Revenue's illegal recovery of Rs. 2.50 crores during investigation lacks voluntariness for valid self-ascertainment under Section 74(5) CGST Act

The HC ruled that the Revenue's recovery of Rs. 2.50 crores from the petitioner during pendency of investigation was illegal. The court found that the payments made by petitioner did not constitute valid self-ascertainment under Section 74(5) of CGST Act as they lacked the essential element of voluntariness. The court noted that self-ascertainment requires voluntary determination by the assessee and must be completed before issuance of notice under Section 74(1). Since the notice was already issued and adjudication was pending, reverting to Section 74(5) stage was not permissible. The petition was allowed in part, with the court directing refund of the recovered amount within four weeks with applicable interest.

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Issues Involved:

1. Legality of the investigation under Section 67 of the CGST Act.
2. Validity of summons and statements obtained under duress.
3. Legality of the recovery of Rs. 2.50 crores under Section 74 (5) of the CGST Act.
4. Alleged abuse of power by respondents during the investigation.
5. Request for refund of the amount collected under duress.
6. Transfer of investigation to Mumbai jurisdiction.
7. Imposition of exemplary costs for causing mental agony.

Issue-wise Analysis:

1. Legality of the Investigation Under Section 67 of the CGST Act:

The petitioner challenged the investigation's legitimacy, arguing that the investigation into M/s. Raj Chemicals, which involved the petitioner, was based on statements and e-way bill analyses indicating no actual movement of goods. The respondents initiated the investigation following statements by Sri Vijay Kumar Gupta, a partner at M/s. Raj Chemicals, suggesting tax evasion through fake invoices. The court noted that the investigation was lawfully pursued based on gathered information.

2. Validity of Summons and Statements Obtained Under Duress:

The petitioner claimed that statements were obtained under duress, with the petitioner being detained and coerced into signing documents. The petitioner retracted these statements via an affidavit dated 10.08.2021, asserting they were made under "tremendous duress and mental trauma." The court recognized the retraction as timely and found the statements were not voluntary, undermining their validity.

3. Legality of the Recovery of Rs. 2.50 Crores Under Section 74 (5) of the CGST Act:

The petitioner argued that the recovery was illegal as it was made during the investigation, before any adjudication or show cause notice. The court examined the provisions of Section 74 (5) and concluded that the payments were not a result of self-ascertainment, as the petitioner was coerced, and the declaration of voluntariness in Form DRC-03 was not genuine. The court declared the recovery illegal and ordered a refund with applicable interest.

4. Alleged Abuse of Power by Respondents During the Investigation:

The petitioner detailed instances of alleged abuse, including detention and threats, during the investigation. While the court refrained from making findings on these allegations, it emphasized adherence to guidelines for conducting investigations, as outlined in Instruction No. 01/2020-21 by the Ministry of Finance.

5. Request for Refund of the Amount Collected Under Duress:

The court granted the petitioner's request for a refund of Rs. 2.50 crores, acknowledging that the payment was made under coercion and not as a voluntary self-ascertainment of tax liability. The court directed the refund within four weeks, with applicable interest.

6. Transfer of Investigation to Mumbai Jurisdiction:

The petitioner sought to transfer the investigation to Mumbai jurisdiction. However, this issue was not seriously contested during oral arguments, and the court did not make any specific findings or orders regarding this request.

7. Imposition of Exemplary Costs for Causing Mental Agony:

The petitioner sought exemplary costs against the respondents for causing mental agony. The court did not address this request directly, focusing instead on the legality of the recovery and the procedural aspects of the investigation.

Conclusion:

The court partially allowed the petition, declaring the recovery of Rs. 2.50 crores as illegal and ordering its refund with interest. The observations were limited to the issues raised during arguments, and the court clarified that other contentions regarding the investigation's validity and alleged ill-treatment were not adjudicated. The decision emphasized the importance of adhering to legal procedures and guidelines during investigations.

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