No Ascertainment of Liability and Non-Issuance of Notice: Delhi HC directs GST Dept to Refund Rs 23 Lakhs [Read Order]

The Delhi High Court directed the GST Department to refund Rupees 23 lakhs as there was no ascertainment of liability and non-issuance of notice as per the procedure contemplated in the Central Goods & Services Tax Act, 2017 (CGST Act).

The petitioner, Neeraj Paper Marketing Limited, has filed the present petition, inter alia, praying that respondent no.1 be directed to refund the amount of ₹28,20,000/- deposited by the petitioner during the course of search and inspection conducted on 29.07.2022, along with a simple interest of 12% p.a. from the date of payment. The petitioner claimed that it was coerced to deposit the aforesaid amount and that the same cannot be considered as a deposit done voluntarily under Section 74(5) of the Central Goods & Services Tax Act, 2017 (‘CGST Act’).

The petitioner claimed refund of the amounts paid in cash and by debiting the Electronic Credit Ledger (ECL) while the visiting team of respondent no.1 was conducting operations under Section 67(2) of the CGST Act. The principal question that arises for consideration is whether the payments so made could be considered as voluntary payments under Section 73(5) or Section 74(5) of the CGST Act.

The counsel appearing for the respondents submitted that the payments made were voluntary as the petitioner had acknowledged its liability during the inspection conducted on 29.07.2022. It was also stated that the statement of the Director of the petitioner was recorded on that date and that he had admitted that there was a mismatch in the returns filed for the Financial Years 2018-2019 and 2019-2020.

Section 73 of the CGST Act as well as Section 74 of the CGST Act enables a taxpayer to make voluntary payments. In terms of Subsection (5) of Section 73 of the CGST Act, a person chargeable with tax may pay tax on self-ascertainment basis along with an interest, prior to issuance of any notice under Section 73(1) of the CGST Act. If the taxpayer makes any such payments, it would be absolved of the penalty payable under the provisions of the CGST Act.

A Two-Judge Bench comprising Justices Vibhu Bakhru and Amit Mahajan observed that “It is clear from the above that whilst the petitioner has accepted that there was a mismatch in its return regarding the ITC, he did not acknowledge that the ITC was incorrectly availed. On the contrary, the Director of the petitioner had acknowledged that in case there was any tax liability, the same would be paid with interest and penalty. Admittedly, the respondents have not ascertained the said liability and no notice has been issued to the petitioner as contemplated under Rule 142 (1A) of the CGST Rules communicating the details of any tax, interest or liability as ascertained.”

“In view of the above, the present petition is allowed. The respondents are directed to refund the amount deposited by the petitioner by making a payment of ₹23,70,000/- in cash along with interest at the rate of 6% per annum from 13.12.2022 till the date of payment. The respondents are also directed to refund an amount of ₹4,50,000/- by reversing the debit from the petitioner’s ECL” the Bench concluded.

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