2021 (4) TMI 366 - HC - GST

Court orders Rs. 2 crore refund due to lack of due process under CGST Act.

The court granted the writ petition, ordering the refund of Rs. 2 crores to the petitioner within four weeks. It emphasized the importance of following ... Determination of tax under Section 74 - Voluntary payment under Section 74(5) - Self-ascertainment / self-assessment - Prohibition on collection prior to final determination - Refund of amounts paid during investigation - Form GST DRC-03 as intimation of voluntary paymentVoluntary payment under Section 74(5) - Self-ascertainment / self-assessment - Form GST DRC-03 as intimation of voluntary payment - Whether the instalments paid by the petitioner during investigation amounted to a valid self-ascertainment under Section 74(5) and thereby precluded further proceedings or refund. - HELD THAT: - The Court held that Section 74(5) and (6) provide an avenue for an assessee to effect a genuine self-ascertainment of tax, interest and penalty prior to issuance of a show cause notice, and that such self-ascertainment must be an unconditional determination by the assessee so as to attract the bar in Section 74(6). Mere payments made during the course of an investigation, particularly where the statement and schedule of instalments were subsequently retracted and the assessee continued to contest liability, do not constitute the unconditional self-ascertainment contemplated by Section 74(5). The Court found that the records did not demonstrate an unqualified acceptance by the assessee nor an application of mind by the revenue treating the payments as adequate; the assessee retracted its earlier statement and persisted in contesting liability, and investigation and show-cause proceedings remained pending. Accordingly, the payments recorded as 'voluntary' in FORM GST DRC-03 did not convert the instalments into a final self-ascertainment that would oust further proceedings under Section 74. The Court therefore rejected the revenue's contention that Section 74(5) amounted to a statutory sanction for advance collection in the circumstances of this case. [Paras 15, 16, 24, 25, 26]Payments made during the investigation did not amount to a valid, unconditional self-ascertainment under Section 74(5) and did not preclude further proceedings.Prohibition on collection prior to final determination - Refund of amounts paid during investigation - Determination of tax under Section 74 - Whether the amounts collected during the investigation should be refunded pending final determination of tax liability. - HELD THAT: - Relying on the long-standing principle that coercive collection prior to a final determination is impermissible and having concluded that the instalments did not constitute a valid self-ascertainment, the Court held that the collection could not be sustained. Although statutory procedure exists for voluntary payments (including use of FORM GST DRC-03), that procedure does not validate coerced or conditional payments made in the course of an ongoing investigation where ascertainment is retracted and show-cause proceedings are not foreclosed. In the exercise of writ jurisdiction the Court directed restitution: the amount collected during the investigation was to be refunded to the petitioner within four weeks. [Paras 25, 26, 29]The sum collected during investigation is to be refunded to the petitioner; mandamus granted directing refund within four weeks.Final Conclusion: Writ petition allowed: the Court held that the instalments paid during the course of investigation did not amount to an unconditional self-ascertainment under Section 74(5) and, accordingly, directed refund of the amounts collected during the investigation within four weeks. Issues Involved:1. Harassment by tax authorities.2. Refund claim of Rs. 2 crores with interest.3. Legality of tax demand without due process.4. Validity of documents seized during the search.5. Voluntariness of tax payment during investigation.6. Compliance with GST laws and procedures.7. Allegations of coercion and high-handedness by tax authorities.8. Legal provisions under Section 74(5) of the CGST Act, 2017.9. Requirement of show cause notice before tax collection.Issue-wise Detailed Analysis:1. Harassment by Tax Authorities:The petitioner sought a mandamus to restrain the first respondent from harassing them without addressing their grievance petition and refund claim. The court noted that the petitioner alleged high-handedness by the authorities during the search and claimed that the tax liability admission was not voluntary but coerced.2. Refund Claim of Rs. 2 Crores with Interest:The petitioner requested a refund of Rs. 2 crores paid during the investigation, alleging that the payment was made under coercion. The court granted the mandamus, ordering the refund of Rs. 2 crores within four weeks, emphasizing that no collection should be made before the final determination of liability.3. Legality of Tax Demand Without Due Process:The court highlighted that any demand for tax must follow due process, including the issuance of a show cause notice. The court found that the payments made by the petitioner were not voluntary and were retracted, thus failing the requirement of 'ascertainment' under Section 74(5).4. Validity of Documents Seized During the Search:The petitioner's documents and registers were seized during the investigation. The court did not delve deeply into the validity of the seizure but focused on the legality of the tax collection process.5. Voluntariness of Tax Payment During Investigation:The petitioner argued that the tax payments were made under coercion and were not voluntary. The court agreed, noting that the payments were made under stress and were retracted, thus not constituting a valid self-ascertainment under Section 74(5).6. Compliance with GST Laws and Procedures:The court examined the compliance with GST laws, particularly Section 74 of the CGST Act, 2017. It emphasized that the scheme of assessment under Section 74 does not permit advance tax collection without proper ascertainment and issuance of a show cause notice.7. Allegations of Coercion and High-handedness by Tax Authorities:The petitioner alleged that the tax authorities acted with coercion and high-handedness, especially during the festive season, causing distress to the petitioner's employees and family. The court took these allegations seriously and found that the payments were made under duress.8. Legal Provisions Under Section 74(5) of the CGST Act, 2017:The court analyzed Section 74(5) and concluded that it does not provide statutory sanction for advance tax payment pending final determination. The court emphasized that any payment under Section 74(5) must be voluntary and based on self-ascertainment or proper officer's ascertainment, which was not the case here.9. Requirement of Show Cause Notice Before Tax Collection:The court reiterated that no tax collection should occur before issuing a show cause notice and determining the liability. The court cited various judgments supporting this principle and found that the petitioner's payments were prematurely collected without following due process.Conclusion:The court allowed the writ petition, ordering the refund of Rs. 2 crores to the petitioner within four weeks and emphasizing the importance of following due process and statutory provisions under the CGST Act, 2017. The court also highlighted the need for tax authorities to act fairly and avoid coercive measures during investigations.