, it is clarified that there may not be any circumstance necessitating ‘recovery’ of tax dues during the course of search or inspection or investigation proceedings. However, there is also no bar on the taxpayers for voluntarily making the payments on the basis of ascertainment of their liability on non-payment/ short payment of taxes before or at any stage of such proceedings. The tax officer should however, inform the taxpayers regarding the provisions of voluntary tax payments through DRC-03.

5. Pr. Chief Commissioners/ Chief Commissioners, CGST Zones and Pr. Director General, DGGI are advised that in case, any complaint is received from a taxpayer regarding use of force or coercion by any of their officers for getting the amount deposited during search or inspection or investigation, the same may be enquired at the earliest and in case of any wrongdoing on the part of any tax officer, strict disciplinary action as per law may be taken against the defaulting officers.

(Vijay Mohan Jain)

Commissioner (GST-Inv.),

CBIC”

38. It appears that this Instruction was issued by the GST-Investigation Wing, CBIC, in the backdrop of an order dated 16.02.2021, passed by the Gujarat High Court in the matter of Bhumi Associate v. Union of India MANU/GJ/0174/2021, whereby the following wholesome directions were issued-

“The Central Board of Indirect Taxes and Customs as well as the Chief Commissioner of Central/State Tax of the State of Gujarat are hereby directed to issue the following guidelines by way of suitable circular/instructions:

(1) No recovery in any mode by cheque, cash, epayment or adjustment of input tax credit should be made at the time of search/inspection proceedings under Section 67 of the Central/Gujarat Goods and Services Tax Act, 2017 under any circumstances.

(2) Even if the assessee comes forward to make voluntary payment by filing Form DRC-03, the assessee should be asked/ advised to file such Form DRC-03 on the next day after the end of search proceedings and after the officers of the visiting team have left the premises of the assessee.

(3) Facility of filing [a] complaint/ grievance after the end of search proceedings should be made available to the assessee if the assessee was forced to make payment in any mode during the pendency of the search proceedings.

(4) If complaint/ grievance is filed by assessee and officer is found to have acted in defiance of the afore-stated directions, then strict disciplinary action should be initiated against the concerned officer.”

38. 1 It is important to note, that while in line with the directions contained in Bhumi Associate, the aforementioned Instruction i.e., Instruction No. 01/2022-2023 dated 25.05.2022 inter alia, provides, as noticed above, that no recovery of tax should be made during search, inspection or investigation unless it is voluntary- it does not elaborate on various modes for collection adopted in such circumstances, for example via cheque, cash, e-payment or even via adjustment of input tax credit.

39. Furthermore, the Instruction falls short, inasmuch as it sidesteps direction number two (2) contained in Bhumi Associate, which states that even if the assessee comes forward to make voluntary payment in the prescribed form i.e., GST DRC-03, he/she should be advised to file the same the day after the search has ended and the concerned officers have left the premises of the assessee.

39.1 Clearly, the aforementioned direction, issued by the Gujarat High Court as far back as on 16.02.2021, is binding on the official respondents/revenue, which was not followed in the instant case.

39.2 The violation of the safeguards put in place by the Act, Rules and by the Court, to ensure that unnecessary harassment is not caused to the assessee, required adherence by the official respondents/revenue, as otherwise, the collection of such amounts towards tax, interest and penalty would give it a colour of coercion, which is not backed by the authority of law.

40. In this case, the argument of Mr Kumar, that the objection concerning the amounts deposited was raised only after the summon dated 13.04.2022 was issued, in our opinion, would not help the cause of the official respondents/revenue. The reason is, that if a procedure is prescribed under a statute or by law, that is, via dicta contained in a judgment, it has to be followed to the tee.

40.1 Failure to follow the prescribed procedure will, as in this case, have us conclude that the deposit of tax, interest and penalty was not voluntary.

41. The reason that the officers of the official respondents/revenue have been asked, perhaps, to have the amounts deposited the day after the search is concluded, is, to also give space to the concerned person to seek legal advice, and only thereafter deposit tax, interest and penalty, wherever applicable, upon a proper self-ascertainment.

41.1 Undoubtedly, in this case, no such elbowroom was made available.

Conclusion:

42. Therefore, as alluded to hereinabove, we are persuaded to hold, that the aforementioned amounts which were deposited on behalf of the petitionerconcern, lacked an element of voluntariness.

43. Given this position, we are inclined to direct the official respondents/revenue to return Rs.1,80,10,000/- to the petitioner-concern, along with interest at the rate of 6% (simple) per annum.

44. The interest will run from 17.02.2022 till the date of payment.

45. The amount will be remitted to the petitionerconcern within ten [10] days of receipt of copy of the judgment.

46. Since we are in respectful agreement with the directions contained in Bhumi Associate, we direct the CBIC to align Instruction No. 01/2022-2023 dated 25.05.2022 with the directions issued by the Gujarat High Court in Bhumi Associate.

47. The writ petition is disposed of in the aforesaid terms.”

The fact that a sum of’ 40,00,000/- had been taken from the petitioner without there being any show cause notice or the demand at that time, is not in dispute. The only issue sought to be raised by counsel for the respondents is that the amount was deposited by the petitioner voluntarily. That issue has already been gone into by this Court in Century Metal Recycling Pvt. Ltd and Century Knitters (India) Ltd. cases (supra) wherein finding that certain amount was recovered from the exporter without any show cause notice or demand, it was ordered to be refunded.

In Century Metal Recycling Pvt. Ltd (supra) it was held that unless there is assessment and demand, the amount deposited by the petitioners cannot be appropriated. It was observed as under:-

“13. As far as the amount deposited by the petitioners is concerned, case of the petitioners is that the same was deposited under coercion. Case of the respondents was that the same was deposited voluntarily. Whatever be the position, unless there is assessment and demand, the amount deposited by the petitioners cannot be appropriated. No justification has been shown for retaining the amount deposited, except saying that since it was voluntarily deposited. In view of this admitted position, the petitioners are entitled to be returned the amount paid.”

In Century Knitters (India) Ltd. (supra) finding that certain amount was recovered by the revenue without any show cause notice or demand, while directing retaining of 20% of the amount, the balance amount of’ 8 crores was directed to be refunded. It was held that unless a demand is finalized and is existing which is liable to be discharged, the revenue cannot retain any amount unless there is a specific provision in the statute which authorizes such retention. Retention of any amount by the revenue in such a situation would be violative of Article 265 of the Constitution.

The relevant observations are as under:-

“11. After hearing learned counsel for the parties and perusing the record, we find that as on date no crystallized liability has been shown to be existing against the petitioners. Further, only a show cause notice has been issued whereunder a liability to the extent of Rs.50 lacs could be fastened. Insofar, as the matters which are under investigation, it has not been shown that any show cause notice in respect thereof has been issued by the respondentdepartment so far.

12. It is trite law that unless a demand, which is finalized and is existing which is liable to be discharged, the revenue cannot retain any amount unless there exists specific provision in the statute for the retention of the amount.

13. On a specific query put to the learned counsel for the revenue relating to any provision in the statute on the basis of which the revenue could provisionally retain the amount, learned counsel for the revenue candidly admitted that there is no such provision to retain the amount except to refer to Section 42 of the Customs Act, 1962. Further, on a query as to whether any order requiring the petitioners to refund the duty drawback as canvassed by the revenue had been passed, learned counsel for the revenue was unable to show that there existed any such order or authorization from any competent authority. It was only urged that it was a disputed question of fact as to whether the amount was deposited voluntarily or under coercion. Be that as it may, whatever be the situation, the revenue cannot retain any amount to which it legally not entitled to as the same would be violative of Article 265 of the Constitution of India.”

Another fact which deserves to be noticed is that show cause notice was issued to the petitioner on 24.04.2017 and more than one year has already been elapsed but no order has been passed. Even if demand is confirmed against the petitioner, for hearing of appeal upto the CESTAT, only 10% of the amount is to be deposited, whereas the proceedings in the present case have not been concluded yet.

Keeping in view the enunciation of law as noticed above, after retaining the amount of ‘ 6,00,000/-, balance amount deposited by the petitioner be refunded to him within a period of four weeks from the date of receipt of copy of the order.

The writ petition is disposed of accordingly.

104. It is repeatedly urged by Mr. Satish Aggarwala that in the bail proceedings before the Magistrate, the Senior counsel representing Mr. Pallai volunteered that MMT would make payment of the arrears of service tax dues and, therefore, it cannot be said that there was any coercion or compulsion on MMT to make such payment. At the same time, he urged that such payment was not a pre-condition for the grant of bail and that in principle the DGCEI would oppose grant of bail in criminal proceedings only because an offer is made to pay the arrears of service tax dues in such proceedings.

105. In the first place, the Court is unable to accept that when an offer is made in the circumstances outlined before a criminal court for payment of alleged service tax arrears without even a show cause notice in this regard being issued, it is plain that the offer is made only to avoid the further consequences of continued detention. Such a statement can hardly be said to be voluntary even though it may be made before a Court. Secondly, there appears a contradiction because the DGCEI did not decline to receive the offer of payment of alleged service tax arrears.

106. In a different context, while interpreting the provisions of the Delhi Value Added Tax Act, 2004 (‘DVAT Act’), this Court in Capri Bathaid Pvt. Ltd. v. Commissioner of Trade & Taxes 2016 (155) DRJ 526 (DB) took exception to the officials of the Department of Trade and Taxes collecting arrears of sales tax from dealers at the time of survey and search. The Court pointed out that the said practice was illegal and there could be no collection without there being an assessment. The same principle would apply here as well. Without even an SCN being issued and without there being any determination of the amount of service tax arrears, the resort to the extreme coercive measure of arrest followed by detention was impermissible in law. Consequently, the amount that was paid by the Petitioners as a result of the search of their premises by the DGCEI, without an adjudication much less an SCN, is required to be returned to them forthwith. It is clarified that since the payment was collected by the DGCEI illegally, the refund in terms of this order will not affect the bail already granted to Mr. Pallai.

(IX) The Court is unable to accept that payment by the two Petitioners of alleged service tax arrears was voluntary. Consequently, the amount that was paid by the Petitioners as a result of the search of their premises by the DGCEI, without an adjudication much less an SCN, is required to be returned to them forthwith.

“(I) WHETHER THE AMOUNT PAID DURING INVESTIGATION BY THE COMPANY WAS VOLUNTARILY PAID, UNDER SECTION 74(5) OF THE CGST ACT?

17. Section 74 of the Act deals with determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any willful misstatement or suppression of facts. The relevant extract of section 74 reads as under:-

74. (1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice.

XXX

(5) The person chargeable with tax may, before service of notice under sub-section (1), pay the amount of tax along with interest payable under section 50 and a penalty equivalent to fifteen per cent. of such tax on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.

Thus Section 74(5) of the Act gives an option to a person to make payment of tax, along with interest and 15% of penalty on its own ascertainment of the tax ascertained by proper officer and inform him in writing about such payment.

18. It is pertinent to note that a division bench of Gujarat High Court in M/S BHUMI ASSOCIATE v. UNION OF INDIA by an interim order directed the Central Board Of Indirect Taxes And Customs was directed to enforce the following guidelines by issuing suitable circular / instructions:

(1) No recovery in any mode by cheque, cash epayment or adjustment of input tax credit should be made at the time of search / inspection proceedings under Section 67 of the Central / Gujarat Goods and services Tax Act, 2017 under any circumstances.

(2) Even if the assessee comes forward to make voluntary payment by filing Form DRC 03, the assesee should be asked / advised to file such Form DRC 03 on the next day after the end of search proceedings and after the officers of the visiting team have left the premises of the assessee.

(3) Facility of filing complaint / grievance after the end of search proceedings should be made available to the assessee if the assessee was forced to make payment in any mode during the pendency of the search proceedings.

(4) If complaint / grievance is filed by assessee and officer is found to have acted in defiance of the afore stated directions, then strict disciplinary action should be initiated against the concerned officer.

The guidelines issued by the division bench are intended to regulate the powers of officers carrying out search and seizure as well as to safeguard the interest of the assessee.

19. The issue which arises for consideration is whether amount of Rs.27,51,44,157/- has been paid by the company on its own ascertainment under section 74(5) of the Act. In the instant case, there is no material on record to indicate that the amount of Rs.15 Crores and an amount of Rs.12,51,44,157/-which were paid at about 4AM and 1PM on 30.11.2019 and 27.12.2019 respectively were paid on admission by the Company about its liability. There is no communication in writing from company to the proper officer about either self ascertainment or admission of liability by company to infer that such a payment was made under Section 74(5) of the Act. The company intimated the Department vide Communication dated 30.11.2019 that it reserves its right to claim refund of the amount and the same should not be treated as admission of its liability. The relevant extract of communication dated 30.11.2019 reads as under:-

BUNDL TECHNOLOGIES PRIVATE LIMITED

Registered Office, 4th Floor, Annex Building, Maruthi Chambers, Survey No.17/9B, egur Hobli, Roopana Agrahara, Bengaluru, Karnataka, India 560068 CIN:U74110KA2013PTC096530

To,

The Office of the Commissioner,

Directorate General of Goods and Service Tax Intelligence, Hyderabad

H.No.1-11-222/4, Lane Opp.HDFC Bank

Nalli Silks, Begumpet, Hyderabad-500016.

Sub: Submission related to investigation

Ref: Inspection dt:28/29 November 2019 by DGGSTI

Officials at BTPL’s offices situated at

Bangalore, Gurugram and Hyderabad.

Dear Sir,

XXXXX

As an extension of our goodwill conduct and bonafide, we have deposited INR 15,00,00,000/-(Rupees Fifteen Crores Only) with the Exchequer of Government during the pendency of inspection proceedings. The above deposit is without prejudice to and with full reservation of our rights and contentions to seek necessary refund at the appropriate time and therefore, should not be regarded as an admission of liability. The challan of payment of the aforesaid deposit is enclosed herewith for your ready reference as Annexure E.

We assure you of our full co-operation in this matter going forward.

20. The company has also reiterated its stand in GST DRC-03 generated on 2.12.2019, the relevant portion of which is reproduced below:

8. Reasons, if any:

The above payment is made as an extension of our goodwill and bonafide. It is without prejudice to and with full reservation of our rights and contentions to seek necessary refund at the appropriate time and therefore should not be regarded as an admission of liability.

21. Thus it is evident that payments have not been made admitting the liability. On the other hand, the company reserved its right to seek refund and made it expressly clear that payment of the amount should not be treated as admission of its liability. Besides the aforesaid, there is no material on record to establish that guidelines issued by division bench of High Court of Gujarat were followed.

Thus for the aforementioned reasons, the first issue is answered in the negative and it is held that the amount was not paid voluntarily under Section 74(5) of the CGST Act.

(II) WHETHER THE AMOUNT WAS RECOVERED FROM THE COMPANY DURING INVESTIGATION UNDER THE COERCION AND THREAT OF ARREST?

22. The officers of the Department have power of Inspection, search and seizure u/s 67(1) of CGST Act whereas Section 70 of the Act confers the power on the authority to summon person to give evidence as well as to adduce evidence. The relevant extract of Section 67(1) and Section 70 of the Act read as under:

67. Power of inspection, search and seizure.

(1) Where the proper officer, not below the rank of Joint Commissioner, has reasons to believe that –

(a) a taxable person has suppressed any transaction relating to supply of goods or services or both or the stock of goods in hand, or has claimed input tax credit in excess of his entitlement under this Act or has indulged in contravention of any of the provisions of this Act or the rules made thereunder to evade tax under this Act; or

(b) any person engaged in the business of transporting goods or an owner or operator of a warehouse or a godown or any other place is keeping goods which have escaped payment of tax or has kept his accounts or goods in such a manner as is likely to cause evasion of tax payable under this Act.

He may authorise in writing any other officer of central tax to inspect any places of business of the taxable person or the persons engaged in the business of transporting goods or the owner or the operator of warehouse or godown or any other place.

70. Power to summon person to give evidence and produce documents.

(1) The proper officer under this Act shall have power to summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry in the same manner, as provided in the case of a civil court under the provisions of the Code of Civil Procedure, 1908 (5 of 1908).

(2) Every such inquiry referred to in sub-section (1) shall be deemed to be a “judicial proceedings” within the meaning of section 193 and section 228 of the Indian Penal Code (45 of 1860).

23. In VODAFONE ESSAR SOUTH LTD v. UNION OF INDIA’, 2009 (237) ELT 35 (BOM) it was held by Division Bench of Bombay High Court that without adjudication of liability, during the course of an investigation the assessee should not be forced to pay any amount. Similar view was taken by Delhi High Court in MAKEMYTRIP (INDIA) PVT. LTD. v. UNION OF INDIA, 2016 (44) STR 481DEL and it was held that amount collected during investigation proceeding without any adjudication is liable to be refunded. In CENTURY KNITTERS (INDIA) LTD. v. UNION OF INDIA’, 2013 (293) ELT 504 (P & H) it was held that any amount illegally collected cannot be retained without issuance of show cause notice and adjudication of liability and such amount is liable to be refunded. Similar view was taken in CONCEPTS GLOBAL IMPEX v. UNION OF INDIA, 2019 (365) ELT 32 (P & H).

24. In the instant case, an investigation was initiated by DGGI officers and they entered the premises of the Company on 28.11.2019 at 10.30 a.m. in exercise of powers u/s 67(1) of CGST Act. On 30.11.2019 at about 4.00 a.m., a sum of Rs.15 Crores was deposited by the Company under the GST cash ledger. Thereafter summons were issued to officers of company under section 70 of the Act. The officers of the company made a further deposit of Rs.12,51,44,157/- at about 1.00 a.m. The aforesaid amounts were not deposited under section 74(5) of the Act. The amounts were deposited by the company at odd hours, without admitting its liability. The company has been regularly filing service tax returns. There is no iota of material on record to indicate that on the day that the company made payment of the amount, any amount was due to the department. Therefore, it can safely be inferred that payment of the amount was made involuntarily. There is also no material on record to hold that any threat of arrest was extended to officers of the company.

25. The question whether any threat was extended to officers of the company is a question of fact which can’t be adjudicated in a summary proceeding under Article 226 of the Constitution of India. Liberty is reserved to the parties to agitate the issue of threat and coercion in an appropriate proceeding. Accordingly the second issue is answered by stating that amounts were paid by the company involuntarily.”

“33. We may also refer hereon a Division Bench Judgment of Karnataka High Court in Commissioner of Central Excise v. KVR Construction, 2012 (50) v. 469, where in construing Section 11b, Court said that it refer to claim for refund of duty of excise only and does not refers to any other amount collected without authority of law. That was a case of ‘ Service Tax’ and Court said as under:

” Though under Finance Act, 1994 such service tax was payable by virtue of notification, they were not liable to pay, as there was exemption to pay such tax because of the nature of the institution for which they have made construction and rendered services. In other words, if the respondent had not paid those amounts, the authority could not have demanded the petitioner to make such payment. In other words, authority lacked authority to levy and collect such service tax. In case, the department were to demand such payments, petitioner could have challenged it as unconstitutional and without authority of law. If we look at the conserve, we find mere payment of amount, would not authorize the department to regularise such payment. When once the department had no authority to demand service tax from the respondent because of its circular dated: 17.09.2004, the payment made by the respondent company would not partake the character of ” Service tax” liable to be paid by them. Therefore, mere payment made by the respondent will neither validate the nature of payment nor the nature of transaction. In other words, mere payment of amount would not make it a ” service tax” payable by them. When once there is lack of authority to demand ” Service tax” from the respondent company, the department lacks authority to levy and collect such amount. Therefore, it would go beyond their purview to collect such amount. When once there is lack of authority to collect such service tax by the appellant, it would not give them the authority to retain the amount paid by the petitioner, which was initially not payable by them. Therefore, mere nomenclature will not be an embargo on the right of the petitioner to demand refund of payment made by them under mistaken notion”

11. Respondents have filed a counter-affidavit stating that petitioner paid ” Service tax” voluntarily. It is also said that Section 11B of Act, 1944 would not be applicable since ‘ Service Tax’ was deposited voluntarily and not under protest. It is also said that interest was also deposited by petitioner on his own since it was his legal obligation. Against Commissioner’s order dated: 29.08.2012, department reviewed matter and filed appeal before Tribunal which is pending. Since petitioner never filed any application for refund in accordance with Section 11B (3) of Act, 1944, hence respondents cannot entertain any claim of refund, and, no refund claim of petitioner, in law is pending with respondents. No refund is due, automatically. Moreover, order of Commissioner (Appeals) dated: 29.08.2012, is not final since appeal is pending before Tribunal. Board’s Circular dated: 08.12.2014 deals with amount deposited under Section 35F while in the present case it is Section 11B which will be applicable. Since petitioner never filed application as prescribed under Section 11B, hence no mandamus for refund is permissible.””

“74. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts.—

xxxx

(7) Where the proper officer is of the opinion that the amount paid under sub-section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-section (1) in respect of such amount which falls short of the amount actually payable.

“21. The next question to be examined is whether the petitioner is entitled to reversal of the ITC that was debited from his ECL. As noted above, according to the petitioner, he was coerced to make the deposit of tax by debiting the ECL at 2 : 06 a.m. on October 8, 2022.

22. According to the respondents, the concerned officers of the Department had reached the principal place of business as well as other additional places of business at about 4 p.m. on October 7, 2022. The respondents state that the petitioner provided access to its additional place of business at 3411/249, 2nd floor, Hansapuri, Tri Nagar, Delhi but the relevant documents were not available at the said place. Accordingly, the officers had insisted that the access to the principal place of business (Property No. 66, Third Floor, Pocket-13, Sector-24, Rohini, Delhi), which was closed, be provided. The respondents have averred in their counter-affidavit that the “petitioner also requested not to break open or seal the premises as it would bring bad name to its business and the petitioner requested the Officers to wait at the additional place of business at Tri Nagar till the time keys got arranged by some family member at 12 : 30 a.m.” According to the respondents, the survey and inspection at the principal place of business began after 12 : 30 a.m. and was concluded at 02 : 30 a.m. on October 8, 2022.

23. Admittedly, the petitioner had deposited a sum of Rs. 18,72,000 at 2 : 06 a.m. by debiting the ECL. Concededly, the search and inspection proceedings were continuing at the material time.

24. In the given facts, we are inclined to accept the petitioner’s claim that the deposit was made under duress and in compelling circumstances. The petitioner had been subjected to the search/inspection operations way beyond the normal business hours. Admittedly, the petitioner was called upon to provide copies of various books of account. The statement recorded on the said date-which is also relied upon by the respondents- clearly indicates that the petitioner had provided several documents to the concerned officers including the trading account for the period April 1, 2022 to October 7, 2022; cash book for the period October 1, 2022 to October 7, 2022; stock group summary as on October 7, 2022; copies of the last purchase and sale bills; profit and loss account for the period April 1, 2021 to March 31, 2022; and parties ledger.

28. Given the scheme of permitting the taxpayers to voluntarily deposit tax prior to issuance of notices (either under section 73 or section 74 of the CGST Act) to avail of the benefit of absolving themselves from the liability to pay penalty either in entirety or in excess of 15 per cent. of tax payable as the case may be; in cases where the said tax is collected under coercion, the same is required to be returned.

29. It is not necessary to examine in detail any controversy whether such payments were made voluntarily. Clearly, where a taxpayer turns around and states that the payments had not been made involuntarily and the circumstances prima facie indicate so, the taxpayer must be granted the benefit of withdrawing such payments. Obviously, in such cases, the taxpayer would forfeit immunity from levy of any penalty and the concerned authorities are not precluded from proceeding against the taxpayer in respect of any default and to the full extent as permissible under law.

30. It is relevant to note that the payment of tax on a self-ascertainment basis would necessarily require acceptance of the grounds on which such payments had been made. In the present case, it would be necessary for the petitioner to acknowledge the underlying liability on account of which the tax is paid. This is also required to be acknowledged by the respondents.

31. However, in the present case the petitioner has disputed that he is liable to pay any tax. There is no determination of the petitioner’s liability to pay tax. Clearly, in such circumstances, the tax deposited by the petitioner cannot be considered as voluntary and within the scheme of section 73(5) of the CGST Act.

32. It is also important to note that the requisite procedure under rule 142 of the CGST Rules has also not been complied with. Admittedly, the respondents have not issued any acknowledgement accepting the payment made by the petitioner in form GST DRC-04 as required under the CGST Rules. In Vallabh Textiles v. Senior Intelligence Officer [(2023) 120 GSTR 213 (Delhi); 2022 SCC OnLine Del 4508.], a Co-ordinate Bench had held that failure to follow the prescribed procedure would also lead to the conclusion that the deposit made by the taxpayer was not voluntary.

35. However, it appears that the said directions have not been implemented. In Vallabh Textiles v. Senior Intelligence Officer [(2023) 120 GSTR 213 (Delhi); 2022 SCC OnLine Del 4508.], a Co-ordinate Bench of this Court had respectfully concurred with the aforesaid directions.

36. The Central Board of Indirect Taxes and Customs (CBIC) has also issued instructions emphasizing that the tax must be collected only after following the due process of law. The relevant extract of the said instructions dated May 25, 2022 are set out below:

“3. It is further observed that recovery of taxes not paid or short paid, can be made under the provisions of section 79 of the CGST Act, 2017 only after following due legal process of issuance of notice and subsequent confirmation of demand by issuance of adjudication order. No recovery can be made unless the amount becomes payable in pursuance of an order passed by the adjudicating authority or otherwise becomes payable under the provisions of CGST Act and rules made therein. Therefore, there may not arise any situation where ‘recovery’ of the tax dues has to be made by the tax officer from the taxpayer during the course of search, inspection or investigation, on account of any issue detected during such proceedings. However, the law does not bar the taxpayer from voluntarily making payment of any tax liability ascertained by him or the tax officer in respect of such issues, either during the course of such proceedings or subsequently.

4. Therefore, it is clarified that there may not be any circumstance necessitating ‘recovery’ of tax dues during the course of search or inspection or investigation proceedings. “.

Instruction No. 01/2022-23 [GST – Investigation] Subject: Deposit of tax during the course of search, inspection or investigation- reg.

1. During the course of search, inspection or investigation, sometimes the taxpayers opt for deposit of their partial or full GST liability arising out of the issue pointed out by the department during the course of such search, inspection or investigation by furnishing DRC-03. Instances have been noticed where some of the taxpayers after voluntarily depositing GST liability through DRC-03 have alleged use of force and coercion by the officers for making ‘recovery’ during the course of search or inspection or investigation. Some of the taxpayers have also approached Hon’ble High Courts in this regard.

2. The matter has been examined. Board has felt the necessity to clarify the legal position of voluntary payment of taxes for ensuring correct application of law and to protect the interest of the taxpayers. It is observed that under CGST Act, 2017 a taxpayer has an option to deposit the tax voluntarily by way of submitting DRC-03 on GST portal. Such voluntary payments are initiated only by the taxpayer by logging into the GST portal using its login id and password. Voluntary payment of tax before issuance of show cause notice is permissible in terms of provisions of Section 73(5) and Section 74 (5) of the CGST Act, 2017. This helps the taxpayers in discharging their admitted liability, self-ascertained or as ascertained by the tax officer, without having to bear the burden of interest under section 50 of CGST Act, 2017 for delayed payment of tax and may also save him from higher penalty imposable on him subsequent to issuance of show cause notice under section 73 or Section 74, as the case may be.

3. It is further observed that recovery of taxes not paid or short paid, can be made under the provisions of Section 79 of CGST Act, 2017 only after following due legal process of issuance of notice and subsequent confirmation of demand by issuance of adjudication order. No recovery can be made unless the amount becomes payable in pursuance of an order passed by the adjudicating authority or otherwise becomes payable under the provisions of CGST Act and rules made therein. Therefore, there may not arise any situation where “recovery” of the tax dues has to be made by the tax officer from the taxpayer during the course of search, inspection or investigation, on account of any issue detected during such proceedings. However, the law does not bar the taxpayer from voluntarily making payment of any tax liability ascertained by him or the tax officer in respect of such issues, either during the course of such proceedings or subsequently.

4. Therefore, it is clarified that there may not be any circumstance necessitating ‘recovery’ of tax dues during the course of search or inspection or investigation proceedings. However, there is also no bar on the taxpayers for voluntarily making the payments on the basis of ascertainment of their liability on non-payment/ short payment of taxes before or at any stage of such proceedings. The tax officer should however, inform the taxpayers regarding the provisions of voluntary tax payments through DRC-03.

5. Pr. Chief Commissioners/Chief Commissioners, CGST Zones and Pr. Director General, DGGI are advised that in case, any complaint is received from a taxpayer regarding use of force or coercion by any of their officers for getting the amount deposited during search or inspection or investigation, the same may be enquired at the earliest and in case of any wrongdoing on the part of any tax officer, strict disciplinary action as per law may be taken against the defaulting officers.

“The Central Board of Indirect Taxes and Customs as well as the Chief Commissioner of Central/State Tax of the State of Gujarat are hereby directed to issue the following guidelines by way of suitable circular/instructions:

(1) No recovery in any mode by cheque, cash, epayment or adjustment of input tax credit should be made at the time of search/inspection proceedings under section 67 of the Central/Gujarat Goods and Services Tax Act, 2017 under any circumstances.

(2) Even if the assessee comes forward to make voluntary payment by filing Form DRC-03, the assessee should be asked/ advised to file such Form DRC-03 on the next day after the end of search proceedings and after the officers of the visiting team have left the premises of the assessee.

(3) Facility of filing [a] complaint/ grievance after the end of search proceedings should be made available to the assessee if the assessee was forced to make payment in any mode during the pendency of the search proceedings.

(4) If complaint/ grievance is filed by assessee and officer is found to have acted in defiance of the afore-stated directions, then strict disciplinary action should be initiated against the concerned officer.”

“73. Determination of tax not paid or short paid or erroneously refunded or ITC wrongly availed or utilised for any reason other than fraud or any willful-misstatement or suppression of facts.—

(5) The person chargeable with tax may, before service of notice under sub-section (1) or, as the case may be, the statement under sub-section (3), pay the amount of tax along with interest payable thereon under section 50 on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.

(6) The proper officer, on receipt of such information, shall not serve any notice under sub-section (1) or, as the case may be, the statement under sub-section (3), in respect of the tax so paid or any penalty payable under the provisions of this Act or the CGST Rules made thereunder.

(7) Where the proper officer is of the opinion that the amount paid under sub-section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-section (1) in respect of such amount which falls short of the amount actually payable”

“The Central Board of Indirect Taxes and Customs as well as the Chief Commissioner of Central/State Tax of the State of Gujarat are hereby directed to issue the following guidelines by way of suitable circular/instructions:

(1) No recovery in any mode by cheque, cash, epayment or adjustment of input tax credit should be made at the time of search/inspection proceedings under section 67 of the Central/Gujarat Goods and Services Tax Act, 2017 under any circumstances.

(2) Even if the assessee comes forward to make voluntary payment by filing Form DRC-03, the assessee should be asked/advised to file such Form DRC-03 on the next day after the end of search proceedings and after the officers of the visiting team have left the premises of the assessee.

(3) Facility of filing complaint/grievance after the end of search proceedings should be made available to the assessee if the assessee was forced to make payment in any mode during the pendency of the search proceedings.

(4) If complaint/grievance is filed by assessee and officer is found to have acted in defiance of the afore-stated directions, then strict disciplinary action should be initiated against the concerned officer.”

“3. It is further observed that recovery of taxes not paid or short paid, can be made under the provisions of Section 79 of CGST Act, 2017 only after following due legal process of issuance of notice and subsequent confirmation of demand by issuance of adjudication order. No recovery can be made unless the amount becomes payable in pursuance of an order passed by the adjudicating authority or otherwise becomes payable under the provisions of CGST Act and rules made therein. Therefore, there may not arise any situation where “recovery” of the tax dues has to be made by the tax officer from the taxpayer during the course of search, inspection or investigation, on account of any issue detected during such proceedings. However, the law does not bar the taxpayer from voluntarily making payment of any tax liability ascertained by him or the tax officer in respect of such issues, either during the course of such proceedings or subsequently.

4. Therefore, it is clarified that there may not be any circumstance necessitating ‘recovery’ of tax dues during the course of search or inspection or investigation proceedings.”.

“14. That the visiting team has informed that the following inward supply dealers have been cancelled suomoto from the date of registration:

1. M/s. Samridhi exports (07AFGPY9258P2Z7) ITC Rs. 18,72,000/-”

“51. The 2017 Act and the 2017 Rules made therein, do make provisions for enabling a person chargeable with tax to pay tax, along with interest, before being served with a notice for payment of tax, which either has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilized for any reason.

52. Thus, if the person chargeable with tax takes recourse to such a route, the proper officer is restrained from serving any notice qua tax or penalty under the provisions of the 2017 Act or the 2017 Rules framed thereunder, unless the amount which is selfascertained by the person chargeable with tax falls short of the amount payable as per law.

53. This leeway is also available, where the person chargeable with tax is served with a show cause notice and pays the tax, along with interest, under Section 50 of the 2017 Act within thirty [30] days of the issue of the show-cause notice. In such eventuality, a penalty is not leviable, and all proceedings in respect of such notice are deemed to be concluded.

54. This regime is set out in Section 73 of the 2017 Act.

55. Broadly, this regime also applies, where a notice has been issued under sub-section (1) of Section 73, and the proper officer serves a statement containing details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for such periods other than those covered under subsection (1) of Section 73.

56. The important aspect to be kept in mind, is that the regime given in Section 73 of the Act operates in cases which do not involve fraud or wilful misstatement or suppression of facts to evade tax.

57. In cases which involve one or more of the aforementioned ingredients i.e., fraud, wilful misstatement or suppression of facts to evade tax, parimateria provisions are contained in Section 74 of the 2017 Act, with small variations.

58. In these cases as well, latitude has been given to the person chargeable with tax, to pay monies towards tax, along with interest, based on selfascertainment, before issuance of notice under subsection (1) of Section 74 of the 2017 Act, with a caveat that fifteen per cent of such self-ascertained tax is required to be paid by way of penalty.

59. The penalty amount increases if amounts towards tax and interest are paid by the person chargeable with tax within thirty [30] days of the notice being issued by the proper officer under sub-section (1) of Section 74 of the 2017 Act. The person concerned is required to pay a penalty at the rate of twenty-five per cent within the aforesaid timeframe i.e., 30 days, upon which all proceedings in respect of such notice are deemed to be concluded.

60. These provisions have to be read alongside Rule 142, found in Chapter XVIII of the 2017 CGST Rules.

61. The said chapter bears the heading “Demands and Recovery”.

62. Sub-rule (1) of Rule 142 of the 2017 Rules makes a provision for service of notice for raising a demand for recovery of tax; a provision which we are not concerned with in this matter, as it is not the case of the official respondents/revenue that a notice was served.

63. Besides this, the two sub-rules which are, perhaps, relevant are sub-rule (1A) and (2) of Rule 142, as they relate to the steps required to be taken before service of notice on the person chargeable with tax, interest and penalty under sub-section (1) of Section 73, or under subsection (1) of Section 74 of the 2017 Act.

64. Under sub-rule (1A) of Rule 142 of the 2017 Rules, where a proper officer, before service of notice under Section 73(1) or Section 74(1) of the 2017 Rules seeks to communicate details of tax, interest or penalty, he is required to do so in the prescribed form i.e., via Part A of Form GST DRC-01A.

65. Where, however, before service of notice or statement, the person chargeable with tax, based on self-ascertainment, seeks to make payment of tax and interest, in consonance with the leeway given under sub-section (5) of Section 73 [which relates to cases not involving fraud, wilful misstatement or suppression of facts to evade tax] or as the case may be, the payment of tax, interest and penalty under sub-section (5) of Section 74 [which relates to cases involving fraud, wilful misstatement or suppression of facts to evade tax], he is required to inform the proper officer of such payment made in the prescribed form i.e., GST DRC-03.

66. The proper officer thereafter, is required to issue an acknowledgement, accepting the payment made by the person, also in the prescribed form i.e., GST DRC-04.

67. This is also required to be done [i.e., the acknowledgement of acceptance of payment] where tax, interest and penalty are ascertained by the proper officer, under Rule 142(1A).

76. The malaise of officials seeking to recover tax dues (in contrast to voluntary payments being made by assesses towards tax dues) during search, inspection or investigation was sought to be addressed by the GST-Investigation, CBIC via Instruction No. 01/2022-2023 dated 25.05.2022. For the sake of convenience, the said instruction is extracted hereafter:

“Date : 25 May, 2022

Instruction No. 01/2022-2023 [GST – Investigation]

Subject: Deposit of tax during the course of search, inspection or investigation-reg.

77. It appears that this Instruction was issued by the GST Investigation Wing, CBIC, in the backdrop of an order dated 16.02.2021, passed by the Gujarat High Court in the matter of Bhumi Associate v. Union of India, SCA No. 3196 of 2021, order dated 16-2- 2021 (Guj), whereby the following wholesome directions were issued-

“The Central Board of Indirect Taxes and Customs as well as the Chief Commissioner of Central/State Tax of the State of Gujarat are hereby directed to issue the following guidelines by way of suitable circular/instructions:

80. Clearly, the aforementioned direction, issued by the Gujarat High Court as far back as on 16.02.2021, is binding on the official respondents/revenue, which was not followed in the instant case.

81. The violation of the safeguards put in place by the Act, Rules and by the Court, to ensure that unnecessary harassment is not caused to the assessee, required adherence by the official respondents/revenue, as otherwise, the collection of such amounts towards tax, interest and penalty would give it a colour of coercion, which is not backed by the authority of law.

83. Failure to follow the prescribed procedure will, as in this case, have us conclude that the deposit of tax, interest and penalty was not voluntary.”

“13. As far as the amount deposited by the petitioners is concerned, case of the petitioners is that the same was deposited under coercion. Case of the respondents was that the same was deposited voluntarily. Whatever be the position, unless there is assessment and demand, the amount deposited by the petitioners cannot be appropriated. No justification has been shown for retaining the amount deposited, except saying that it was voluntarily deposited. In view of this admitted position, the petitioners are entitled to be returned the amount paid.”