GST Payment Made ‘Under Protest’ cannot be Construed as Admission of Liability: Himachal Pradesh HC [Read Order]

The Court quashed an order passed under Section 74 of the HP GST Act, 2017, imposing interest and penalty based on a mistaken assumption that the taxpayer had admitted the liability by reversing Input Tax Credit ( ITC ).

The Division Bench comprising Justice Tarlok Singh Chauhan and Justice Sushil Kukreja observed that when a taxpayer deposits an amount under protest, it implies a denial of liability and preserves the right to challenge the same through proper legal channels. The Bench categorically stated that the act of making such a payment does not amount to voluntary admission of tax dues.

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It observed that “Once the petitioner had deposited the amount ‘under protest’, the same could not have been considered to be an admission of liability because the necessary corollary of deposit under protest is that the amount towards the alleged liability has been deposited without admitting the liability and inherent therein is his right to challenge the order”.

The petitioner company, Shyama Power India Ltd., had reversed ITC amounting to ₹1.11 crore on 31.03.2023 under protest, citing undue pressure from the GST department. However, the Commissioner of State Taxes and Excise went on to treat this payment as an admission of tax liability and proceeded to levy additional interest of ₹1.32 crore and penalty of ₹1.11 crore under Section 74.

The High Court criticized the adjudicating authority for its approach, holding that the authority failed to conduct a proper and impartial inquiry into the ITC claim and wrongly assumed the taxpayer's reversal to be voluntary. Referring to Black’s Law Dictionary, the Court clarified that a payment ‘under protest’ explicitly denies the legality of the demand and retains the payer’s right to seek redressal.

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“Furthermore, the adjudicating authority completely erred and failed to take note that Input Tax Credit to the tune of Rs. 1,11,45,134/- could not have been reversed, merely on the basis of the suspicion without carrying out any independent investigation coupled with other evidence. Respondent No. 4 was required to conduct an impartial inquiry regarding the aforesaid amount and could not have based its decision solely on summary of show cause notice in Form DRC-01” added the court.

Quashing the impugned order, the Court directed the tax department to issue a fresh DRC-07 reflecting only the disputed tax amount of ₹1.11 crore, thereby enabling the petitioner to challenge the claim before the appellate authority. The Court further stated that no penalty or interest could be imposed merely on the basis of a payment made under protest.

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