EXCERPT
A Writ Petition was filed under Article 226 of the Indian Constitution for issuing Writ of Mandamus. It was filed to restrain Senior Intelligence Officer and Directorate General of Goods and Service Tax from demanding any amount from the Petitioner, except by following the due process of law. It further directed to refund Rs. 2 crores along with statutory interest under CGST Act 2017 and return the documents seized at the time of the search.
FACTS OF THE CASE
The Petitioner was registered Small Scale Industry under the MSME Act and an Assessee under the Goods and Service Tax Act, 2017. An investigation on 22.10.2019 was conducted in the premises of the petitioner where various documents and registers were seized. A statement was recorded who deposed to the affidavit filed in support of the petition, to effect that the Petitioner has not discharged its GST liability correctly. He had accepted the mistake in the computation of GST and assured the Respondents that the liability would be discharged at the earliest with applicable interest. The undertaking was signed by the MD. On the same day, the Petitioner remitted a sum of Rs. 1 crore in FORM GST DRC-03 corresponding to Rule 142(2) and (3) and Section 74(5) of the Act. The second instalment of the tax was 30.10.2019.
On 05.11.2019 MD of the petitioner retracted his statement. The petitioner detailed that it had no liability to tax and the officials were forced to accept the liability to tax. Also, the admission was by no means voluntary. The petitioner accused the authorities of high-handedness also claimed malafide conduct of the proceedings. Further scant regard was expressed for the sentiments of the family of MD and employees of the Petitioner. The visit was on the eve of Deepavali and thus couldn’t even disburse bonus and gifts to employees. The investigation was carried out in an intrusive and acrimonious fashion.
ARGUMENTS
The Respondents contended that the petitioner was engaged in large-scale tax evasion. He had not been paying taxes that is legitimately bound to pay. Thus, he had voluntarily offered to remit tax. There was been no co-operation extended by the petitioner in the proceedings for inquiry. He made no appearances on the issuance of summons and thus the investigation was delayed.
The Respondents confirmed that the completion of proceedings for the investigation leading to the issuance of show-cause notice will take no less than six months. It was in these circumstances that the Petitioner had to press Mandamus seeking a refund of the amount of Rs.2 crores paid at the time of the investigation. According to the Respondents, the amounts had been paid in line with the schedule of payments voluntarily suggested by the Petitioner. As such there was no justification whatsoever for seeking such a refund.
The Petitioner relied upon several cases such as:
(i) Gee Kay International v. UOI,
(ii) Dabur India Ltd. v. State of Uttar Pradesh,
(iii) Vodafone Essar South Ltd. v. UOI and
(iv) Cleartrip Private Ltd. v. UOI
In support of the contention that any amount collected during the investigation should be refunded in the absence of any determination of demand as against the concerned assessee.
The Respondent contended that the above decisions were rendered in the context of the erstwhile of Central Excise and Service Tax Enactments. There was no express statutory provision for collection of an amount during investigation whereas the present remittances had been made in line with Section 74(5). Hence were permitted statutorily. Before the inception of the GST Act, instances were rife when officials of DRI and Customs Department were infamous for collecting advance payments of tax from Assesses, many a time under coercion, and in the course of the investigation itself. There were several decisions of Courts wherein such acts have been frowned upon, with Courts consistently holding that no amounts may be collected before an actual determination of an amount payable by an assessee. With the inception of Section 74(5), it was the case of the revenue that the collection of amounts in advance has attained statutory sanction, provided the same was voluntary in Form GST-DR03.
The Respondents submitted that the remittances made by the petitioner during investigation in terms of Section 74(5) amounted to ‘self- ascertainment’. Having remitted two instalments of the tax as per its ascertainment, it cannot now pray for a mandamus seeking a refund of the amount. The Respondents argued, the Petitioner was well aware of the fact that its transactions were liable to tax and any remittances effected would be adjusted against final tax liability.
COURT’S OBSERVATION
The legal issue raised as to whether the Petitioner was entitled to refund of amounts paid during the investigation, the Respondents relies upon provisions of Section 74(5) of the Act which provides for a determination of tax not paid/short paid/erroneously refunded/ wrongful availed/utilization of Input Tax Credit (ITC) because of fraud, wilful misstatement or suppression of facts. The remittance under Section 74(5) was in terms of Rule 142 of the Central Goods and Services Tax Rules, 2017 (in short ‘Rules’) and had to be made in Form GST DRC-03.
The court had observed that the argument was flawed and was not in agreement with the submission that Section 74(5) was a statutory sanction for advance tax payment, pending a final determination in assessment. This was contrary to the scheme of assessment under Section 74, as under paragraphs 12 to 16 above.
The ratio as relied on in cases in Petitioner are to the effect that no collection can be insisted upon before a final determination of liability had been made. The decisions still hold the field. What Section 74(5) provides is the first opportunity to an assessee to pay tax, interest, and penalty liability even before the issuance of a show-cause notice and such acceptance would have to be in the form of either self-ascertainment or an ascertainment by the proper officer.
Statement recorded at the time of search admitting GST liability and setting the scheme of instalments had been retracted by the petitioner on 05.11.2019, The petitioner had consistently and vehemently contested the liability to tax. The records also did not contain any ascertainment by the officer. The tabulation of payments in this case waP joint, the petitioner offered a sum of Rupees Seven Crores (since retracted) and the Officer to ascertain the balance. This exercise had not been carried out and, hence, the requirement of ‘ascertainment’ under Section 74(5), failed.
Further merely because an assessee had, under the stress of the investigation, signed a statement admitting tax liability and 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 amounted to an unconditional determination and not one that is retracted as in the present case.
In this case, inquiry and investigation were ongoing, personal hearings have been afforded and both the parties were 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 were wholly misconceived.
The court relied on the case of M/S Bhumi Associate v. UOI, where the Gujarat High Court formulated certain guidelines for the resolution of the same issue as in the present case observed that the winds of change brought about by the era of GST did not appear to have made an impact on this position.
COURT’S DECISION
The court relied on the above cases and with the contentions raised, held that the mandamus as sought for by the petitioner was issued. The amount collected, of Rs. 2 crores shall be refunded to the petitioner within 4 weeks from the date of judgment. The writ petition was thus allowed.
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