Case Law Details
Suretex Prophylactics (India) Private Limited Vs Union of India (Karnataka High Court)
Karnataka High Court held that as on the date of recovery, there was no order/ adjudication made by the department quantifying the amount of tax/ duty payable by the petitioner. Accordingly, recovery of such amount is without authority of law and liable to be refunded back.
Facts- The petitioner mainly contends that no customs duty is payable in respect of the finished goods, raw-materials, spares and consumables, plant and machinery, etc. which are destroyed during the fire which took place in the petitioner’s factory. Further, petitioner also contended that amount of INR 1.50 crores collected by the respondent is without authority of law.
Conclusion- Held that in the facts of the instant case, in the absence of any material to establish that there was any order or adjudication made by the respondents quantifying the amount of tax / duty payable by the petitioner as on the date of collecting / recovering the same during investigation, the respondents were clearly not entitled to recover the same, leading to the sole inference that the respondents are liable to refund the amount collected by them.
Mere issuance of subsequent show cause notice cannot legalize the fact that the original recovery on 15.10.2019 during search of premises was without jurisdiction or authority of law and violative of Article 265 and 300A of the Constitution of India.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
In this petition, petitioner has sought for the following reliefs:-
“A. This Hon’ble Court may be pleased to declare that the amount of INR 1, 50,00,000/-( INR 1.5 crores) has been collected and retained by the Respondent No.3 without the authority of law, and the said amount is to be refunded to the Petitioner by the Respondents along with applicable interest;
B. This Hon’ble Court may be pleased to declare that no Customs duty is payable in respect of the finished goods, raw materials, spares and consumables, plant and machinery, etc., destroyed during the fire which took place in the Petitioner’s factory on 19.03.2014.
C. This Hon’ble Court may be pleased to issue a writ of mandamus or a writ in nature of mandamus or any other appropriate writ or order directing the Respondent No.3 to forthwith grant refund of the amount of INR 1,50,00,000/) (INR 1.5 crores) along with applicable interest at the rate of 12& per annum;
D. This Hon’ble Court may be pleased to declare the investigation/ proceedings to be deemed concluded and any subsequent notices to be issued will be barred by limitation and thereby , void ab initio;
E. For costs of this Petition and orders thereon; and
F. For such further and other reliefs as this Hon’ble Court considers appropriate in the facts and circumstances of the case. “
2. The brief facts giving rise to the present petition as pleaded by the petitioner are as under:-
The petitioner is a private limited company registered as a 100% Export Oriented Unit (EOU) and is engaged in the activity of manufacture and sale of rubber contraceptives. It is contended that on 19.03.2014, a fire accident took place at the petitioner’s factory at Anekal, Bangalore, whereby, raw materials, packing materials etc., were destroyed, pursuant to which, the petitioner filed an intimation on 20.03.2014 before the Assistant Commissioner of Central Excise as well as lodged a police complaint on 20.03.2014. Subsequently, during the period from 11.06.2014 to 30.06.2016, the petitioner filed insurance claim in the Future General India Insurance Company and received the insurance amount, which did not include the tax / duty component.
2.1 Petitioner contends that on 15.10.2019 at about 11.45 a.m., respondents 2 and 3 visited the aforesaid factory of the petitioner to search the premises and due to several threats of imprisonment and filing of cases under the provisions of the Customs Act, 1962 (for short ‘the said Act of 1962) and Central Excise Act, 1944 r/w Foreign Trade Policy, various documents were seized and after conclusion of search at about 8 p.m., the 3rd respondent demanded and received / collected INR 1.5 crores from the petitioner under coercion and under protest vide Cheque No.433975 dated 15.10.2019. It is contended that a mahazar was issued by the 2nd respondent, which was signed by the 3rd respondent.
2.2 Subsequently, on 16.01.2019, the General Manager of the petitioner visited the office of the 4th respondent and explained the petitioner’s position and answered all queries and a TR-6 Challan No.003 dated 16.10.2019 was generated for payment of the disputed cheque under the category “other payments”, pursuant to which, a letter was issued by the 3rd respondent to the petitioner to seek information pertaining to the claim on 17.10.2019 and a request made by the petitioner for submission of the information on 18.10.2019 having been granted, the petitioner addressed a communication dated 25.10.2019 intimating the respondents that the payment made by the petitioner was under compulsion and has to be construed as “payment under protest”.
2.3 Petitioner contends that on 19.04.2021, he submitted a letter with the 3rd respondent seeking refund of the aforesaid INR 1.5 crores which is followed by two reminders dated 20.08.2021 and 11.11.2021. As can be seen from the letter dated 19.04.2021, petitioner specifically invoked Article 265 of the Constitution of India and stated that no tax can be collected by the respondents from the petitioner except by an authority of law and in the absence of the respondents having any authority of law, respondents illegally have retained the aforesaid INR 1.5 crores collected by them and the same deserves to be refunded back to the petitioner.
2.4 Petitioner further contends that subsequently, the various queries / questions put by the respondents for the purpose of refund was answered by them and additional information was also provided by the petitioner, despite which, the respondents did not take any steps to grant refund in favour of the petitioner, who is before this Court by way of the present petition.
3. The respondents – revenue have filed their statement of objections clearly disputing the various contentions and claim put forth by the petitioner. It is contended that the petitioner had deliberately chose to insure value of the imported goods and excluded the customs duty and consequently, the question of refunding the customs duty / tax to the petitioner do not arise. It is therefore contended that the petitioner had not paid the customs duty on the goods which were destroyed / burnt in the fire accident and since the same was not included in the fire policy obtained by the petitioner and in the light of Sections 58, 59 and 65 of the said Act of 1962, the petitioner would not be entitled to seek refund of the amount paid by it.
3.1 Respondents further contended that the petitioner is liable to pay duty in respect of the goods which were destroyed in the fire accident which were imported and since the petitioner had not applied to remission of duty in respect of the goods as required under Section 23 of the said Act of 1952, the petitioner would not be entitled to seek refund.
3.2 It was further contended that a show cause notice for the purpose of adjudication dated 11.02.2022 had already been issued and consequently, the question of seeking refund would not arise. It is contended that comprehensive policy ought to have been taken including the customs duty and on this ground also, the petition is liable to be dismissed.
4. Heard learned Senior counsel for the petitioner and learned counsel for the respondents – revenue and perused the material on record.
5. In addition to reiterating the various contentions urged in the petition and referring to the material on record, learned Senior counsel for the petitioner has put forth the following contentions:-
(i) That the collection / recovery of INR 1.5 crores by the respondents was without jurisdiction or authority of law as required `under Article 265 of the Constitution of India and on this ground alone, the said amount deserves to be refunded back to the petitioner together with interest;
(ii) No recovery can be made prior to investigation and / or during the course of investigation and recovery can be made only after / post investigation and passing of orders and in the instant case, since no adjudication was done as on the date of recovery, much less any order being passed, the amount collected by the respondents is without jurisdiction or any authority of law, the same deserves to be refunded.
(iii) My attention is invited to the Board Circulars dated 25.05.2022 and 19.01.2022 in order to contend that in the absence of adjudication or order for payment, the question of recovery of any money from the petitioner does not arise.
(iv) It is contended that the amounts collected / recovered from the petitioner without there being adjudication are in the nature of pre-deposit and the same not in the nature of tax / duty, the same deserves to be refunded back to the petitioner.
In support of his contentions, learned Senior counsel for the petitioner has placed reliance upon the following decisions:-
(i) LML Ltd., vs Collector of Central Excise, Kanpur – 2002 ( 142) ELT 273(SC);
(ii) Concepts Global Impex V. UOI – 2018 (11) TMI 688 – P&H HC;
(iii) Century Metal Recycling Pvt Ltd V. UOI – [2008 (10) TMI 96 – P&H H]
(iv) M/S Bhumi Associate V. Union of India – R/SCA 3196 of 2021, Gujarat High Court;
(v) M/S. Vallabh Textiles V. Senior Intelligence Officer & Ors. -[ C’4: P. (C) 9834/2022, Delhi High Court;
(vi) Makemytrip (India) Pvt. Ltd & Ibibo Group Pvt. Ltd Vs. Union of India & Ors., [(2016) 233 DL T 484 (DB)] (Upheld by the Hon@ble High COurt in Union of India Vs. Makemytrip (India) (P) Ltd., [(2019) 11 SCC 765];
(vii) Union of India and Ors. Vs. Bundl Technologies Private Limited and Ors [Judgment dated 03.03.2022 in W.P. No 4467 of 2021];
(viii) Sivashankar Granites Pvt Ltd V Asst Commr of C. Ex., Warangal [1998 (98) E.L. T 32 AP];
(ix) M/s FCI OEN Connectors Ltd. V Union of India & Ors [ WP 5901 of 2021 T- RES, Karnataka High Court ];
(x) Commissioner of Cus., Bangalore V. Next Fashion Creators Pvt. Ltd [2012 (280) ELT 374 (Kar)];
(xi) Mount Shivalik Breweries V. Union of India [2003 (157) ELT 9
(xii) Commissioner of Customs, Bangalore V. Sami Labs Ltd., – [2012(278) ELT 601 (Kar)];
(xiii) Phthalo Colours and Chemicals India Ltd V. Commissioner of C.E, S T- 2019 – TIOL- 1176- CES TA T-AHM;
(xiv) Reliance Transport & Travels Ltd. V. Commissioner of Customs 2018- TIOL- 3620- CES TA T- DEL;
(xv) of Customs V. Reliance Transport & Travels Ltd., -[2020(372) EL TA105(SC)];
(xvi) Swadeshi Cotton Mills Co. Ltd V. Union of India – AIR 1981 SC 818, 831;
(xvii) Rajesh Kumar v. Dy. CI T- [2006] 157 Taxmann 168 (SC);
(xviii) EBIZ. Com Pvt LTd. V. Commissioner of Central Excise, Customs and Service Tax and Ors [2016 (9) TMI 1405 – Allahabad High Court];
6. Per contra, learned counsel for the respondents – revenue has made the following submissions:-
(i) The show cause notice has already been issued and investigation adjudication is under way and consequently, the question of directing refund at this stage would not arise and the petitioner be relegated to appear before the authority, as disputed question of facts arise for consideration for recovery of payment non-payment of tax / duty;
(ii) There is no pleading with regard to the subject amount of INR 1.5 crores being a pre-deposit and consequently, even this
contention cannot be accepted;
(iii) There is no application for refund in the prescribed form as required under Section 27 of the said Act of 1962 and on this
ground also, the petition is liable to be dismissed;
(iv) Since the petitioner has already submitted his reply dated 22.02.2022 to the show cause notice dated 11.02.2022 issued by the respondents, the petitioner is not entitled to any relief at this stage.
7. By way of reply, learned Senior counsel for the petitioner submits that since the present petition was preferred on 29.01.2022 and that the right to claim refund got crystallized when the moment the subject amount of INR 1.5 crores was recovered and any subsequent show-cause notice or adjudication proceedings cannot be made the basis to deny refund sought for by the petitioner. My attention is invited to paragraph-10 of the statement of objections in order to point out that the admission made by the respondents that INR 1.5 crores was actually paid by the petitioner under protest during investigation. It is therefore contended that in the light of the submission of the petitioner that the petitioner has paid the said amount under protest, the petitioner would be entitled to refund.
It is contended that the proceedings pursuant to the show cause notice are independent proceedings, which are mutually exclusive, independent and distinct from the right of the petitioner to claim refund and conseduently, the said proceedings cannot be relied upon by the respondents to deny the refund sought for by the petitioner.
8. I have given my anxious consideration to the rival submissions and perused the material on record.
9. Before adverting to the rival contentions, it is necessary to extract the two Circulars dated 25.05.2022 and 19.01.2022. The Circular dated 25.05.2022 reads as under:-
F. No. GST/INV/Instruction /2022-23
Ministry of Finance
Department of Revenue
Central Board of Indirect Taxes and Customs
GST Investigation Wing.
10TH Floor, Tower-2
Jeevan Bharathi Building
Connaught Circus, New Delhi – 100 001.
Dated: 25th May 2022.
Instruction No. 01/2022-23 (GST-Investigation)
Subject: Deposit of tax during the course of search, inspection or investigation – reg.
During the course of search, inspection or investigation, sometimes the taxpayers opt for deposit of their partial or full GST liability arising out of the issue pointed out by the department during the course of such search, inspection or investigation by furnishing DRC-03. Instances have been noticed where some of the taxpayers after voluntary depositing GST liability through DRC- 03 have alleged use of force and coercion by the officers for making ‘ recovery’ during the course of search or inspection or investigation. Some of the taxpayers have also approached Hon’ble High Courts in this regard.
2. The matter has been examined. Board has felt the necessity to clarify the legal position of voluntary payment of taxes for ensuring correct applications of law and to protect the interest of the taxpayers. It is observed that under CGST Act, 2017 a taxpayer has an option to deposit the tax voluntarily by away of submitting DRC-0 3 on GST portal. Such voluntary payments are initiated only by the taxpayer by logging into the GST portal using its login id and password. Voluntary payment of tax before issuance of show cause notice is permissible in terms of provisions of Section 73(5) and Section 74 (5) of the CGST Act, 2017. This helps the taxpayers in discharging their admitted liability, self- ascertained or as ascertained by the tax officer, without having to bear the burden of interest under Section 50 of CGST Act, 2017 for delayed payment of tax and may also save him from higher penalty imposable on him subsequent to issuance of show cause notice under Section 73 or Section 74, as the case may be.
3. It is further observed that recovery of taxes not paid or short paid, can be made under the provisions of Section 79 of CGST Act, 2017 only after following due legal process of issuance of notice and subsequent confirmation of demand by issuance of adjudication order. No recovery can be made unless the amount becomes payable in pursuance of an order passed the adjudicating authority or otherwise becomes payable under the provisions of CGST Act and rules made therein. Therefore, there may not arise any situation where “ recovery” of the tax dues has to be made by the tax officer from the taxpayer during the course of search, inspection or investigation, on account of any issue detected during such proceedings. However, the law does not bar the taxpayer from voluntarily making payment of any tax liability ascertained by him or the tax officer in respect of such issues, either during the course of such proceedings or subsequently.
4. Therefore, it is clarified that there may not be any circumstance necessitating ‘recovery’ of tax dues during the course of search or inspection or investigation proceedings. However, there is also no bar on the taxpayers for voluntarily making the payments on the basis of ascertainment of their liability on non-payment/ short payment of taxes before or at any stage of such proceedings. The tax officer should however, inform the taxpayers regarding the provisions of voluntary tax payments through DRC-03.
5. Pr. Chief Commissioners/ Chief Commissioners, CGST Zones and Pr. Director General, DGGI are advised that in case, any complaint is received from a taxpayer regarding use of force or coercion by any of their officers for getting the amount deposited during search or inspection or investigation, the same may be enquired at the earliest and in case of any wrongdoing on the part of any tax officer, trict disciplinary action as per law may be taken against the defaulting officers.
Sd/-
(Vijay Mohan Jain)
Commissioner (GST-Inv.),
CBIC
The Circular dated 19.01.2022 reads as under:-
F.No.296/63/2020-CX9
GOVERNMENT OF INDIA
Ministry of Finance
Department of Revenue
Central Board of Indirect Taxes and Customs.
………….
Dated: 19.01.2022.
All Principal Chief Commissioners/Chief Commissioners of ST &CX
All Principal Chief Commissioners/Chief Commissioners of Customs
All Principal Director Generals/Director Generals, CBIC.
SUBJECT: Master circular on Recovery and Write- Off Arrears of Revenue
1. Board has issued Instruction/Circulars relating to recovery of arrears under Central Excise, Service Tax and Customs from time to time. Considering the changes that have taken place, especially after the introduction of GST in July, 2017, it has become imperative to update and revamp the procedure for recovery of arrears of Indirect taxes and Customs. Accordingly, in suppression of instructions issued earlier on the subjects which are annexed herewith as Annexure-A, this consolidated Circulars is being issued providing guidelines for recovery and write – off of arrears of Indirect taxes and Customs.
2. THE CONCEPT OF ARREAR:
(i) Arrears are the overdue payment of the amount tax, interest, fine or penalty that is confirmed against a person who is liable to pay the same to the exchequer. It arises as result of Order-in-Original, Order of Appellate forum, like the Commissioner Appeals/ADC/JC/Appeals or the CESTA and the Courts of law.
(ii) The amount in the case under investigation, unconfirmed demands (i.e., show Cause Notice, including those in Call Book), Order-in-Original that has been set aside or remanded for de-novo adjudication by Appellate authority do not fall under the category
of ‘ arrears’.
10. As can be seen from the Circular dated 25.05.2022, no recovery can be made unless the amount become payable in pursuance of the order passed by the Adjudicating Authority or otherwise become payable under the provisions of the GST Act as well as under the provisions of the Customs Act also. The Circular dated 19.01.2022 clearly states that arrears are the over due payment of the amount of tax, interest, fine or penalty that is confirmed against a person who is liable to pay the same to the exchequer and it arises as result of Order-in- Original. The said Circular also clarifies the amount in the case under investigation, unconfirmed demands, Show Cause Notice etc., and the Order-in-Original that has been set aside or remanded for de-novo adjudication by Appellate authority do not fall under the category of arrears.
11. In the instant case, it is an undisputed fact that prior to recovery of a sum of INR 1. 5crores from the petitioner, there is no adjudication or any order made/passed by the respondents, which entitled them to recover the money paid by the petitioner. As rightly contended by the learned Senior counsel for the petitioner, the respondents have themselves admitted in their statement of objections that the petitioner did not voluntarily make the payment and that he made it under protest. Under these circumstances, in the light of the aforesaid material on record, which clearly establishes that the petitioner had made the payment under protest and that the payment was not preceded by any order of adjudication, the respondents did not have any jurisdiction or authority of law to recover INR 1.5 crores, which is clearly violative of Article 265 of the Constitution of India and consequently, the petitioner would be entitled to refund of the aforesaid amount collected by the respondents without jurisdiction or authority of law.
12. In the case of M/s.Vallabh Textiles vs. Senior Intelligence Officer & others, the High Court of Delhi is held as under:-
33. Besides this, the following circumstances reveal, that the amounts deposited [the cumulative sum being Rs.1,80,10,000/-] did not have an element of voluntariness attached to it.
33.1 There is no dispute, that Rs.1, 80, 10,000/- was deposited in four (4) tranches in the prescribed format i.e., GST DRC-03, on the dates and at the time set forth hereinbelow:
– Rs. 35,00,000/- vide Form GST DRC-03 dated 17.02.2022 at 01:28 AM
– Rs. 1,00,00,000 vide Form GST DRC-03 dated 17.02.2022 at 02:15 AM
– Rs. 20,25,000/- vide Form GST DRC-03 dated 17.02.2022 at 05:04 AM
-Rs. 24,85,000/- vide Form GST DRC-03 dated 17.02.2022 at 07:03 AM
34. It is also not in dispute, that the search proceedings commenced on 16.02.2022 at about 03:30 PM and were concluded on the following day i.e., 17.02.2022 at 09:30 A.M.
35. The fact, that deposits were made [during the early hours of 17.02.2022] when the search had not concluded, would show that the payments were not voluntary. The deposits made were not aligned with provisions of sub- section (5) of Section 73 or sub-section (5) of Section 74.
36. As noted above, if the payments/deposits were voluntary, then an acknowledgement of having received the payment should emanate from the proper officer, as mandated in the prescribed form i.e., GST DRC-04, as prescribed under sub-section (2) of Rule 142 of the 2017 Rules.
36.1 The official respondents/revenue, in our opinion, have not been able to discharge this burden.
37. The malaise of officials seeking to recover tax dues (in contrast to voluntary payments being made by assesses towards tax dues) during search, inspection or investigation was sought to be addressed by the GST– Investigation, C13IC via Instruction No. 01/2022-2023 dated 25.05.2022. For the sake of convenience, the said instruction is extracted hereafter:
“Date:25 th May, 2022
Instruction No. 01/2022-23 [GST – Investigation] Subject: Deposit of tax during the course of search, inspection or investigation- reg.
1. During the course of search, inspection or investigation, sometimes the taxpayers opt for deposit of their partial or full GST liability arising out of the issue pointed out by the department during the course of such search, inspection or investigation by furnishing DRC-03. Instances have been noticed where some of the taxpayers after voluntarily depositing GST liability through DRC-03 have alleged use of force and coercion by the officers for making ‘recovery’ during the course of search or inspection or investigation. Some of the taxpayers have also approached Hon’ble High Courts in this regard.
2. The matter has been examined. Board has felt the necessity to clarify the legal position of voluntary payment of taxes for ensuring correct application of law and to protect the interest of the taxpayers. It is observed that under CGST Act, 2017 a taxpayer has an option to deposit the tax voluntarily by way of submitting DRC-03 on GST portal. Such voluntary payments are initiated only by the taxpayer by logging into the GST portal using its login id and password. Voluntary payment of tax before issuance of show cause notice is permissible in terms of provisions of Section 73;5) and Section 74 ;5) of the CGST Act, 2017. This helps the taxpayers in discharging their admitted liability, self-ascertained or as ascertained by the tax officer, without having to bear the burden of interest under Section 50 of CGST Act, 2017 for delayed payment of tax and may also save him from higher penalty imposable on him subsequent to issuance of show cause notice under Section 73 or Section 74, as the case may be.
3. It is further observed that recovery of taxes not paid or short paid, can be made under the provisions of Section 7= of CGST Act, 2017 only after following due legal process of issuance of notice and subsequent confirmation of demand by issuance of adjudication order. No recovery can be made unless the amount becomes payable in pursuance of an order passed by the adjudicating authority or otherwise becomes payable under the provisions of CGST Act and rules made therein. Therefore, there may not arise any situation where “recovery” of the tax dues has to be made by the tax officer from the taxpayer during the course of search, inspection or investigation, on account of any issue detected during such proceedings. However, the law does not bar the taxpayer from voluntarily making payment of any tax liability ascertained by him or the tax officer in respect of such issues, either during the course of such proceedings or subsequently.
4. Therefore, it is clarified that there may not be any circumstance necessitating `recovery’ of tax dues during the course of search or inspection or investigation proceedings. However, there is also no bar on the taxpayers for voluntarily making the payments on the basis of ascertainment of their liability on non-Payment/short payment of taxes before or at any stage of such proceedings. The tax officer should however, inform the taxpayers regarding the provisions of voluntary tax payments through DRC-03.
5. Pr. Chief Commissioners/ Chief Commissioners, CGST Zones and Pr. Director General, DGGI are advised that in case, any complaint is received from a taxpayer regarding use of force or coercion by any of their officers for getting the amount deposited during search or inspection or investigation, the same may be enquired at the earliest and in case of any wrongdoing on the part of any tax officer, strict disciplinary action as per law may be taken against the defaulting officer
(Vijay Mohan Jain)
Commissioner (GST-Inv.),
CBIC”
38. It appears that this Instruction was issued by the GST Investigation Wing, CBIC, in the backdrop of an order dated 16.02.2021, passed by the Gujarat High Court in the matter of Bhumi Associate v. Union of India MANU/G>/0174/2021, whereby the following wholesome directions were issued
“The Central Board of Indirect Taxes and Customs as well as the Chief Commissioner of Central/State Tax of the State of Gujarat are hereby directed to issue the following guidelines by way of suitable circular/instructions:
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 proceedings under Section 67 of the Central/Gujarat Goods and Services Tax Act, 2017 under any circumstances.
2 . 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.
3. Facility of filing la] 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.
4. 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.
38.1 It is important to note, that while in line with the directions contained in Bhumi Associate, the aforementioned Instruction i.e., Instruction No. 01/2022-2023 dated 25.05.2022 inter alia, provides, as noticed above, that no recovery of tax should be made during search, inspection or investigation unless it is voluntary- it does not elaborate on various modes for collection adopted in such circumstances, for example via cheque, cash, e-payment or even via adjustment of input tax credit.
39. Furthermore, the Instruction falls short, inasmuch as it sidesteps direction number two (2) contained in Bhumi Associate, which states that even if the assessee comes forward to make voluntary payment in the prescribed form i.e., GST DRC-03, he/she should be advised to file the same the day after the search has ended and the concerned officers have left the premises of the assessee.
39.1 Clearly, the aforementioned direction, issued by the Gujarat High Court as far back as on 16.02.2021, is binding on the official respondents/revenue, which was not followed in the instant case.
39.2 The violation of the safeguards put in place by the Act, Rules and by the Court, to ensure that unnecessary harassment is not caused to the assessee, required adherence by the official respondents/revenue, as otherwise, the collection of such amounts towards tax, interest and penalty would give it a colour of coercion, which is not backed by the authority of law.
40. In this case, the argument of Mr Kumar, that the objection concerning the amounts deposited was raised only after the summon dated 13.04.2022 was issued, in our opinion, would not help the cause of the official respondents/revenue. The reason is, that if a procedure is prescribed under a statute or by law, that is, via dicta contained in a judgment, it has to be followed to the tee.
40.1 Failure to follow the prescribed procedure will, as in this case, have us conclude that the deposit of tax, interest and penalty was not voluntary.
41. The reason that the officers of the official respondents/revenue have been asked, perhaps, to have the amounts deposited the day after the search is concluded, is, to also give space to the concerned person to seek legal advice, and only thereafter deposit tax, interest and penalty, wherever applicable, upon a proper self-ascertainment.
41.1 Undoubtedly, in this case, no such elbowroom was made available.
Conclusion:
42. Therefore, as alluded to hereinabove, we are persuaded to hold, that the aforementioned amounts which were deposited on behalf of the petitioner-concern, lacked an element of voluntariness.
43. Given this position, we are inclined to direct the official respondents/revenue to return Rs. 1,80, 10,000/- to the petitioner-concern, along with interest at the rate of 6% (simple) per annum.
44. The interest will run from 17.02.2022 till the date of payment.
45. The amount will be remitted to the petitioner-concern within ten [10] days of receipt of copy of the judgment.
46. Since we are in respectful agreement with the directions contained in Bhumi Associate, we direct the CBIC to align Instruction H 01/2022-2023 dated 25.05.2022 with the directions issued by the Gujarat High Court in Bhumi Associate.
47. The writ petition is disposed of in the aforesaid terms.
13. In the case of M/s.Concept Global Impex vs. Union of India & others, the Punjab and Haryana High Court held as under:
The fact that a sum of ` 40,00,000/- had been taken from the petitioner without there being any show cause notice or the demand at that time, is not in dispute. The nonly issue sought to be raised by counsel for the respondents is that the amount was deposited by the petitioner voluntarily. That issue has already been gone into by this Court in Century Metal Recycling Pvt. Ltd and Century Knitters (India) Ltd. cases (supra) wherein inding that certain amount was recovered from the exporter without any show cause notice or demand, it was ordered to be refunded.
In Century Metal Recycling Pvt. Ltd (supra) it was held that unless there is assessment and demand, the amount deposited by the petitioners cannot be appropriated. It was observed as under:-
“13. As far as the amount deposited by the petitioners is concerned, case of the petitioners is that the same was deposited under coercion. Case of the respondents was that the same was deposited voluntarily. Whatever be the position, unless there is assessment and demand, the amount deposited by the petitioners cannot be appropriated. No justification has been shown for retaining the amount deposited, except saying that since it was voluntarily deposited. In view of this admitted position, the petitioners are entitled to be returned the amount
paid.”
In Century Knitters (India) Ltd. (supra) finding that certain amount was recovered by the revenue without any show cause notice or demand, while directing retaining of 20% of the amount, the balance amount of ` 8 crores was directed to be refunded. It was held that unless a demand is finalized and is existing which is liable to be discharged, the revenue cannot retain any amount unless there is a specific provision in the statute which authorizes such retention. Retention of any amount by the revenue in such a situation would be violative of Article 265 of the Constitution.
The relevant observations are as under:-
“11. After hearing learned counsel for the parties and perusing the record, we find that as on date no crystallized liability has been shown to be existing against the petitioners. Further, only a show cause notice has been issued where under a liability to the extent of Rs.50 lacs could be fastened. Insofar, as the matters which are under investigation, it has not been shown that any show cause notice in respect thereof has been issued by the respondent-department so far.
12. It is trite law that unless a demand, which is finalized and is existing which is liable to be discharged, the revenue cannot retain any amount unless there exists specific provision in the statute for the retention of the amount.
13. On a specific query put to the learned counsel for the revenue relating to any provision in the statute on the basis of which the revenue could provisionally retain the amount, learned counsel for the revenue candidly admitted that there is no such provision to retain the amount except to refer to Section 42 of the Customs Act, 1962. Further, on a query as to whether any order requiring the petitioners to refund the duty drawback as canvassed by the revenue had been passed, learned counsel for the revenue was unable to show that there existed any such order or authorization from any competent authority. It was only urged that it was a disputed question of fact as to whether the amount was deposited voluntarily or under coercion. Be that as it may, whatever be the situation, the revenue cannot retain any amount to which itlegally not entitled to as the same would be violative of Article 265 of the Constitution of India.”
Another fact which deserves to be noticed is that show cause notice was issued to the petitioner on 24.04.2017 and more than one year has already been elapsed but no order has been passed. Even if demand is confirmed against the petitioner, for hearing of appeal upto the CESTAT, only 10% of the amount is to be deposited, whereas the proceedings in the present case have not been concluded yet.
Keeping in view the enunciation of law as noticed above, after retaining the amount of 6,00,000/-, balance amount deposited by the petitioner be refunded to him within a period of four weeks from the date of receipt of copy of the order.
The writ petition is disposed of accordingly.
14. In the case of Makenlytrip (India) Pvt. Ltd. , vs. Union of India & Others, the Delhi High Court held as under;-
104 It is repeatedly urged by Mr. Satish Aggarwala that in the bail proceedings before the Magistrate, the Senior counsel representing Mr. Pallai volunteered that MMT would make payment of the arrears of service tax dues and, therefore, it cannot be said that there was any coercion or compulsion on MMT to make such payment. At the same time, he urged that such payment was not a precondition for the grant of bail and that in principle the DGCEI would oppose grant of bail in criminal proceedings only because an offer is made to pay the arrears of service tax dues in such proceedings.
105 In the first place, the Court is unable to accept that when an offer is made in the circumstances outlined before a criminal court for payment of alleged service tax arrears without even a show cause notice in this regard being issued, it is plain that the offer is made only to avoid the further consequences of continued detention. Such a statement can hardly be said to be voluntary even though it may be made before a Court. Secondly, there appears a contradiction because the DGCEI did not decline to receive the offer of payment of alleged service tax arrears.
106. In a different context, while interpreting the provisions of the Delhi Value Added Tax Act, 2004 (“DIAT Act)#, this Court in Capri Bathaid Pvt. Ltd v. Commissioner of Trade & Taxes 2016 (155) DRJ 526 (DB) took exception to the officials of the Department of Trade and Taxes collecting arrears of sales tax from dealers at the time of survey and search. The Court pointed out that the said practice was illegal and there could be no collection without there being an assessment. The same principle would apply here as well. Without even an SCN being issued and without there being any determination of the amount of service tax arrears, the resort to the extreme coercive measure of arrest followed by detention was impermissible in law. Consequently, the amount that was paid by the Petitioners as a result of the search of their premises by the DGCEI, without an adjudication much less an SCN, is required to be returned to them forthwith. It is clarified that since the payment was collected by the DGCEI illegally, the refund in terms of this order will not affect the bail already granted to Mr. Pallai.
(IX) The Court is unable to accept that payment by the two Petitioners of alleged service tax arrears was voluntary. Consequently, the amount that was paid by the Petitioners as a result of the search of their premises by the DGCEI, without an adjudication much less an SCN, is required to be returned to them forthwith.
15. In the case of Union of India & others vs. M/s. Bundl Technologies Private Limited, the Hon’ble Division Bench of this Court held as under:-
(I) WHETHER THE AMOUNT PAID DURING INVESTIGATION BY THE COMPANY WAS VOLUNTARILY PAID, UNDER SECTION 74(5) OF THE CGST ACT?
17. Section 74 of the Act deals with determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any willful misstatement or suppression of facts. The relevant extract of section 74 reads as under:-
74. (1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice
xxx
(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.
Thus Section 74(5) of the Act gives an option to a person to make payment of tax, along with interest and 15% of penalty on its own ascertainment of the tax ascertained by proper officer and inform him in writing about such payment.
18. It is pertinent to note that a division bench of Gujarat High Court in MIS BHUMI ASSOCIATE VS. UNION OF INDIA by an interim order directed the Central Board Of Indirect Taxes And Customs was directed to enforce the following guidelines by issuing suitable circular / instructions:
(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 proceedings under Section 67 of the Central /Gujarat Goods and services Tax Act, 2017 under any circumstances.
(2) Even if the assessee comes forward to make voluntary payment by filing Form DRC 03, the assesee 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.
(3) 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.
(4) 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.
The guidelines issued by the division bench are intended to regulate the powers of officers carrying out search and seizure as well as to safeguard the interest of the assessee.
19. The issue which arises for consideration is whether amount of Rs.27, 51, 44,157/- has been paid by thecompany on its own ascertainment under section 74(5) of the Act. In the instant case, there is no material on record to indicate that the amount of Rs.15 Crores and an amount of Rs.12,51,44,157/- which were paid at about 4AM and 1PM on 30.11.2019 and 27.12.2019 respectively were paid on admission by the Company about its liability. There is no communication in writing from company to the proper officer about either self ascertainment or admission of liability by company to infer that such a payment was made under Section 74(5) of the Act. The company intimated the Department vide Communication dated 30.11.2019 that it reserves its right to claim refund of the amount and the same should not be treated as admission of its liability. The relevant extract of communication dated 30.11.2019 reads as under:-
BUNDL TECHNOLOGIES PRIVATE LIMITED
Registered Office, 4th Floor, Annex Building, Maruthi Chambers, Survey No.17/9B, egur Hobli, Roopana Agrahara, Bengaluru, Karnataka, India 560068 CIN:U74110KA2013PTC096530
November 30, 2019
To,
The Office of the Commissioner,
Directorate General of Goods and
Service Tax Intelligence, Hyderabad
H.No.1-11-222/4, Lane Opp.HDFC Bank
Nalli Silks, Begumpet, Hyderabad-500016.
Sub: Submission related to investigation
Ref: Inspection dt:28/29 November 2019 by DGGSTI
Officials at BTPL’s offices situated at
Bangalore, Gurugram and Hyderabad.
Dear Sir,
XXXXX
As an extension of our goodwill conduct and bonafide, we have deposited INR 15,00,00,000/- (Rupees Fifteen Crores Only) with the Exchequer of Government during the pendency of inspection proceedings. The above deposit is without prejudice to and with full reservation of our rights and contentions to seek necessary refund at the appropriate time and therefore, should not be regarded as an admission of liability. The challan of payment of the aforesaid deposit is enclosed herewith for your ready reference as Annexure E .prejudice to and with full reservation of our rights and contentions to seek necessary refund at the appropriate time and therefore, should not be regarded as an admission of liability. The challan of payment of the aforesaid deposit is enclosed herewith for your ready reference as Annexure E.
We assure you of our full co-operation in this matter going forward.
20. The company has also reiterated its stand in GST DRC-03 generated on 2.12.2019, the relevant portion of which is reproduced below:
FORM GST DRC – 03
[See Rule 142(2) & 142(3)]
Intimation of payment made voluntarily or made against the show cause notice
(SCN) or statement
ARN:AD291219000080K Date: 02.12.2019
8. Reasons, if any:
The above payment is made as an extension of our goodwill and bonafide. It is without prejudice to and with full reservation of our rights and contentions to seek necessary refund at the appropriate time and therefore should not be regarded as an admission of liability.
21. Thus it is evident that payments have not been made admitting the liability. On the other hand, the company reserved its right to seek refund and made it expressly clear that payment of the amount should not be treated as admission of its liability. Besides the aforesaid, there is no material on record to establish that guidelines issued by division bench of High Court of Gujarat were followed. Thus for the aforementioned reasons, the first issue is answered in the negative and it is held that the amount was not paid voluntarily under Section 74(5) of the CGST Act.
(II) WHETHER THE AMOUNT WAS RECOVERED FROM THE COMPANY DURING INVESTIGATION UNDER THE COERCION AND THREAT OF ARREST?
22. The officers of the Department have power of Inspection, search and seizure u/s 67(1) of CGST Act whereas Section 70 of the Act confers the power on the authority to summon person to give evidence as well as to adduce evidence. The relevant extract of Section 67(1) and Section 70 of the Act read as under:
67. Power of inspection, search and seizure.
(1) Where the proper officer, not below the rank of Joint Commissioner, has reasons to believe that –
(a) a taxable person has suppressed any transaction relating to supply of goods or services or both or the stock of goods in hand , or has claimed input tax credit in excess of his entitlement under this Act or has indulged in contravention of any of the provisions of this Act or the rules made thereunder to evade tax under this Act; or
(b) any person engaged in the business of transporting goods or an owner or operator of a warehouse or a godown or any other place is keeping goods which have escaped payment of tax or has kept his accounts or goods in such a manner as is likely to cause evasion of tax payable under this Act.
He may authorise in writing any other officer of central tax to inspect any places of business of the taxable person or the persons engaged in the business of transporting goods or the owner or the operator of warehouse or godown or any other place.
70. Power to summon person to give evidence and produce documents.
(1) The proper officer under this Act shall have power to summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry in the same manner, as provided in the case of a civil court under the provisions of the Code of Civil Procedure, 1908 (5 of 1908).
(2) Every such inquiry referred to in sub-section (1) shall be deemed to be a “judicial proceedings” within the meaning of section 193 and section 228 of the Indian Penal Code (45 of 1860).
23. In VODAFONE ESSAR SOUTH LTD VS. UNION OF INDIA’, 2009 (237) ELT 35 (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) PVT. LTD. VS. UNION OF INDIA, 2016 (44) STR 481 DEL and it was held that amount collected during investigation proceeding without any adjudication is liable to be refunded. In CENTURY KNITTERS (INDIA) LTD. VS. UNION OF INDIA’, 2013 (293) ELT 504 (P & H) it was held that any amount illegally collected cannot be retained without issuance of show cause notice and adjudication of liability and such amount is liable to be refunded. Similar view was taken in CONCEPTS GLOBAL IMPEX VS. UNION OF INDIA, 2019 (365) ELT 32 (P & H).
24. In the instant case, an investigation was initiated by DGGI officers and they entered the premises of the Company on 28.11.2019 at 10.30 a.m. in exercise of powers u/s 67(1) of CGST Act. On 30.11.2019 at about 4.00 a.m., a sum of Rs.15 Crores was deposited by the Company under the GST cash ledger. Thereafter summons were issued to officers of company under section 70 of the Act. The officers of the company made a further deposit of Rs.12,51,44,157/- at about 1.00 a.m. The aforesaid amounts were not deposited under section 74(5) of the Act. The amounts were deposited by the company at odd hours, without admitting its liability. The company has been regularly filing service tax returns. There is no iota of material on record to indicate that on the day that the company made payment of the amount, any amount was due to the department. Therefore, it can safely be inferred that payment of the amount was made involuntarily. There is also no material on record to hold that any threat of arrest was extended to officers of the company.
25. The question whether any threat was extended to officers of the company is a question of fact which can’t be adjudicated in a summary proceeding under Article 226 of the Constitution of India. Liberty is reserved to the parties to agitate the issue of threat and coercion in an appropriate proceeding. Accordingly the second issue is answered by stating that amounts were paid by the company involuntarily.
16. As can be seen from the aforesaid judgment of this Court, the Hon’ble Division Bench also negatived the very same contentions urged by the learned counsel for the respondents in the present petition that since the adjudication is pending, refund should not be ordered. This Court has categorically held that the contention of the Department that the amount under deposit must be made subject to the outcome of the pending investigation cannot be accepted. It is therefore clear and evident that in the instant case also, the subject amount of INR 1.5 crores collected from the petitioner – company by the respondents is in violation of Articles 265 and 300-A of the Constitution of India and the same deserves to be refunded back to the petitioner.
17. In view of the aforesaid judgments and the judgment of the Hon’ble Division Bench in Bundl Technologies case (supra), I am of the considered opinion that in the facts of the instant case, in the absence of any material to establish that there was any order or adjudication made by the respondents quantifying the amount of tax / duty payable by the petitioner as on the date of collecting / recovering the same during investigation, the respondents were clearly not entitled to recover the same, leading to the sole inference that the respondents are liable to refund the amount collected by them.
18. Learned Senior counsel for the petitioner is also correct in his submission that in the case of Central Excise vs. KVR Construction – 2012(50) VST 469, while construing Section 11B of the Central Excise Act, the Hon’ble Division Bench of this Court held as under:-
33. We may also refer hereon a Division Bench Judgment of Karnataka High Court in Commissioner of Central Excise v. KVR Construction, 2012 (50) VST 469, where in construing Section 11b, Court said that it refer to claim for refund of duty of excise only and does not refers to any other amount collected without authority of law. That was a case of ‘ Service Tax’ and Court said as under:
“Though under Finance Act, 1994 such service tax was payable by virtue of notification, they were not liable to pay, as there was exemption to pay such tax because of the nature of the institution for which they have made construction and rendered services. In other words, if the respondent had not paid those amounts, the authority could not have demanded the petitioner to make such payment. In other words, authority lacked authority to levy and collect such service tax. In case, the department were to demand such payments, petitioner could have challenged it as unconstitutional and without authority of law. If we look at the conserve, we find mere payment of amount, would not authorize the department to regularise such payment. When once the department had no authority to demand service tax from the respondent because of its circular dated: 17.09.2004, the payment made by the respondent company would not partake the character of “ Service tax” liable to be paid by them. Therefore, mere payment made by the respondent will neither validate the nature of payment nor the nature of transaction. In other words, mere payment of amount would not make it a “ service tax” payable by them. When once there is lack of authority to demand “ Service tax” from the respondent company, the department lacks authority to levy and collect such amount. Therefore, it would go beyond their purview to collect such amount. When once there is lack of authority to collect such service tax by the appellant, it would not give them the authority to retain the amount paid by the petitioner, which was initially not payable by them. Therefore, mere nomenclature will not be an embargo on the right of the petitioner to demand refund of payment made by them under mistaken notion”
19. The aforesaid judgment of the Hon’ble Division Bench has been followed by the Allahabad High Court in the case of EBIZ.COM Pvt. Ltd. vs. Commissioner of Central Excise, Customs and Service Tax and Others – 2016(9) TMI 1405, in order to come to the conclusion that any voluntary payment made by the petitioner is in the nature of pre-deposit which was liable to be refunded back to the petitioner. As stated supra, in the facts of the instant case also that the respondents as regards the recovery of aforesaid sum of INR 1.5 crores from the petitioner on 15.10.2019 is under protest as stated by the respondents themselves, there was no order of adjudication nor any other proceedings or order which initiated by the respondents, which entitled them to recover the said amount from the petitioner in the absence of any order of adjudication or any other material in this regard, the respondents did not have recover the said amount from the petitioner.
20. Insofar as the contentions urged by the respondents that the petitioner ought to have made an application under Section 27 of the Customs Act is concerned, this very contention was also answered against the revenue and in EBIZ.COM’s case supra, it is held as under:-
11. Respondents have filed a counter-affidavit stating that petitioner paid “ Service tax” voluntarily. It is also said that Section 11B of Act, 1944 would not be applicable since ‘ Service Tax’ was deposited voluntarily and not under protest. It is also said that interest was also deposited by petitioner on his own since it was his legal obligation. Against Commissioner’s order dated: 29.08.2012, department reviewed matter and filed appeal before Tribunal which is pending. Since petitioner never filed any application for refund in accordance with Section 11B (3) of Act, 1944, hence respondents cannot entertain any claim of refund, and, no refund claim of petitioner, in law is pending with respondents. No refund is due, automatically. Moreover, order of Commissioner (Appeals) dated: 29.08.2012, is not final since appeal is pending before Tribunal. Board’s Circular dated: 08.12.2014 deals with amount deposited under Section 35F while in the present case it is Section 11B which will be applicable.
Since petitioner never filed application as prescribed under Section 11B, hence no mandamus for refund is permissible.”
21. At any rate, a perusal of Section 27 of the Customs Act, will also indicate that the same would apply only pursuant to an order in respect of customs duty paid by the petitioner and not when the order of tax / duty has to be collected / recovered from the petitioner, which is in the nature of pre- deposit. Under these circumstances, even this contention urged by the respondents cannot be accepted.
22. Insofar as the contention urged by the respondents that the show cause notice having been issued, this Court would not exercise its jurisdiction under Article 226 of the Constitution of India by placing reliance upon the judgment of the Apex Court in the case of State of Punjab & Shiv Enterprises – (2023) 2 Centax 244 (S.C.), is concerned, apart from the fact that the facts obtaining in the said case were completely different, wherein the writ petition against the show cause notice was quashed by the Apex Court, the present petition having been preferred on 21.01.2022, the show cause notice was issued subsequently and mere issuance of subsequent show cause notice cannot be legalise the fact that the original recovery on 15.10.2019 was without jurisdiction or authority of law and violative of Article 265 and 300A of the Constitution of India. Under these circumstances, even this contention of the respondents cannot be accepted and the judgment of the Apex Court in Shiv Enterprises’ case will not apply to the facts of the present case.
23. Insofar as the other judgments relied upon by the respondents are concerned, the same are applicable to the case arising out of determination and liability of the petitioner to pay excise duty and not in the cases where the respondents recovered and collected money from the petitioner without jurisdiction or authority of law and consequently, none of those judgments are applicable to the case on hand.
24. To reiterate, the facts of the instant case clearly establishes that the respondents have recovered INR 1.5 crores during the course of search proceedings, is without jurisdiction or authority of law and without being any order of adjudication and consequently, in the facts of the instant case, the respondents would be liable to pay refund with applicable interest.
25. In the result, I pass the following:-
ORDER
(i) Petition is hereby allowed.
(ii) The petitioner is declared to be entitled to refund of INR 1.5 crores together with interest @ 6% p.a. from 15.10.2019 till the date of payment.
(iii) The respondents are directed to refund the aforesaid amount of INR 1.5 crores together with interest @ 6% p.a. from 15.10.2019 till the date of payment as expeditiously as possible and within a period of three months from the date of receipt of a copy of this order.
(iv) All rival contentions between the parties pursuant to the show cause notice and adjudication proceedings are kept open and no opinion is expressed on the same.
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