The Delhi High Court has recently directed the GST department to release a refund of Rs. 1.8 crores along with an interest of 6% for the reason that the department has not complied with the CBIC circular prohibiting payment during search proceedings and prescribing guidelines for receipt of voluntary payment by the assessee.
the petitioner, Vallabh Textiles, is in the business of trading in ReadyMade Garments (RMG) is also engaged in selling these very goods on behalf of third parties, albeit in the domestic market, on a commission basis.During a search proceeding against the petitioner, NE was deposited with the officials of the department Rs.1.15 crores, which included tax, interest and penalty.
The petitioner approached the High Court seeking a refund by observing that the deposit of Rs.1,80,10,000/- was not voluntary. According to them, the statements and documents, on which the signatures of Mr. Sumit Jain were obtained on 17.02.2022 and 24.02.2022, were a product of coercion.
Justice Rajiv Shakdher and Justice Tara Vitasta Ganju observed that if the person chargeable with tax takes recourse to such a route, the proper officer is restrained from serving any notice qua tax or penalty under the provisions of the 2017 Act or the 2017 Rules framed thereunder, 2 unless the amount which is self-ascertained by the person chargeable with tax falls short of the amount payable as per law.
“This leeway is also available, where the person chargeable with tax is served with a show cause notice and pays the tax, along with interest, under Section 50 of the 2017 Act within thirty [30] days of the issue of the show-cause notice. 4 In such eventuality, a penalty is not leviable, and all proceedings in respect of such notice are deemed to be concluded,” the Court said.
The Court opined that where, however, before service of notice or statement, the person chargeable with tax, based on self-ascertainment, seeks to make payment of tax and interest, in consonance with the leeway given under sub-section (5) of Section 73 [which relates to cases not involving fraud, wilful misstatement or suppression of facts to evade tax] or as the case may be, the payment of tax, interest and penalty under sub-section (5) of Section 74 [which relates to cases involving fraud, wilful misstatement or suppression of facts to evade tax], he is required to inform the proper officer of such payment made in the prescribed form i.e., GST DRC-03.
“Clearly, the facts which have emerged, disclose that although payments were made in the prescribed form i.e., GST DRC-03, no document has been placed on record by the official respondents/revenue, demonstrating acknowledgement of having accepted the payment,” the Court said.
Allowing the petition of the assessee, the division bench held that “Therefore, the stand taken before us by the official respondents/revenue, that this was a voluntary payment, based on self ascertainment of tax, interest and penalty, is not established, as the regime incorporated under the provisions of Section 73/74 of the 2017 Act and the 2017 Rules, adverted to hereinabove, has not been adhered to.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.”
“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,” the Court held.
Concluding the order, the Court added that “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.”
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