DRC-03 Payment Under Audit Pressure — Can Refund Be Claimed?

[MAHTAB KHAN]

During audit, CGST officers pressurized the assessee to deposit ?1,84,629 through DRC-03 for alleged excess ITC availment. Later, we verified and found the allegation is incorrect. No SCN or adjudication order was issued — only payment during audit. Can we claim refund of this amount under Section 54 as “excess payment of tax,” and what is the best legal approach to prove it was paid under protest?

 

[KASTURI SETHI]

Refund can be claimed. 

2023 (8) TMI 691 - PUNJAB AND HARYANA HIGH COURT - M/s. Parsvnath Traders and M/s Mahavira Dyes & Chemicals Versus Principal Commissioner, CGST And Another

[KASTURI SETHI]

 Amount got deposited without SCN and Adjudication Order is unlawful.

Have you given in writing that you do not need SCN ?  If so, even in that situation such deposit is unlawful.

Have you given any statement ?

[MAHTAB KHAN]

Sir The assessee was called through WhatsApp by the GST Audit Team and asked to appear along with the audited balance sheet. When the assessee appeared, the officers showed him a draft audit report and pressurized him to deposit GSTR-1 late fee, reverse the ITC alleged as excess claimed, and pay penalty for late filing of GSTR-9C. Under pressure of the Audit Team, the assessee deposited the said amounts through DRC-03.

Subsequently, the Final Audit Report (FAR) was forwarded to the jurisdictional officer, who, on the basis of the FAR, issued a Show Cause Notice (SCN). When the assessee raised the contention that there was no excess availment of ITC and that the ITC pertained to the previous year which was legitimately claimed in the subsequent year, the jurisdictional officer stated that since the assessee did not object during the audit proceedings and voluntarily deposited the amount, he cannot now dispute the same at this stage.

[KASTURI SETHI]

Since the SCN has been issued, it has to be adjudicated. You can fight for fair and natural justice even now during the adjudication proceedings. You can take the stand that the amount was got deposited forcibly and not voluntarily. Regarding late fee, that has to be paid without SCN. Late fee for GSTR-1 was waived for some period. What period is involved ?

Tax cannot be deposited forcibly. There is Boards circular to this effect.

[KASTURI SETHI]

 Read all the paras of the circular.

Search, inspection or investigation — Taxpayers opt for deposit of tax partial or full GST liability — Instruction

C.B.I. & C. Instruction No. 1/2022-23 (GST-Investigation), dated 25-5-2022

Subject :  Deposit of tax during the course of search, inspection or investigation - Regarding.

[KASTURI SETHI]

During the course of search, inspection or investigation, sometimes the taxpayers opt for deposit of their partial or full GST liability arising out of the issue pointed out by the department during the course of such search, inspection or investigation by furnishing DRC-03. Instances have been noticed where some of the taxpayers after voluntarily depositing GST liability through DRC-03 have alleged use of force and coercion by the officers for making ‘recovery’ during the course of search or inspection or investigation. Some of the taxpayers have also approached Hon’ble High Courts in this regard.

2. The matter has been examined. Board has felt the necessity to clarify the legal position of voluntary payment of taxes for ensuring correct application of law and to protect the interest of the taxpayers. It is observed that under CGST Act, 2017 a taxpayer has an option to deposit the tax voluntarily by way of submitting DRC-03 on GST portal. Such voluntary payments are initiated only by the taxpayer by logging into the GST portal using its login id and password. Voluntary payment of tax before issuance of show cause notice is permissible in terms of provisions of Section 73(5) and Section 74(5) of the CGST Act, 2017. This helps the taxpayers in discharging their admitted liability, self-ascertained or as ascertained by the tax officer, without having to bear the burden of interest under Section 50 of CGST Act, 2017 for delayed payment of tax and may also save him from higher penalty imposable on him subsequent to issuance of show cause notice under Section 73 or Section 74, as the case may be.

[KASTURI SETHI]

3. It is further observed that recovery of taxes not paid or short paid, can be made under the provisions of Section 79 of CGST Act, 2017 only after following due legal process of issuance of notice and subsequent confirmation of demand by issuance of adjudication order. No recovery can be made unless the amount becomes payable in pursuance of an order passed by the adjudicating authority or otherwise becomes payable under the provisions of CGST Act and rules made therein. Therefore, there may not arise any situation where “recovery” of the tax dues has to be made by the tax officer from the taxpayer during the course of search, inspection or investigation, on account of any issue detected during such proceedings. However, the law does not bar the taxpayer from voluntarily making payment of any tax liability ascertained by him or the tax officer in respect of such issues, either during the course of such proceedings or subsequently.

4. Therefore, it is clarified that there may not be any circumstance necessitating ‘recovery’ of tax dues during the course of search or inspection or investigation proceedings. However, there is also no bar on the taxpayers for voluntarily making the payments on the basis of ascertainment of their liability on non-payment/short payment of taxes before or at any stage of such proceedings. The tax officer should however, inform the taxpayers regarding the provisions of voluntary tax payments through DRC-03.

5. Pr. Chief Commissioners/Chief Commissioners, CGST Zones and Pr. Director General, DGGI are advised that in case, any complaint is received from a taxpayer regarding use of force or coercion by any of their officers for getting the amount deposited during search or inspection or investigation, the same may be enquired at the earliest and in case of any wrongdoing on the part of any tax officer, strict disciplinary action as per law may be taken against the defaulting officers

[Shilpi Jain]

Amount paid during investigation is under protest. HOwever, did you pay this amount along with interest and penalty?

Write to the department that the amount paid was under co-ersion and hence unedr protest and apply for refund

AI Summary

Payment under audit pressure: refund may be claimed where deposit was involuntary and lacked adjudicatory recovery procedure.
Payments via DRC-03 during audit are treated as voluntary portal-initiated payments, but statutory recovery requires prior notice and adjudication; absent adjudication, forced recovery is impermissible. If a taxpayer paid under coercion, they should record and communicate that the payment was made under protest, apply for refund as an excess tax payment, and raise the involuntariness of the deposit during any ensuing adjudication while seeking administrative inquiry into coercion.