Deposit During Investigation Cannot Be Retained Without Adjudication; State GST Authority to Issue Show Cause Notice
Issue: Whether an amount deposited by an assessee during an investigation can be retained by the authorities without proper appropriation through adjudication, and what are the appropriate procedures to be followed.
Facts:
- The assessee deposited Rs. 15.49 crores during an investigation.
- No show cause notice was issued to the assessee.
- The assessee was arrested by the State authority under authorization from the CGST Commissioner.
- The Central authority had no jurisdiction to investigate or issue a show cause notice.
Decision:
- The court held that the amount deposited cannot be retained without proper appropriation through adjudication.
- The State GST authority was impleaded suo motu (on its own motion).
- The court directed the State GST authority to issue a show cause notice under Sections 73/74 within 3 months.
- The court further directed that final orders be passed within a further 3 months.
- The assessee is entitled to take all legal defenses.
- The amount is to be refunded if the demand is dropped.
- The writ petition was disposed of.
Key Takeaways:
- Proper Adjudication: Amounts deposited during investigations cannot be retained without proper adjudication and determination of liability.
- Show Cause Notice Required: A show cause notice is a necessary step before any demand or recovery can be finalized.
- Jurisdiction: Authorities must have the jurisdiction to investigate and issue show cause notices.
- Legal Defenses: The assessee has the right to raise all legal defenses during the adjudication process.
- Refund Upon Dropping Demand: If the demand is dropped, the deposited amount must be refunded.
- Time-Bound Directions: The court provided specific timeframes for issuing show cause notices and passing final orders, ensuring timely resolution.
- The court is emphasizing the need for proper legal process, and that amounts deposited during an investigation cannot be retained indefinitely.
HIGH COURT OF MADRAS
Saravana Selvarathinam Retail (P.) Ltd.
v.
Commissioner of Central Taxes (CGST)
C. Saravanan, J.
W.P.No.8644 of 2022
NOVEMBER 7, 2024
G. Karthikeyan, Sr. Counsel, Mrs. A. Jagadeeswari for the Petitioner. R.P. Pragadish, Sr. Standing Counsel, for the Respondent.
ORDER
1. The petitioner is before this Court for a direction to refund a sum of Rs.15,49,01,792/- recovered from the petitioner during March 2022.
2. It appears that the petitioner had initially paid a sum of Rs.11,00,00,000/- on 10.03.2022 in cash by making debit from the petitioner’s Electronic Credit Register. Thereafter, the petitioner was threatened with arrest and therefore the petitioner rushed to the Magistrate’s Court for bail. During the course of investigation, the petitioner was arrested and remanded to judicial custody. Under these circumstances, the petitioner also moved an application for bail before the concerned Magistrate’s Court. Thereafter, the petitioner has made few other payments. In all, the petitioner has thus deposited a sum of Rs.15,49,01,792/-.
3. It is the specific case of the petitioner that the petitioner was arrested by the State authority under authorization from the Commissioner of Central Taxes (CGST) and therefore the 1st respondent who is the central authority have no jurisdiction to investigate or to issue Show Cause Notice.
4. On the other hand, the learned Senior Standing Counsel for the respondent would submit that there has been large scale evasion of tax and that the petitioner is liable to be punished under Section 132 of the CGST Act, 2017.
5. I have considered the arguments advanced by the learned counsel for the petitioner and the learned Senior Standing Counsel for the respondent.
6. The 1st respondent cannot retain the aforesaid amount without appropriation of the same in accordance with law. To appropriate the amount collected from the petitioner, the 1st respondent ought to have issued a Show Cause Notice.
7. The petitioner has made only the 1st respondent as a party to the proceedings although the petitioner was arrested by the State authority.
8. Although this Court had taken a view that the central excise authorities as a counterparts, have no authority to investigate or issue the Show Cause Notice under the provisions of the respective GST enactments.
9. Be that as it may, the State authority is also impleaded suo motu as the 2nd respondent.
10. The 1st respondent is directed to co-operate with the 2nd respondent and who shall issue proper Show Cause Notice to the petitioner under Section 73, 74 of the respective GST enactments to demand tax that had been purportedly evaded by the petitioner.
11. This exercise shall be completed by the respondents within a period of 3 months from the date of receipt of a copy of this order.
12. The petitioner shall thereafter file a detailed reply and it is expected that final orders will be passed within a period of 3 months thereafter on merits and in accordance with law or subject to the limitations under the respective GST enactments.
13. Needless to state, the petitioner can take all the legal defences that are available in law.
14. In case the demand is dropped, the amount shall be refunded back to the petitioner.
15. This Writ Petition stands disposed of with the above observations. No costs. Connected Writ Miscellaneous Petition is closed.