HC Orders Refund of Unauthorized GST Payment made during Search Proceedings

William E Connor Associates and Sourcing Pvt Ltd. and Anr Vs Union of India and Others (Punjab and Haryana HC)

The Hon’ble Punjab and Haryana High Court in William E Connor Associates and Sourcing Pvt Ltd. and Anr v. Union of India and Others [C.W.P-733 of 2021 dated May 04, 2023] held that amount collected without authority of law at the time of search should be refunded along with the interest @ 6% p.a. from the date of filling this petition, within 30 days after the receipt of certified copy of order.

Facts:

M/s. William E Connor Associates and Sourcing Pvt. Ltd (“the Petitioner”) is providing Export of Business Support Services to William E Connor & Associates Limited, Hong Kong (“WECA HK”).

A search was conducted on the premises of Petitioner dated December 23, 2020 and December 24, 2020 by the Revenue Department (“the Respondent”). The Petitioner were made to deposit an amount of INR 83,89,196 on January 06, 2021 under protest and on the assurance that it would be reverted in the Input Tax Credit ledger (“ITC”) of the Petitioner. The Petitioner has requested to reinstate the aforementioned amount in their ITC Ledger by sending a letter to Respondent but the request of the Petitioner has not been considered even though a period of two years has lapsed.

The Petitioner had filed a Writ before the Hon’ble Punjab and Haryana High Court praying for the refund of amount deposited along with interest.

Issue:

Whether the amount collected at the time of search by the Revenue Department should be refunded?

Held:

The Hon’ble Punjab and Haryana High Court in C.W.P-733 of 2021 dated May 04, 2023 held as under:

• Noted that, the Respondent is in process to issue notice under section 74(1) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) but till the date no notice has been issued to Petitioner imposing the penalty or raising any demand.
• Relied upon the judgement of Union of India and others vs. Bundl Technologies Pvt. Ltd and others [ILR 2022 Karnataka 3077] wherein the Karnataka High court held that any amount deposited voluntarily by the Petitioner during search would not amount to collection of tax under Article 265 of the Constitution of India and amount collected without authority of law, would not amount to collection of tax and the same would amount to depriving a person of his property without any authority of law and would infringe his rights under Article 300A of the Constitution of India.
• Held that, the Respondent had failed to place any material record to show that they got deposited amount of INR 83,89,196 from the Petitioner with any authority of law and allow the refund along with interest @6% p.a. from the date of filling of this petition, within the period of 30 days after the receipt of certified copy of order.

FULL TEXT OF THE JUDGMENT/ORDER OF PUNJAB AND HARYANA HIGH COURT

1. The present writ petition has been filed by the petitioners who have been providing Export of Business Support Services (HSN9985) to one William E Connor & Associates Limited, Hong Kong (for short-WECA HK) in relation to sourcing of products required by clients of WECA HK from India, in terms of the service agreement with WECA HK.

2. As per the petitioners, the activities undertaken by them amount to export of service in terms of Section 16 of the Integrated Goods and Service Tax Act, 2017 (for short the IGST Act) to which the provisions of CGST Act are also applicable. It had claimed refund of input GST as available on export of services by operation of the IGST Act read with CGST Act and had submitted two separate refund claims before the jurisdictional GST authorities seeking refund of accumulated input tax credit along with supporting documents including the service agreement between itself and WECA HK.

3. It was submitted that the refund was initially sanctioned by the authorities of the revenue and was also disbursed to them by confirming the petitioners as exporter of service. The adjudicating orders issued to the petitioners in this regard, are reflected as follows:-

It was submitted that a search was conducted in the premises of the petitioners on 23.12.2020 and 24.12.2020 by a search party comprising of respondents No. s in an illegal manner. In the said search, the petitioners were made to deposit an amount of Rs.83,89,196/- on 06.01.2021, under protest and on the assurance that it would be reverted in the input tax credit of the petitioner-company. The petitioners then requested the respondents to reinstate the aforementioned amount in their Input Tax Ledger by sending a letter. But the request of the petitioners has not been considered even though a period of two years has lapsed. The petitioners alleged that no proceedings under Section 74(1) of the CGST Act had been initiated by the revenue, but still the input tax credit was not reverted in their ledger. Therefore, prayer has been made for issuing a writ of mandamus for directing respondent No.1 and its agents to forthwith refund of the amount i.e. Rs.83,89,196/- along with interest.

6. The petitioners have also prayed for staying the operation of circular No.3/3/2017 dated 05.07.2017 (Annexure P-5) and prohibiting the respondents from assuming jurisdiction on the basis of the illegal search conducted by them and also challenged the vires of CGST Act as violative of Articles 14, 19 and 21 of the Constitution of India.

7. On 13.04.2023, Mr. Amrinder Singh, Advocate after obtaining no objection from the previous counsel Mr. Abhinav Sood, has put in appearance on behalf of the petitioners and has stated that he restricts prayer of the petitioners to the extent of giving directions to the respondents to refund the amount recovered during search and does not press their prayer for challenging the vires of circular No.3/3/2017 dated 05.07.2017 (Annexure P-5) and that issue may be kept open. He referred to the judgments passed by this Court in CWP No.23788 of 2021 titled as Diwakar Enterprises Pvt. La Vs. Commissioner of CGST and Anr. decided on 14.03.2023 and in CWP No.8035 of 2021 titled as Modern Insecticides Ltd and Anr. vs. Commissioner, Central Goods and Service Tax and Anr. decided on 19.04.2023, and has submitted that the prayer made by the petitioners be allowed.

8. It is not in contest that a search was carried out in the premises of the petitioners as on 23.12.2020. As per panchnama (Annexure P-6), statement of one Mr. Manoj Davis official of the petitioner-company, was recorded by the revenue officers under Section 70 of the CGST Act and documents were obtained and a panchnama (Annexure P-6) was prepared on the same date.

9. The petitioners had deposited an amount of Rs.83,89,196/- vide challan (Annexure P-2). Since the petitioners have restricted their prayer only to the release of the aforementioned amount, therefore, this Court proceeds to examine the issue of refund of the said amount as paid on 06.01.2021 only.

10. Learned counsel for the respondents has informed this Court that the revenue department is in process of issuing a notice under Section 74(1) of the CGST Act. It is however, explicit that till today, no proceedings have been initiated by the respondents for imposing penalty or raising any fresh demand.

11. This very issue has been examined by this Court in Diwakar Enterprises Pvt. La’s case (supra) and Modern Insecticides Ltd’s case (supra). In these cases, this Court while relying upon the judgment passed by the Delhi High Court in case titled as Vallabh Textiles vs. Senior Intelligence Officer and others, 2022 SCC Online Del 4508 and judgment passed by the Karnataka High Court in case titled as Union of India and others vs. Bundl Technologies Pvt Ltd and others, ILR 2022 Karnataka 3077, has observed that any amount deposited voluntarily by the petitioner during search would not amount to collection of tax under Article 265 of the Constitution and an amount collected without authority of law, would not amount to collection of tax and the same would amount to depriving a person of his property without any authority of law and would infringe his rights under Article 300A of the Constitution of India as well.

12. Since, the respondents have failed to place any material on record to show that they got deposited amount of Rs.83,89,196/- from the petitioners with any authority of law, therefore, we hereby, allow this petition and a direction is being given to the respondents to refund the amount of Rs.83,89,196/- along with the interest @ 6% from the date of filing of this petition, within a period of 30 days after the receipt of certified copy of this order.

13. Pending application(s), if any, also stands disposed of.

****

(Author can be reached at info@a2ztaxcorp.com)