2023 (8) TMI 691 - HC - GST

Refund ordered of GST sums collected pre-show cause; Section 74(1), 74(5) disallow retention without finalized liability

HC held that amounts collected during investigation without issuance of show cause notice under Section 74(1) of the GST Act cannot be retained by the ... Rejection of Refund claim of voluntary deposit (during investigation) - recovery of GST from petitioner without serving a show cause notice in accordance with Section 74(1) of GST Act - Violation of principles of natural justice - HELD THAT:- A bare reading of provisions of Section 74(1) of the Act makes it clear that it provides for determination of tax not paid, shortly paid or erroneously refunded or wrongful availment of ITC by reason of fraud, willful misstatement or suppression of facts etc. The sub-Section 5 of Section 74 on the other hand, provides an opportunity to an assessee for amicable settlement of an assessment before the authorities prior to receipt of show cause notice and the assessee may pay at that stage the tax along with interest and penalty on the basis of ‘self ascertainment’ or on ascertainment by the proper officer. It is, however, well settled proposition of law that Section 74(5) of the Act cannot be considered as a statutory sanction for advance tax payment, pending final determination in the assessment because that would certainly be contrary to scheme of assessment as set out under Section 74 - Further, it is also the well established that no collection of tax from an assessee can be insisted upon prior to final determination of liability being made. Whether the deposit of sum Rs. 50.70 lacs which was made by the petitioner during the course of investigation, is to be considered as voluntary deposit of amount which had allegedly been claimed by it by way of ITC on the basis of purchases made by it from M/S Royal which are alleged to be false purchases? - HELD THAT:- The ‘self ascertainment’ which is contemplated under Section 74(5) of the Act, 2017 is in the nature of ‘ self assessment’ and amounts to a determination by it which is unconditional and not as in the present case when shortly after depositing the amount Rs. 50.70 lacs, the petitioner approached the revenue for refund of the same. Such recovery is not permissible - Further, no crystalised liability was shown to be existing against the petitioner and no show cause notice had been issued to it either at that time or even till now and the amount of Rs. 50.70 lacs was recovered from it during investigation and has been retained by it. In similar circumstances in CENTURY KNITTERS (INDIA) LTD. AND OTHERS VERSUS UNION OF INDIA AND OTHERS [2013 (6) TMI 245 - PUNJAB & HARYANA HIGH COURT], a Bench of this Court had observed that unless and until demand was finalised and existing, no crystalised liability was existing against the petitioner and the revenue could not retain any amount in absence of specific statutory provisions and the refund of the amount so recovered was ordered. Similarly, in M/S CONCEPTS GLOBAL IMPEX THROUGH ITS PARTNER SH. SANJEEV ARORA VERSUS UNION OF INDIA AND OTHERS [2018 (11) TMI 688 - PUNJAB AND HARYANA HIGH COURT], a Co-ordinate Bench of this Court was dealing with a case wherein, at the time of import of goods, the duty leviable thereon, was paid but the Directorate of Revenue Intelligence has pressurized the petitioner to pay another sum of Rs. 42 lacs while detaining the goods in transit. The petitioner submitted that the same had been paid without there being any show cause notice or order confirming the demand and the same was in violation of Article 265 of the Constitution of India as it was paid under the pressure of DRI officials. It was held that since there was no show cause notice or demand, the revenue could not retain the deposited amount and the refund thereof, was allowed. In the present case, the petitioner shortly after depositing the amount of Rs. 50.70 lacs had approached the revenue for refund of the same therefore, the ascertainment contemplated under Section 74(5) of the Act which amounts to an unconditional determination and in the nature of ‘self assessment’ by the assessee is not attracted and hence, the said deposit could not be stated to be voluntary deposit by any stretch of imagination, irrespective of the fact that deposits were made in the form of GST DRC-03 - the petitioner deserves the relief as claimed by it and accordingly, mandamus as sought by the petitioner, is granted and it is ordered that the sum of Rs. 50.70 lacs, which was collected from the petitioner-M/S Parsvnath Traders during the course of search, shall be refunded to it within a period of 6 weeks from today. The petitioner shall also be entitled to interest @ 6% per annum from the date of deposit till the refund amount is released in its favour. With regard to the petitioner- M/S Mahavira Dyes & Chemicals, who had deposited an amount of Rs. 45.65 lacs, the similar directions are issued and it is ordered that the respondents shall refund this amount along with interest 6 % per annum from the date of deposit till its realisation. Petition allowed. Issues Involved:1. Legality of the recovery of GST amount without issuing a show cause notice.2. Entitlement of the petitioner to a refund of the amount deposited during the investigation.3. Compliance with Section 74 of the Central Goods and Services Tax Act, 2017.4. Violation of principles of natural justice.Summary:1. Legality of the recovery of GST amount without issuing a show cause notice:The petitioner challenged the recovery of Rs. 50.70 lacs by the respondents on the grounds that it was done without issuing a show cause notice as required under Section 74(1) of the Central Goods and Services Tax Act, 2017. The petitioner argued that the amount was deposited under coercion during the investigation and not voluntarily.2. Entitlement of the petitioner to a refund of the amount deposited during the investigation:The court noted that the petitioner had consistently contested its liability and sought a refund shortly after depositing the amount. The court found that the recovery of the amount without a show cause notice and final determination of liability was not permissible. It was held that the petitioner was entitled to a refund of the amount deposited during the investigation.3. Compliance with Section 74 of the Central Goods and Services Tax Act, 2017:The court discussed the provisions of Section 74, which provide for the determination of tax liability and the issuance of a show cause notice. It was emphasized that Section 74(5) allows for voluntary payment of tax before the issuance of a show cause notice, but such payment must be unconditional and amount to self-assessment. The court found that the deposit made by the petitioner did not meet these criteria and was not voluntary.4. Violation of principles of natural justice:The court observed that no show cause notice had been issued to the petitioner even till the date of the judgment, and the amount was recovered during the investigation without following the prescribed procedure. This was found to be a violation of the principles of natural justice, as the petitioner was not given an opportunity to contest the liability.Conclusion:The court ordered the refund of Rs. 50.70 lacs to the petitioner along with interest at 6% per annum from the date of deposit until the refund is released. Similar directions were issued for the petitioner in the connected petition, who had deposited Rs. 45.65 lacs. The writ petitions were allowed with no order as to costs.