Case Law Details
Coronation Fireworks Factory Vs Joint Director (Madras High Court)
Madras High Court recently examined a significant case involving the Coronation Fireworks Factory and the Joint Director. The primary issue was whether a refund could be demanded for cash seized under Section 67 of the GST Act when a show cause notice (SCN) is issued for its appropriation against tax liability.
On October 8, 2020, an inspection led to the seizure of Rs. 1,82,25,000 from a partner of the petitioner, K. Jeyashankar. The seized amount was invested in a Fixed Deposit in the name of the President of India. Subsequently, the petitioner received a show cause notice dated December 28, 2023, demanding appropriation of the seized cash against their tax liability.
The petitioner challenged the show cause notice, citing a previous Tribunal order that indicated the seized cash should be refunded if not confiscated or used for tax liability. The Tribunal had ruled in favor of the petitioner, stating that the seizure was irrelevant to the case’s core issues.
The Madras High Court assessed whether the show cause notice issued after the Tribunal’s decision was valid. The court noted that the show cause notice did not propose confiscation of the cash but only sought to appropriate it towards the tax liability. The petitioner argued that such a notice was an attempt to undermine the Tribunal’s favorable order.
The Senior Standing Counsel for the respondent argued that the amount could be appropriated towards tax liability if the demand in the show cause notice was upheld. However, if the demand was dropped, the petitioner would be entitled to a refund.
The court concluded that the petitioner could not avoid the show cause proceedings solely based on the Tribunal’s decision. It ruled that the petitioner must respond to the show cause notice, and if the demand is not upheld, the seized amount should be refunded.
The Madras High Court dismissed the writ petition, directing the petitioner to participate in the show cause proceedings. The court emphasized that if the petitioner successfully contests the tax liability, the seized amount should be refunded accordingly.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
Heard learned counsel for the petitioner and learned Senior Standing Counsel for the respondents.
2. The petitioner is challenged the impugned show cause notice Nos.106, 107, 108/2023 GST, dated 28.12.2023. The impugned show cause notice has been issued to the petitioner for the assessment period from July 2017 to October 2020.
3. It is the case of the petitioner that an inspection was carried out on 08.10.2020 and there was a seizure of cash for a sum of Rs.1,82,25,000/-, wherein, it has been stated that the aforesaid amount of Rs.1,82,25,000/-, was recovered from one of the partners of the petitioner viz., K.Jeyashankar and was liable for confiscation under the provisions of the Central Exercise Act, 1944/respective GST Act, 2017.
4. It is the case of the petitioner that pursuant to the aforesaid seizure, the show cause notice Nos.04, 05, 06 & 07/2021 C-Ex, dated 03.09.2021 was issued to the petitioner, in which also, there was a reference to the aforesaid seizure of the amount of Rs.1,82,25,000/-, which was invested in a Fixed Deposit in the name of the President of India.
5. The learned counsel for the petitioner submits that the aforesaid show cause notice issued on 03.09.2021 under the provisions of the Central Exercise Act, 1944, culminated in Order-in-Original No.MDU/CEX/COM/01 to 04/2023, dated 31.01.2023.
6. It is submitted that the petitioner had, also, challenged the aforesaid order before the Customs, Exercise and Service Act Appellate Tribunal in Appeal No.40138 of 2023, along with appeal No.40141 of 2023, filed by the one of the partners , K.Jeyasankar together with the other appeals and that the Tribunal
7. The learned counsel for the petitioner submits that in the order, the Tribunal has also held as under:
“13.15. Before we part, it has to be noted that an amount of Rs.1,82,25,000/- was seized in cash from the residential premises of Shri K. Jeyakumar. However, the show cause notice does not propose to confiscate the same or appropriate towards the excise duty. The adjudicate the same or appropriate towards duty liability. Therefore, it is to be understood that the seizure of cash is of no relevance or consequence to the case set up by the department. Consequently, the seized cash has to be refunded to the appellant, if not done already. So, ordered accordingly.”
8. It is submitted that in the teeth of the aforesaid order, the backdated impugned show cause notice dated 28.12.2023 has been issued. It is further submitted that the said show cause notice was dispatched only on 27.03.2024 and received by the petitioner on 28.03.2024.
9. It is, therefore, submitted that the impugned show cause notice proceedings is without jurisdiction and clearly intended to defeat the rights that have accrued to the petitioner pursuant to the order in Appeal No.40138 of 2023
10. The learned counsel for the petitioner would also submit that various High Courts have held that there is no scope for either seizure or confiscation of cash.
11. It is therefore, submitted that Section 67 of the respective GST enactments are clearly eschew seizure of cash and therefore, the amount seized has to be refunded back in terms of the decision of the Tribunal as mentioned above.
12. On the other hand, the learned counsel for the petitioner has also drawn the attention to the clarification issued by the Commissioner (GST) Investigation, CBIC, dated 25.05.2022, wherein 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. It is further submitted that this Writ Petition deserves to be allowed.
13. The learned Senior Standing Counsel for the respondent would submit that as against the final order of the Tribunal in Appeal No.40138 of 2023 dated 20.03.2024, the Department is in the process of filing statutory appeal before this Court.
14. That apart, it is submitted that the show cause notice does not contain a proposal for confiscating the cash, that was seized from the custody of the petitioner’s partner on 08.10.2020.
15. The learned Senior Standing Counsel for the respondent would, further, submit that in the show cause notice, there is only proposal to appropriate the aforesaid amount towards the tax liability and that the aforesaid amount has been invested in a Fixed Deposit in the name of the President of India.
16. It is submitted that the seized amount has not been confiscated and therefore, the petitioner will be entitled to refund, if the demand proposed in the impugned show cause notice, dated 28.12.2023, is dropped. Therefore, there is no merits in the present Writ Petition.
17. Having considered the arguments advanced by the learned counsel for the petitioner and Senior Standing Counsel for the respondent, the Court is of the view that there is no merits in the present Writ Petition and this Writ Petition is liable to be dismissed.
18. The petitioner cannot scuttle the Show Cause proceedings initiated under the provisions of the respective GST enactments, merely because, the petitioner has secured favourable Order from the Tribunal vide Final Order Nos.40303 to 40311 of 2024, dated 20.03.2024 in Appeal No.40138 of 2023.
19. Further, the impugned show cause notice has also only sought to appropriate the amount that was seized on 08.10.2020 from the custody of the petitioner’s partner. That apart, the amount, that was seized on 08.10.2020, can be appropriated only towards the tax liability, if any of the petitioner under the provisions of the respective GST enactments and it is for the petitioner to explain as to why the aforesaid amount should not be appropriated towards the tax liability of the petitioner.
20. Therefore, this Writ Petition is liable to be dismissed. The petitioner is directed to participate in the impugned show cause notice proceeding by filing proper reply within a period of 30 days from the date of receipt of a copy of this order.
21. The respondent shall consider and pass orders on merits. Needless to state, in case the petitioner succeeds, the seized amount has to be refunded back to the petitioner.
With above observation, this Writ Petition is dismissed. No costs. Consequently, connected miscellaneous petition is closed.
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