2023 (6) TMI 183 - HC - GST

Tax Recovery Invalidated: Procedural Errors Render Enforcement Void Under CGST Act Section 73

HC ruled that tax recovery by respondents was illegal due to procedural violations under CGST Act. The court found no proper show cause notice was issued, ... Voluntary deposit during search - Form GST DRC-03 and Form GST DRC-04 acknowledgment - Notice under Section 74(1) of the CGST Act - Rule 142(2) of the CGST Rules - officer's duty to issue DRC-04 - CBIC instruction No. 01/2022-23 dated 25.05.2022 - guidance on recovery during search and voluntary payment - Refund with interest for recovery made without adjudicationVoluntary deposit during search - Form GST DRC-03 and Form GST DRC-04 acknowledgment - Notice under Section 74(1) of the CGST Act - Rule 142(2) of the CGST Rules - officer's duty to issue DRC-04 - CBIC instruction No. 01/2022-23 dated 25.05.2022 - guidance on recovery during search and voluntary payment - Refund with interest for recovery made without adjudication - Whether the amount deposited by the petitioner during the search could be retained where no notice under Section 74(1) was issued and no acknowledgement in Form GST DRC-04 was given, and whether refund with interest should be directed. - HELD THAT: - The Court held that the payment made on 26.02.2021 in FORM GST DRC-03 following the search could not be retained where the authorities failed to comply with the statutory and administrative safeguards. Rule 142(2) requires the proper officer to issue FORM GST DRC-04 acknowledging payment made in FORM GST DRC-03; in the present case no DRC-04 was issued. Further, no notice under Section 74(1) of the CGST Act was served within the statutory framework. The court relied on the reasoning in Modern Insecticides Ltd. and related decisions examining the CBIC instructions dated 25.05.2022 which advise against recovery during search unless payment is genuinely voluntary and stress the officer's duty to inform taxpayers about voluntary payment procedures. Applying these principles, the deposit made in the context of a search without issuance of DRC-04 or initiation of Section 74(1) proceedings could not be treated as a valid voluntary settlement, and retention of the amount by the respondents was held impermissible. Consequently, the respondents were directed to refund the amount deposited and to pay simple interest at 6% per annum from the date of deposit until payment.Amount deposited by the petitioner during search to be refunded by the respondents with simple interest at 6% per annum from date of deposit; refund to be made within two weeks from receipt of certified copy of the judgment.Final Conclusion: Writ petition allowed: respondents directed to refund the amount recovered through FORM GST DRC-03 without issuance of FORM GST DRC-04 or notice under Section 74(1), with simple interest at 6% per annum, to be paid within two weeks of receipt of certified copy of the order. Issues Involved:1. Illegal recovery of tax without following proper procedure under Sections 73/74 of the Act.The petitioner, engaged in the business of manufacturing aluminum ingots, sought a writ of mandamus to direct the respondent to refund the amount recovered without issuing a show cause notice or passing an order under the Central GST Act and Haryana GST Act. The petitioner was forced to deposit tax on purchases made from a specific entity, without the issuance of a GST DRC-04 or following the necessary adjudicating procedures. The respondent had not issued any notice under Section 74(1) of the CGST Act, leading to the recovery of a significant amount without due process.2. Compliance with government instructions and legal provisions.The Court referred to a previous judgment involving a similar issue, highlighting the importance of following government instructions to prevent harassment to taxpayers. The instructions emphasized that tax recovery should not occur during a search unless voluntary, and payments should be made in the prescribed form, such as GST DRC-03. Failure to issue the acknowledgment in FORM GST DRC-04 and non-compliance with Rule 142(2) of the CGST Rules were noted in the present case. The respondents were directed to adhere to the government instructions and return the amount with interest as per the ruling.3. Duty of the officer and procedural lapses.The Court emphasized the duty of the officer to inform taxpayers about voluntary tax payment provisions and issue necessary documents like DRC-03 promptly. In this case, despite the petitioner depositing the amount as per the liability assessed, the officer failed to issue the required documents or notices under the CGST Act. The lack of compliance with procedural requirements and government instructions led to the Court's decision to direct the refund of the amount with interest to the petitioner within a specified timeframe.The judgment by the High Court of Punjab and Haryana addressed the issues of illegal tax recovery, compliance with government instructions, and procedural lapses, ultimately directing the respondents to refund the amount to the petitioner with interest due to the failure to follow proper procedures under the CGST Act.