Business Wins Refund of ₹2 Crore Tax Forcibly Collected During GST Raid

The Hon'ble High Court of Punjab and Haryana in Diwakar Enterprises (P.) Ltd. v. Commissioner of CGST (C.W.P. No. 23788 of 2021, decided on March 14, 2023) held that tax paid under protest during investigation, being collected without authority of law, was liable to be refunded along with interest.

Facts of the Case

The Petitioner is engaged in manufacturing of lead and lead related products. Respondent No. 2 blocked input tax credit amounting to Rs. 24,18,516/- in the electronic ledger of the Petitioner, to which the Petitioner filed objections. On January 14, 2021, Respondent No. 1 searched the premises of the Petitioner and Mr. Abhinav Sahaya, director of the Petitioner, was questioned throughout the search. He was then forcibly taken to the office of Respondent No. 1 where he was kept detained for two days. During this period, he was pressurized to deposit an amount of Rs. 1,99,90,000/-, which he did under protest. Subsequently, Respondent No. 2 further searched the Petitioner's premises and forcibly obtained another deposit of Rs. 25 lakhs.

The Petitioner was then issued a show cause notice (the SCN) raising a demand of Rs. 4,04,42,761/-, to which the Petitioner filed a reply. Respondent No. 2 confirmed a demand of Rs. 2,34,47,685/- in the impugned order.

Aggrieved by this, the Petitioner approached the Hon'ble High Court seeking refund of Rs. 1,99,90,000/- along with interest, which was recovered forcibly during the investigation.

Issue

Whether the amount deposited by the Petitioner under protest during investigation proceedings, without following proper procedure prescribed under Section 74(5) of the CGST Act, 2017, is liable to be refunded?

Held by the Court

The Hon'ble High Court of Punjab and Haryana in C.W.P. No. 23788 of 2021 held that:

1. The Court observed that as per the department, the Petitioner had deposited the impugned amount voluntarily and proper procedure had been followed. The Petitioner had indicated "Voluntary" against Sr. No. 3 - Cause of payment in FORM GST DRC-03.

2. The Court held that Article 265 of the Constitution of India mandates that collection of tax has to be by the authority of law. If tax is collected without any authority of law, it would amount to depriving a person of property without authority of law and would infringe rights under Article 300A of the Constitution.

3. The Court observed that the only provision which permits deposit of amount during pendency of investigation is Section 74(5) of CGST Act, which was not properly followed in this case as no receipt was given by the Proper Officer after accepting the impugned amount.

4. The Court opined that the amounts deposited by the Petitioner under protest were liable to be refunded in view of judgments in Vallabh Textiles v. Senior Intelligence Officer and Union of India v. Bundl Technologies (P.) Ltd., as the Petitioner had been deprived of his right.

5. The Court directed Respondent No. 1 to refund the sum of Rs. 1,99,90,000/- along with 6% interest.

• Relevant Sections

"Section 74(5) of CGST Act, 2017" - "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 percent 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."

"Section 142(2) of CGST Rules, 2017" - "Where, before the service of notice or statement, the person chargeable with tax makes payment of the tax and interest in accordance with the provisions of sub-section (5) of section 73 or, as the case may be, tax, interest and penalty in accordance with the provisions of sub-section (5) of section 74, or where any person makes payment of tax, interest, penalty or any other amount due in accordance with the provisions of the Act whether on his own ascertainment or, as communicated by the proper officer under sub-rule (1A) he shall inform the proper officer of such payment in FORM GST DRC-03 and the proper officer shall issue an acknowledgement, accepting the payment made by the said person in FORM GST DRC-04."

"Article 265 of Constitution of India" - "No tax shall be levied or collected except by authority of law."

"Article 300A of Constitution of India" - "No person shall be deprived of his property save by authority of law."

PARI MATERIA / Cases Referred

• S.S Industries v. Union of India - Referred to by the respondent in their affidavit regarding investigation by two authorities in respect of ITC availed on invoices issued by different suppliers.

  
  

• Bhawani Textiles v. Additional Director General [2020 (35) GSTL 36 (Guj.)] - Referred to by the respondent in their affidavit regarding the validity of investigation by two authorities.

  
  

• Kaushal Kumar Mishra v. Addl. Director General [2021 (49) GSTL 135 (P. & H.)] - Referred to by the respondent regarding investigation by two authorities in respect of ITC availed on invoices issued by different suppliers.

  
  

• Vallabh Textiles v. Senior Intelligence Officer - Followed by the Court regarding the question of whether the deposit made during search proceedings was voluntary or not.

  
  

• Bhumi Associate v. Union of India [SCA No. 3196 of 2021, order dated 16-2-2021 (Guj)] - Referred to in the Vallabh Textiles case regarding guidelines for recovery during search proceedings.

  
  

• Union of India v. Bundl Technologies (P.) Ltd. - Followed by the Court regarding tax collection without authority of law and violation of Articles 265 and 300A of the Constitution of India.

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