GST Deposit During Investigation Not Voluntary Due to Alleged Coercion: Bombay HC

Modern Traders Vs Deputy Commissioner/Joint Commissioner (Bombay High Court)

The Bombay High Court held that tax deposited during search or investigation cannot automatically be treated as a voluntary payment, especially when the taxpayer alleges coercion. The petitioner argued that the amount was paid prior to adjudication under pressure from GST authorities, and thus should not be considered voluntary. The Court examined Instruction No. 01/2022-23 dated May 25, 2022, particularly Clause 5, which mandates authorities to investigate complaints of coercion during search or investigation. It noted that despite being aware of this obligation and relevant judicial precedents, the department failed to address the coercion allegation in its replies. The Court rejected the department’s justification that the complaint was raised later, emphasizing that such delay does not absolve authorities from their duty to inquire. Consequently, the Court directed the department to file a detailed reply addressing the issue and granted additional time, reinforcing procedural fairness and taxpayer protection.

Facts:

Modern Traders (“the Petitioner”) is a business entity represented through its partner Mr. Ebrahim Fazal Din and had deposited certain tax amounts during departmental proceedings conducted by GST authorities.

Deputy Commissioner/Joint Commissioner, Nagpur – II and other GST authorities (“the Respondents”) initiated proceedings against the Petitioner and treated the tax amount deposited during the investigation as a voluntary payment.