RELEVANT STATUTORY PROVISIONS
(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.
(6) The proper officer, on receipt of such information, shall not serve any notice under sub-section (1), in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder.
(7) Where the proper officer is of the opinion that the amount paid under sub-section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-section (1) in respect of such amount which falls short of the amount actually payable.
(8) Where any person chargeable with tax under sub-section (1) pays the said tax along with interest payable under section 50 and a penalty equivalent to twenty-five per cent. of such tax within thirty days of issue of the notice, all proceedings in respect of the said notice shall be deemed to be concluded.
Rule 142(2): Where, before the service of notice or statement, the person chargeable with tax makes payment of the tax and interest in accordance with the provisions of sub-section (5) of section 73 or, as the case may be, tax, interest and penalty in accordance with the provisions of sub-section (5) of section 74, or where any person makes payment of tax, interest, penalty or any other amount due in accordance with the provisions of the Act [whether on his own ascertainment or, as communicated by the proper officer under sub-rule (1A)], he shall inform the proper officer of such payment in FORM GST DRC-03 and the proper officer shall issue an acknowledgement, accepting the payment made by the said person in FORM GST DRC–04.
Director General of GST Intelligence (in short DGGI) usually conducts inspection, search operation in any places of taxable persons by virtue of its power u/s 67 of CGST Act and also collect intelligence based informations pertaining to taxable persons. As a result of such exercise being carried out, if the department finds some leakages of revenue, such taxable persons generally, are asked by the department to make contemporaneous payment of GST as ascertained by the department on the basis of such exercise.
May be due to pressure from the department, taxable persons on many occasions, choose to deposit GST either under protest or without protest in order to have peace of mind.
Whether such contemporaneous payment of GST are valid under GST law?
LET’S ANALYZE IN DETAIL
Section 74 provides for determination of tax not paid or short paid or erroneously refunded or the wrongful availment or utilization of Input Tax Credit (ITC) by reason of fraud, willful misstatement or suppression of facts. Subsection (1) states that if the officer feels that the aforesaid circumstances arise in any case, he shall issue a show cause notice to the person concerned calling for an explanation in this regard and also proposing interest under Section 50 and penalty equivalent to the tax proposed to be levied. Sub-section (2) states that the notice shall be issued at least six months prior to the time limit specified in Section 74(10) for issuance of the order of assessment. Sub-section (3) states that where a notice has been issued under subsection (1), it shall be supported by a statement containing the details of tax unpaid, short paid or erroneously refunded or ITC wrongly availed or utilized for such purpose other than those covered under sub-section (1) of Section 73. According to sub-section (4), the statement referred to is the same as in subsection (3) of Section 73, however additionally mentioning as a pre-condition the alleged fraud, willful misstatement or suppression of facts with the intention to evade tax.
Sub-section (5) read with sub-section (6), which is critical to the present topic, provides the first opportunity to an taxpayer for an amicable settlement of an assessment before the authorities. It states that an assessee may, prior to receipt of notice under sub-section (1), pay the tax along with interest under section 50 and penalty equivalent to 15% of such tax, on the basis of a self-ascertainment or as ascertained by the proper officer under information to him. On receipt of the information, sub-section (6) provides that no show cause notice shall be served under section 74(1) in respect of the tax and interest. The provisions of subsection (5) and (6) of Section 74 thus provide an opportunity for the assessee and/or the revenue to ascertain the proper amount of tax, interest and penalty
MEANING OF THE TERM ‘ASCERTAINMENT’
What meaning could be ascribed to the term ascertainment? In the case of Shri Nandhi Dhall Mills India Private Limited Vrs SIO WP 5192 of 2020 dated 07.04.2021, the honble Madras High Court has held in Para 27 –
Merely because an assessee has, under the stress of investigation, signed a statement admitting tax liability and has also made a few payments as per the statement, cannot lead to self-assessment or self-ascertainment. The ascertainment contemplated under Section 74(5) is of the nature of self-assessment and amounts to a determination which is unconditional, and not one that is retracted as in the present case. Had such ascertainment/self-assessment had been made, there would be no further proceedings contemplated, as Section 74(6) states that with ascertainment of demand in Section 74(5), no proceedings for show cause under Section 74(1) shall be issued. In this case, enquiry and investigation are on-going, personal hearings have been afforded and both the parties are fully geared towards issuing/receiving a show cause notice and taking matters forward. Thus, the understanding and application of Section 74(5) in this case, is, in my view, wholly misconceived.
In SCA.No.3196 of 2021 (M/s. Bhumi Associate vs. Union of India through the Secretary) the Honble Gujarat High Court vide its interim order has formulated the following guidelines for resolution of the above issues. The matter is pending for final decision.
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, epayment 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 DRC03, the assessee should be asked/ advised to file such Form DRC03 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 aforestated directions, then strict disciplinary action should be initiated against the concerned officer.”
Under the erstwhile regime, it has been held in following cases that any amount collected during investigation should be refunded in the absence of any determination of demand as against the concerned assessee:
Gee Kay International vs. Union of India (2008 (230) E.L.T. 590 (P&H)
2. Dabur India Ltd. vs. State of Uttar Pradesh (1990 (49) E.L.T. 3 (S.C.)
3.Vodafone Essar South Ltd. vs. Union of India (2009 (237) E.L.T. 35 (Bom.)
4. Cleartrip Private Ltd. vs. Union of India (2016 (42) S.T.R. 948 (Bom.)
DOES THE LAW ALLOW GST OFFICERS TO USE COERCIVE MEASURES DURING INVESTIGATION?
Honble High Court of Andhra Pradesh in the case of Agarwal Foundries Vrs UOI 2020 TIOL 1898 has held that it would be futile for the department to claim any liberty to torture or use physical violence during investigation.
CAN TAXABLE PERSONS BE ‘ADVISED’ BY DEPARTMENT TO DEPOSIT CERTAIN SUM PENDING INVESTIGATION?
Sub-Section (5) of Section 74 of the Act gives a choice to the tax payer to make any payment, if he is so chooses, but it does not confer any power on the respondents to make a demand as if there has been a determination of liability of the Assessee and demand tax along with interest and penalty.
In the case of Deem Distributors Vrs UOI WP 7063/2021, the honble High Court vide Para 22 states that
In our opinion, no tax demand can be issued or raised when investigation is still in progress. The respondents cannot be allowed to put the cart before the horse and collect any tax, interest or penalty before they determine, in an enquiry, after putting the petitioner/assessee of notice, and we are of the opinion that their action is wholly arbitrary and without jurisdiction.
MAINTAINABILITY OF WRIT ON REFUND
Honble Apex Court in the case of Godavari Sugar Mills Vrs State of Maharastra & Others reported in 2 SCC 439 (2011) has held that the power of high court to issue appropriate direction directing refund either i) where assessment was without jurisdiction or ii) tax was collected without authority of law, is vested in High Courts.
In exercising such power, Honble Karnataka High Court in the case of Buldl Technologies Vs UOI WP 4467 dated 14.09.2021, directed the department to issue refund which was collected without authority of law.
TAX COLLECTED WITHOUT THE AUTHORITY OF LAW IS LIABLE TO BE REFUNDED
It has been held consistently by various high courts across the nation that tax collected without the authority of law, or tax deposited mistakenly, is liable to be refunded.
Tax collected pending completion of investigation falls under the first limb. Reliance is places on following decisions:
Comsol Energy Vrs State of Gujrat Civil 11905 of 2020 dated 21.12.2020 (Guj. HC)
Nilkamal Ltd Vrs Commissioner of GST and Central Excise ST Appeal No.40147 of 2020 dated 23.06.2021
Disclaimer: The contents of this document are solely for informational and knowledge purpose. Neither have I accepted any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any action taken in reliance thereon.