In a notable ruling, the Karnataka High Court ordered refund of Rs.2.5 crores and accrued interest “extracted coercively” as payment towards Central Goods and Services Tax ( CGST ) by the Respondent Intelligence Officers.
Writ Petitioner, M/s Kesar Colour Chem Industries has contested the correctness and legality of Investigation conducted under Section 67 of the CGST Act, 2017 and validity of summons issued preceding coercive extraction of Rs.2.5 Crore, paid via Challan in Form GST PMT-06 payment challan.
The Respondent Officers of the Revenue, represented by Jeevan J., submitted before the Karnataka High Court that the proceedings under Section 67 and recovery of Rs.2.5 Crores under Section 74(5) of the CGST Act, 2017 arose from the statement of one Vijay Kumar Gupta, partner of M/s Raj Chemicals, an entity undergoing investigation.
The Revenue contended that the above statement revealed the issuance of invoices without actual supply of any goods towards the Petitioner company. The Revenue further contended that the e-way bills required for transport of goods would prove the lack of movement of actual goods as evidenced by the RFID/ Fastag data.
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Respondent’s primary contention was that the disputed Rs.2.5 Crore had been disbursed by the Petitioner by means of self-ascertainment and that the alleged tax evasion had been uncovered by Officers of the Directorate General of GST Intelligence ( DGGI ) while conducting investigation on M/s Raj Chemicals.
Counsel for the Petitioner, Nikita Badheka, Parth Badheka and Pradeep Kumar .J submitted that the Statement rendered by the Petitioner to the Respondent, along with the cumulative the Rs.2.5 Crore had been extracted by the Intelligence Officers under tremendous duress and coercion; the statement was since retracted by the Petitioner through Affidavit.
The Single-Bench of the Karnataka High Court presided over by Justice S Sunil Dutt Yadav observed that the facts before the Court and submissions made by the Petitioner all point towards lack of self-ascertainment of tax liability by the Petitioner.
The Bench also observed that the process of self-ascertainment under Section 74(5) of the CGST Act, 2017 would require the Department to terminate all proceedings on the payment of the determined amount, furthermore the Department should have issued a fresh show-cause Notice under Section 74(1) if there had been any short-fall of tax paid by the Petitioner.
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In light of any incriminatory findings against the Petitioner, the Karnataka High Court ruled that the recovery of Rs.2.5 Crore by the Revenue is in contravention of Article 265 of the Constitution of India, ordering the same to be refunded to the Petitioner with due interest.
Though various contentions of ill-treatment had been raised by the Petitioner, the High Court abstained from passing decisions on the same as they had not been seriously contested during the oral arguments.
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