Introduction:
The Constitution of India embodies the concept of welfare state and distinctly refers to securing and promoting “economic justice”. However, these ideals can only be implemented by a democratic process in accordance with the law in force. Article 265 of the Constitution mandates that levy or collection of tax has to be done by the authority of law and in compliance with the law. If tax is collected without any authority of law, the same would amount to depriving a person of his property without any authority of law and would infringe his right under Article 300A of the Constitution as well, which seeks to protect the right of property of a person.
The Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”) does not contemplate involuntary payment in any form whatsoever. Apart from that, rule of fair play mandates that payment of tax including interest and penalty can be demanded only after adjudication of the liability. The person making payment must have sufficient opportunity to defend the allegation levelled against him and then only he can be saddled with its financial consequences. One of the common woes of an assessee facing an investigation, under the CGST Act is that they are often compelled to make payments during the pendency of the investigation, only to buy peace of mind.
Before the advent of GST Act, the issue regarding deposit of an amount during investigation was well settled in plethora of judgment. The judicial position in this regard was that – without adjudication of liability, the assessee should not be forced to pay an amount during the course of an investigation. [Vodafone Essar South Ltd. vs. Union of India, 2009 (237) ELT 35 (BOM)] Further, the Hon’ble Delhi High Court in the matter of MakeMyTrip (India) Pvt. Ltd. vs. Union of India, 2016 (44) STR 481 DEL, has held that if any amount is collected during investigation without determination of the liability, the same is liable to be refunded.
The present article analyses the judgment of the Hon’ble Karnataka High Court in the matter of UNION OF INDIA & ORS. VS. M/S BUNDL TECHNOLOGIES PVT. LTD. & ORS., W.A. NO. 1274/2021, wherein the issue of deposit of an amount by an assessee during the investigation under the CGST Act has been discussed.
Brief Facts of the case:
M/s Bundl Technologies Pvt. Ltd. (hereinafter referred to as “the Company”) operates an e-commerce platform, where the consumers can place orders for delivery of food from nearby restaurants. The deliveries are carried out by the Pick-up and Delivery Partners (PDPs) and Temporary Delivery Executives (TDEs).
In 2017, the Company engaged TDEs through Green Finch Team Management (P) Ltd. (hereinafter referred to as “Green Finch”). Thereafter, in 2019, an investigation was initiated by DGGI, Hyderabad against the Company on the ground that Green Finch is a non-existent entity, meaning thereby- the ITC availed by the Company for the GST paid to Green Finch is fraudulent.
During the course of investigation, officers of DGGI issued spot summons to the Directors and employees of the Company, recorded their statements and subsequently, a sum of Rs. 15 Crores was deposited by the Company in the GST Cash Ledger on 30.11.2019 at an odd hour of the night i.e. about 4:00 A.M. Again, on 27.12.2019, the Directors of the Company were forced to deposit a further sum of around Rs. 12.5 Crores at about 1:00 A.M. The Company had filed a writ petition in September 2020 for refund of the aforesaid sum of Rs. 27.5 Crores deposited during investigation which was allowed by the Single Judge Bench of the Hon’ble Karnataka High Court. Therefore, the Department has filed an appeal against the order of the Single Judge.
Issue:
In light of the facts of the case, the Hon’ble Karnataka High Court delved into a crucial question that – Whether the collection of a sum during the course of investigation in the guise of voluntary payment u/S. 74(5) of the CGST Act is authorised by law?
Legal Position:
Section 74 of the CGST Act deals with determination of tax – not paid or short paid or erroneously refunded, or ITC – wrongly availed or utilized by reason of fraud, or wilful misstatement or suppression of facts. The relevant part of the said section is hereunder:
“(5) 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 per cent 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.”
The bare perusal of the above stated Section 74(5) of the CGST Act makes it clear that an asseessee may pay the tax along with interest and 15% of penalty on its own ascertainment of tax or tax ascertained by the proper officer and inform him in writing about such payment. Thus, whether an amount has been deposited by an assessee under Section 74(5) of the CGST Act or under the threat of arrest and coercion is a matter of fact and the same may be inferred by looking into the fact that whether the assessee has communicated to the proper officer in writing about the self-ascertainment of tax or admissibility of liability.
Even though there are several implicit safeguards embodied in the CGST Act to protect the interest of the genuine taxpayers, the high handed and arbitrary approach of the Department in conducting investigations has become a common practice. Therefore, in order to curb the forceful recoveries during the search or inspection under the CGST Act, certain guidelines have been issued by the Division Bench of the Hon’ble Gujarat High Court. The following guidelines seek to regulate the powers of officers carrying out search and seizure and to safeguard the interest of the assessees [M/s Bhumi Associate vs. Union of India, SCA No. 3196 of 2021]:
(a) 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 proceedings under Section 67 of the Central/Gujarat Goods and Services Tax Act, 2017 under any circumstances.
(b) Even if the assessee comes forward to make voluntary payment by filing Form DRC-03, the assessee should be asked/ advised to file such Form 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.
(c) Facility of filing complaint/ 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.
(d) If complaint/ grievance is filed 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.
Thus, it is settled that search and seizure powers under the CGST Act have to be exercised by the proper officer within the bounds of law. A power vested in any authority by virtue of any statute has to be exercised in good faith in consonance with the letter and spirit of the statute and for the purpose for which it has been conferred. It must not be exercised in a manner so as to instil fear in the mind of a person.
Judgment:
In the present matter, there was no communication in writing from the Company to the proper officer about either self-ascertainment or admission of liability by the Company. The aforesaid amount of Rs. 27.5 Crores (Rs. 15 Crores + Rs. 12.5 Crores) was deposited by the Company at odd hours without admission of any liability. In addition to this, the Company communicated to the Department that the payments have not been made admitting the liability and it reserves its right to claim refund of the amount. This implies that the amount collected by the Department during the investigation of the Company was not paid voluntarily under Section 74(5) of the CGST Act. Therefore, the impugned appeal filed by the Department against the order of the Single Judge in the Writ Petition No. 4467 of 2021 was dismissed.
Key Takeaways:
In light of the instant judgment, an assessee may bear the following points in mind in respect of a search and seizure proceeding under section 67 of the CGST Act:
(a) There is no legal obligation to pay any amount during the pendency of an investigation without adjudication of liability.
(b) Deposit of a sum by an assessee at odd hours during the course of investigation could be considered as a factor in determining that the payment was involuntary.
(c) In case of any payment during investigation, it is important to record in the relevant returns that such payment is made without admission of any liability by the assessee.
(d) A complaint should be made to the grievance cell explicitly stating that the details of the payment and that the same has been made involuntarily.
(e) A refund application has to be filed within 2 years of the involuntary payment as per section 54 of the CGST Act.
Conclusion:
“The Parliament had aimed to give the GST a citizen-friendly tax structure. But, the purpose of the Act is lost by the manner of enforcement in our country.” – Justice DY Chandrachud [M/s Radha Krishan Industries v State of Himachal Pradesh & Ors.]
The power conferred upon the proper officer under sections 67 and 70 of the CGST Act to conduct investigation is not unbridled. It is a well settled law that tax cannot be collected without the authority of law. Article 265 of the Constitution protects the taxpayers against the executive arbitrariness of the Department in taxation matters. Therefore, the officers of DGGI cannot force an assessee to deposit an amount during the course of investigation and if any amount is collected during investigation by the Department, the same amounts to collection without the authority of law which is not only in violation of the statutory provisions but also a contravention of Article 265 and Article 300A of the Constitution. Any such amount collected during investigation is not a voluntary payment under Section 74(5) of the CGST Act and the same is liable to be refunded in accordance with Section 54 of the CGST Act.
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Authors: Advocate Ekta Kumari and Advocate Prabhat Kumar
Name of Organization: Rajesh Kumar & Associates, Delhi.
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