2025 (9) TMI 110 - HC - GST

Excess deposit under Section 71 SGST Act may be adjusted at adjudication or against firm's dues; authorities must act expeditiously

HC directed that any excess deposit made by the petitioner-firm under Section 71 of the SGST Act, 2017 may be adjusted at final adjudication or against ... Refund of excess deposit made by the Petitioner-Firm during the proceeding u/s 71 of the State Goods and Services Tax Act, 2017 - fraud and willful misstatement or suppression of facts - HELD THAT:- Having heard learned Counsel for the parties and having considered the alternative prayer of the Petitioner, it is directed that the amount so deposited by the Petitioner-Firm, if found in excess, may be adjusted at the time of final adjudication or with the amount of dues, if any, in his favour. It is further expected that whenever any inspection is carried out in terms of Section 71 of the Act of 2017, further course of action must be initiated by the concerned authorities in an expeditious manner in the spirit of Act of 2017. Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether an amount deposited during inspection under Section 71 of the State Goods and Services Tax Act, 2017 as an alleged tax liability can be treated as a refundable excess where such deposit was made under compulsion or duress. 2. Whether officials conducting inspection under Section 71 may require or accept cash deposits without issuance of adjudicatory notice under Sections 73 or 74, and the legal significance of a subsequent voluntary deposit in such circumstances (interaction of Sections 71, 73(5) and 74(5)). 3. Whether Instruction No.01/2022-23 (GST - Investigation) issued by the Finance Ministry prohibiting coercive collection during search/inspection bears on the validity of deposits made during Section 71 proceedings. 4. Whether, pending final adjudication, an excess deposit made during inspection should be directed to be adjusted against liabilities or refunded. 5. Whether the tax administration is obliged to proceed expeditiously after inspection under Section 71 and what remedial direction, if any, the Court should issue concerning the tempo of proceedings. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Refundability of deposit made under duress during Section 71 inspection Legal framework: Section 71 authorises inspection; Sections 73 and 74 govern determination and recovery of tax arrears, including provisions for voluntary payment (see Sections 73(5), 74(5)). Administrative instructions (Instruction No.01/2022-23) regulate conduct during investigations/searches. Precedent treatment: No judicial precedents were cited or relied upon in the judgment; the Court considered statutory scheme and administrative instruction. Interpretation and reasoning: The Court notes that a deposit made during inspection which is subsequently shown to be excessive may amount to an impermissible levy if made under duress. The circumstances included an inspection, preparation of panchnama, issuance of show cause notice for cancellation of registration, an admission of a modest tax liability, and an immediate large cash deposit said to be made under coercion. The Tribunal observed that if the deposited amount is found excessive on adjudication, it should be adjusted or refunded. Ratio vs. Obiter: Ratio - A deposit made during inspection that is excessive and/or made under duress may be adjusted or refunded at final adjudication. Obiter - The Court's observations on duress and conduct of officers, while applied to facts, also reflect broader administrative propriety. Conclusion: The Court directed that any excess amount deposited during inspection be adjusted at final adjudication or with amounts due in favour of the depositor if found excessive. Issue 2 - Legality of cash deposits during inspection without prior adjudicatory notice and interplay with Sections 73(5) and 74(5) Legal framework: Sections 73 and 74 prescribe procedures for assessment and recovery; sub-sections 73(5) and 74(5) recognise voluntary payment of tax before issuance of show cause notice as permissible. Precedent treatment: None cited; Court assessed statutory language and admitted contentions of the State. Interpretation and reasoning: The State conceded that no notice had been issued under Sections 73 or 74 prior to the deposit, but relied on the statutory recognition that a taxpayer may voluntarily pay assessed tax even before a notice. The Court accepted that voluntary payments are permissible in principle, but distinguished voluntariness from coercion: if payment is coerced during inspection/search, it cannot be treated as a valid voluntary admission of liability. The factual finding that the depositor declared a modest liability but paid a substantially larger cash sum under claimed duress rendered the characterization of the payment as voluntary questionable. Ratio vs. Obiter: Ratio - Voluntary payments under Sections 73(5)/74(5) are permissible, but where a deposit is coerced during inspection without prior adjudicatory notice, it may be treated as excessive and subject to adjustment/refund upon adjudication. Obiter - Observations regarding the permissibility of accepting voluntary payments during investigations and the need to distinguish them from coerced payments. Conclusion: The Court accepted that statutory law permits voluntary payments, but directed that deposits made under allegedly coercive circumstances be examined in final adjudication and adjusted/refunded if excessive; the State did not oppose adjustment at adjudication. Issue 3 - Relevance and application of Instruction No.01/2022-23 (GST - Investigation) to deposits made during inspection Legal framework: Administrative instruction governs conduct of investigating officers during searches/inspections and aims to prevent coercive collection of money in the field. Precedent treatment: No precedents considered; Court relied on instruction's objective and parties' submissions. Interpretation and reasoning: The petitioner invoked the instruction to challenge the propriety of a cash deposit allegedly taken under duress. The Court acknowledged the instruction's relevance to the conduct of officers during inspection and found such administrative guidance material to assessing whether deposit was coerced. While the Court did not formally quash actions under the instruction, it used the instruction to reinforce that coercive extraction of money is impermissible and that excess amounts so obtained should be rectified in adjudication. Ratio vs. Obiter: Obiter - The Court's reliance on the administrative instruction informs the standard of official conduct but does not itself displace statutory procedure; the direction to adjust/refund aligns with the instruction. Conclusion: Instruction No.01/2022-23 is a relevant administrative standard; coercive collection during inspection contravenes its spirit and supports corrective relief by adjustment/refund at adjudication. Issue 4 - Appropriate remedy: adjustment at final adjudication vs. interim refund Legal framework: Remedies for refund or adjustment arise under the Act's adjudicatory process; administrative discretion exists to adjust payments against dues. Precedent treatment: None cited; Court relied on equities and posture of parties. Interpretation and reasoning: The Court balanced the absence of completed adjudication against the petitioner's claim of duress and the State's admission of willingness to adjust. Given that the propriety of the deposit depends on final assessment of tax liabilities, the Court directed adjustment of any excess discovered at final adjudication or against dues in favour of the depositor rather than ordering an immediate mechanical refund. This approach preserves the integrity of tax adjudication while affording prospective relief to remedy excess collection. Ratio vs. Obiter: Ratio - Where an amount is deposited during inspection and subsequently claimed to be excessive, the appropriate remedy is adjustment against final adjudicated liabilities or refund if adjudication shows excess. Obiter - The Court's preference for adjustment rather than interim refund in the circumstances of pending proceedings. Conclusion: The deposited amount, if found excessive on final adjudication, shall be adjusted against liabilities or refunded; the Court expressly directed such adjustment. Issue 5 - Obligation of tax authorities to proceed expeditiously after inspection under Section 71 Legal framework: Section 71 enables inspection; the Act contemplates subsequent adjudicatory steps within a reasonable time to determine liabilities. Precedent treatment: No authorities cited; the Court made supervisory observations consistent with principles of administrative law. Interpretation and reasoning: The Court emphasised that once inspection under Section 71 is conducted, the concerned authorities must initiate further action expeditiously in the spirit of the Act. This expectation addresses concerns of uncertainty caused by protracted inaction after coercive or high-risk enforcement steps, and supports prompt adjudication to determine the validity of any deposits or liabilities. Ratio vs. Obiter: Obiter - The direction is supervisory guidance rather than a binding rule of timeline, but it embodies a judicial expectation of administrative diligence. Conclusion: Authorities are expected to proceed expeditiously following inspection under Section 71; the Court recorded this expectation as a directive to the administration.