Modern Insecticides Ltd. Vs Commissioner (Punjab and Haryana High Court)
Punjab & Haryana High Court held that amount deposited during the search cannot be retained by the department as this deposit cannot be taken to be voluntary as no proceedings u/s 74(1) of the CGST Act has been initiated.
Facts- Officials of the respondents searched the factory premises of the petitioner and resumed the entire record lying there. On 07.03.2020, they got deposited a sum of Rs.39,15,583/-. The respondents conducted the second search on 15.01.2021 and took away the Director and Chartered Accountant of the petitioner to their office at Rishi Nagar, Ludhiana. They detained Mr Avtar Singh, Director and Mr Sahil Sharma, Chartered Accountant of the petitioner till 1.00 A.M. They were released on the condition of a deposit of Rs.2.15 crores, which was deposited through a reversal of Input Tax Credit (ITC) from electronic credit ledger and surrender of refund already applied.
The respondents did not supply copies of Panchnama, copies of the resumed record and electronic gadgets, which are necessary to file returns and comply with the requirement of banks. In this backdrop, the present petition has been filed.
The short question before the court in this petition is, whether the amount paid by the petitioner on 16.01.2021, could be retained by the department without issuing the show cause u/s. 74(1) of the CGST Act and that too after the expiration of two years.
Conclusion- The amount was deposited during search and as per judgment passed in Vallabh Textiles case, this deposit cannot be taken to be voluntary. Since no proceedings under Section 74 (1) of the CGST Act have been initiated till date, as per Rule 142 (1A) of CGST Rules, 2017, the department cannot even issue Form GST DRC-01A to ask the petitioner to make payment of tax, interest and penalty due.
The very fact that in two years’ time, no notice has been issued, the deposit of tax during search cannot be retained by the department till the adjudication of notice, which can take more time in future.
FULL TEXT OF THE JUDGMENT/ORDER OF PUNJAB AND HARYANA HIGH COURT
The petitioners are seeking direction to the respondents to refund an amount of Rs.2.54 crores and supply copy of Panchnama dated 05.03.2020 and 15.01.2021 along with other electronic gadgets, including mobiles, resumed from the premises of the petitioner.
As per the facts stated in the petition, on 05.03.2020, officials of the respondents searched the factory premises of the petitioner and resumed the entire record lying there. On 07.03.2020, they got deposited a sum of Rs.39,15,583/-. The respondents conducted the second search on 15.01.2021 and took away Director and Chartered Accountant of the petitioner to their office at Rishi Nagar, Ludhiana. They detained Mr. Avtar Singh (78 years old), Director and Mr. Sahil Sharma, Chartered Accountant of the petitioner till 1.00 A.M. They were released on the condition of deposit of Rs.2.15 crores, which were deposited through reversal of Input Tax Credit (for short ITC) from electronic credit ledger and surrender of refund already applied. The respondents did not supply copy of Panchnama, copy of resumed record and electronic gadgets, which are necessary to file returns and comply with the requirement of banks. In this backdrop, the present petition has been filed.
The petitioners have taken a plea that as per Section 16 of the CGST Act, 2017 read with Rule 36 of CGST Rules, 2017, a registered person may avail Input Tax Credit (ITC) of inputs which are used in the furtherance of business. The ITC under CGST is principally same with Cenvat Credit Scheme under Central Excise Act, 1944 read with Cenvat Credit Rules, 2004. The Cenvat Credit Rules recognized only two stage dealers i.e. first stage dealer and second stage dealer. There could be any number of manufactures, but Cenvat Credit could be availed on the basis of invoice of a manufacturer or first stage dealer or second stage dealer.
At the time of introducing GST, the Government had abolished restriction of number of dealers. As pr CGST Act and Rules, ITC can be availed on the basis of an invoice of a dealer though he may be any stage dealer. Abolition of restriction on number of stage of dealers coupled with lack of control on activities of dealers, including their registration, is source of temptation and prompted the unscrupulous dealers. Unscrupulous dealers have created firms in the name of their servants or employees, who are not aware about activities of actual owner of firms. These dealers are issuing invoices without payment of tax or partial payment of tax. Invoices move upto 4-5 stages and thereafter, one dealer buys goods from market and supply to actual user i.e. manufacturer of finished goods along with invoice issued by him. A buyer can check credentials of his supplier and ask him to supply his GST returns. He can further ensure that sale made to him is duly reflected in the return but beyond it, he has no control.
The petitioner is manufacturer of pesticides for the last more than 30 years and is purchasing inputs to manufacture finished goods. The petitioner is selling its product in domestic market as well as exporting out of country. Details of pesticides manufactured and sold during the last five years are given as under:-
