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In the GST Law- Enforcement, Audit and Adjudication are three principal functions performed by the GST Officers to monitor and regularize the implementation of GST Law. Audit and Adjudication functions are generally performed post financial year whereas enforcement functions are to be performed on real time basis by department officers to outburst or for unearthing any tax evasions viz. Fake ITC, Fake GST Registrations etc., of the GST dealers.

For better execution of enforcement functions, the GST Law has inter alia empowered the enforcement officers to perform following functions:

Sec 67 – Inspection, Search, Seizure.

Sec 71- Access to business premises.

Sec 68, 129, 130 – Road vigilance.

Sec 67(12) – Test Purchase

During investigation by the enforcement officers, there are various instances being observed i.e.

1. Issuing spot summons to directors and employees of the companies

2. Forcing dealers to deposit the tax payment in GST cash ledger under force or coercion during the odd business hours

3. Threats of arrests during investigation were made against the related parties of the dealers.

These kinds of unidirectional actions forcing the taxpayers to deposit the payment of tax under threat or coercion are challenged in various courts by the aggrieved parties

a) Union of India v. Bundl Technologies (P.) Ltd (2022) 136 taxmann.com 112 (Karnataka)

b) Shri Nandhi Dhall Mills India (P.) Ltd vs Senior Intelligence Officer DGGST (2021) 127 taxmann.com 31 (Madras)

In such instances ,it is also observed that the tax payments made under coercion  of the Departmental officials, it ended up  huge refund claims by aggrieved parties.

It is a settled law that enforcement and audit proceedings should be concluded with adjudication proceedings. In other words, enforcement & audit proceedings are co-terminus with adjudication proceedings. Any coercion to deposit payment of tax during investigation before adjudication proceedings is bad in law.

In Vodafone Essar South Ltd Vs. Union of India 2009 TAxmann.com 730(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) (p) Ltd v. Union of India (2016) 73 taxmann.com 31 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 (Punj & Har) it was held that any amount illegally collected cannot be retained without issuance of show cause notice ,adjudication of liability and such amount is liable to be refunded. Similar view was taken in Concepts Global Implex V. Union of India 2019 (365) ELT 32(Punj & Har)

Even under GST Law, the recovery proceedings under Section 79 of CGST Act can be made only after following due legal process of issuance of notice and subsequent confirmation of demand by issuance of adjudication order.

It is also pertinent to note here that the division bench of Gujarat High Court in Bhumi Associates V. Union of India (2021) 124 taxmann.com 429/84 GST 634 by an interim order directed the Central Board of Indirect Taxes and Customs to enforce the following guidelines to regulate the powers of officers carrying out search and seizure as well as to safeguard the interest of the assessee.

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/investigation proceedings under Section 67 of Central/Gujarat Goods and Services Tax Act 2017 under any circumstances.

2. Even if the assessee comes forward to make voluntary payment by filling Form DRC-03, the assessee should be asked/advised to file such 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 filling compliant/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 filled 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.

In this background, the GST Department has issued a recent department instruction 01/2022-23 dated 25-05-2022 clarifying that any deposit of tax made during search, inspection, or investigation by the dealers due to act of coercion by the department attracts disciplinary action against defaulting  officers.

The above departmental instruction is a welcoming move to regulate the High-handedness and Arbitrariness of the department and treating the honest taxpayers with dignity. It also goes in a long way to promote good will among stakeholders and avoids protracted litigation.

(the views expressed in this article are strictly personal and the author of this article can be reached at caprudhvigst@gmail.com)

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