Deposits paid under threat not voluntary under Section 74(5) CGST Act; recoveries unlawful, refunds with interest upheld

HC held the deposits were made under threat and coercion, not as voluntary self-ascertainment under Section 74(5) of the CGST Act. Statements and payments were inseparable and tainted by coercion; the learned Single Judge correctly found the recoveries contrary to law. Consequently the amounts must be refunded with interest. The appellants' appeal was dismissed and the Single Judge's order granting refund was upheld.

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Issues Presented and Considered

The primary issues considered in this judgment were:

• Whether the recovery of Rs. 2,50,00,000/- from the respondent during the investigation under the CGST Act was coercive and illegal.
• Whether the payments made by the respondent were voluntary and constituted self-ascertainment under Section 74(5) of the CGST Act.
• Whether the respondent is entitled to a refund of the amounts paid during the investigation.
• The validity of the summons issued and the procedural conduct of the investigation.

Issue-wise Detailed Analysis

1. Coercion and Legality of Recovery

The legal framework under the CGST Act prohibits coercive recovery of taxes during an investigation unless due process is followed. The Court examined the timeline of events, including the prolonged detention of the respondent and the circumstances under which the payments were made, to determine whether coercion was involved.

The respondent claimed that the payments were made under duress, as evidenced by the affidavit dated 10.08.2021, which was filed shortly after the payments. The Court found the affidavit to be timely and indicative of coercion, given the circumstances described by the respondent, including threats of arrest and prolonged detention by the investigating officers.

The appellants argued that the payments were voluntary and part of self-ascertainment under Section 74(5). However, the Court noted that the facts did not support voluntariness, as the payments were made under duress and without the procedural safeguards typically associated with voluntary payments.

2. Voluntariness and Self-ascertainment

The Court analyzed the concept of self-ascertainment under Section 74(5) of the CGST Act, which requires voluntary determination and payment of tax liability by the taxpayer. The Court found that the element of voluntariness was absent in this case, as the payments were made under coercive circumstances, and the respondent did not acknowledge any underlying tax liability.

The appellants' argument that the payments were voluntary was not supported by evidence of self-ascertainment or acknowledgment of liability by the respondent. The Court highlighted that no intimation was given to the proper officer, nor was any acknowledgment in the form of DRC-04 issued, which are procedural requirements for self-ascertainment.

3. Entitlement to Refund

Given the findings of coercion and the absence of voluntariness, the Court concluded that the recovery was contrary to law and violated Article 265 of the Constitution of India, which prohibits the levy and collection of taxes without the authority of law. Consequently, the respondent was entitled to a refund of the amounts paid with interest.

4. Validity of Summons and Procedural Conduct

The Court examined the procedural conduct of the investigation, including the issuance of summons and the manner in which statements were recorded. The respondent's allegations of coercion and procedural irregularities were found credible, given the timeline and circumstances. The Court noted that the investigation exceeded reasonable limits and involved undue pressure on the respondent.

Significant Holdings

The Court held that the payments made by the respondent were not voluntary and did not constitute self-ascertainment under Section 74(5) of the CGST Act. The recovery was deemed coercive and contrary to law, warranting a refund of the amounts with interest.

The judgment emphasized the requirement for voluntary compliance in tax payments and the prohibition of coercive recoveries during investigations. The Court reaffirmed the principle that any tax recovery must follow due process and be supported by legal authority.

The Court dismissed the appellants' appeal, upholding the decision of the learned Single Judge to grant a refund to the respondent. The judgment reinforced the legal protections against coercive tax recoveries and underscored the importance of procedural fairness in tax investigations.

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