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 revenue in absence of crystallised liability. The deposits made through GST DRC-03 were not treated as voluntary self-ascertainment under Section 74(5), since the assessees promptly sought refund, negating any unconditional self-assessment. Section 74(5) was clarified not to authorize advance tax collection pending adjudication. As no demand or final determination existed, retention violated the statutory scheme and principles akin to Article 265. HC issued mandamus directing refund of the entire amounts with 6% interest per annum from dates of deposit until realization, allowing the petitions.

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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.

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