Gst paid only once on good cannot be demanded again

[Diksha Sabarwal]

GST paid during search and seizure on Books stock (through DRC-03) on all avaialble raw materials and finished goods. Later the goods were released and sold in subsequent month of release. GST Return was filed where GSTR-1 sales were recorded for those stocks and in GSTR-3B the amount of sales were shorten on which the taxes are already paid and accordingly notice was issued with proper reconciliation. GST department is asking again taxes on same goods. Please share experts view on the above and cite some case laws too if possible where taxes paid once can on goods cannot be demanded again.

[YAGAY and SUN]

The demand proposed by the Department is unsustainable both on facts and in law. During the course of search proceedings, GST was voluntarily discharged through Form DRC-03 on the value of the stock (raw materials and finished goods) identified by the Department. The said payment was duly accepted and the goods were subsequently released. Thereafter, upon actual sale of the very same goods, the outward supplies were duly disclosed in GSTR-1 and recorded in the books of account.

The apparent difference in GSTR-3B arose only because the tax liability pertaining to such goods had already been discharged through DRC-03. Consequently, the liability was adjusted to avoid duplication of tax payment. A complete quantitative and value-wise reconciliation has been furnished establishing the direct nexus between (i) stock on which GST was paid during search, (ii) stock released by the Department, and (iii) subsequent sales thereof.

It is a settled principle of law that the same transaction or subject matter cannot be subjected to tax twice in the absence of a specific statutory provision authorizing such levy. Once GST has been discharged on the identified stock through DRC-03, a further demand of tax on the same goods would amount to double taxation, resulting in collection of tax twice on the same subject matter, which is impermissible in law and contrary to Article 265 of the Constitution of India, which mandates that no tax shall be levied or collected except by authority of law.

The Department has not alleged any excess quantity, undisclosed turnover, or separate taxable event distinct from the stock already subjected to tax through DRC-03. In the absence of any such finding, the proposed demand merely seeks to recover tax already paid, causing undue enrichment of the revenue without corresponding statutory sanction.

[YAGAY and SUN]

Further,tThe Hon'ble Supreme Court has consistently held that taxes cannot be collected or retained beyond what is legally due and that the Revenue cannot derive benefit from duplicate taxation. Reference may be made to Mafatlal Industries Ltd. v. Union of India - 1996 (12) TMI 50 - SUPREME COURT, CCE v. Narmada Chematur Pharmaceuticals Ltd., and the principle recognized in CIT v. Excel Industries Ltd., wherein duplication of tax incidence and revenue-neutral situations were disapproved.

Accordingly, where the taxpayer has established through documentary evidence and reconciliation that the goods sold subsequently are the very same goods on which GST was already discharged through DRC-03, any further demand would amount to taxation of the same goods twice over and is therefore liable to be dropped in entirety. The proceedings deserve to be concluded in favour of the taxpayer by accepting the reconciliation and granting due credit of the tax already paid.

[Sadanand Bulbule]

Where GST was already paid through DRC-03 on the stock found during search and seizure, the department cannot demand tax again on the same goods at the time of their subsequent sale without granting due adjustment of the tax already paid.

While the sale is required to be reported in the GST returns, the earlier payment cannot be ignored, as this would result in double taxation of the same goods.

Therefore, upon proper reconciliation of the stock, supply and tax payments, only any differential liability, if any, can be demanded.

 

[KASTURI SETHI]

Dear Querist,

The whole issue revolves around the "same goods" The identification of the goods which a are not physically available now.

You are required to prove that the goods found short were the same goods on which tax was already paid. The burden of proof is cast upon the tax payer.

. In the cases of stock of finished goods or semi-finished goods or raw material found short, it is not feasible to prove that the goods found short were SAME, especially, in the absence of physical availability of thew said goods.

Are you in a position to prove that the goods were same on which tax stands paid ?

Pl. reply.

[KASTURI SETHI]

This is in continuation of my reply at serial no. 4 above.

Q. In GSTR-3B the amount of sales were shorten on which the taxes are already paid and accordingly notice was issued with proper reconciliation.

Ans. In case the goods are found short, interest is payable and penalty is imposable.

The SCN has to be issued for confirmation/appropriation of tax paid and demand of interest and imposition of penalty.

[KASTURI SETHI]

Can you post major paras of SCN here ?

This may be useful for tracing out relevant case laws in your favour.

[KASTURI SETHI]

On re-reading your query it appears to me that the department has not demanded tax again. Why the department should demand tax twice on the same goods ? May be interpretational dispute.

[Diksha Sabarwal]

Department have demanded tax on same goods.Other clinch is that goods are books inventory and nothing short has been found.It was big enforcerment action so assessee has done ,whatever they have asked.Duty was paid on book stock without supply.Second Analogy has been passed that you take refund of the old one and pay the new one as supply have happened now.

[KASTURI SETHI]

The physical stock of finished goods, semi-finished goods and raw-material must match with the Books of Accounts (statutory records). In case the stock is available in the books of accounts but physically goods are not available, it is a grave offence.

Was tax paid under pressure or voluntarily during search ?

If tax was got deposited under pressure and the party can prove it, there are case laws in favour of the assessee.

[YAGAY and SUN]

Your case appears stronger on facts than the Department's proposition. Here, there was no shortage of stock, no unaccounted removal, and no separate allegation of clandestine supply. GST was deposited through DRC-03 during the search on the entire book stock of raw materials and finished goods, the goods were thereafter released by the Department, and the same inventory was subsequently sold in the ordinary course of business.

The sales were duly disclosed in GSTR-1 and recorded in the books. The dispute arises only because tax paid earlier through DRC-03 was not again discharged through GSTR-3B to avoid duplication. If the assessee can establish through stock registers, inventory records, release orders, sales invoices and quantitative reconciliation that the goods sold were part of the very stock on which tax had already been paid during search, a second levy would amount to collection of tax twice on the same taxable value.

The Department's suggestion that the assessee should first seek refund of the DRC-03 payment and then pay tax again on sale is legally cumbersome and contrary to the settled principle that taxes already paid must be appropriately adjusted against the ultimate liability rather than collected twice. The real issue is therefore not whether tax is payable on sale, but whether credit/adjustment of the tax already deposited through DRC-03 must be granted.

The Department may, however, contend that GST paid during search was on "excess/undisclosed stock" whereas GST on subsequent sale arises from a distinct taxable event, namely supply under Section 9 of the CGST Act. Therefore, the burden lies on the assessee to prove the identity and nexus of the goods. Since the inventory consists of books (finished goods) and not fungible raw materials consumed in manufacture, this burden is comparatively easier to discharge through title-wise stock records, warehouse registers, release memos and invoice-wise movement statements.

Reliance may be placed on the constitutional principle against unauthorized double collection under Article 265 and on the broader ratio of decisions such as Mafatlal Industries Ltd. v. Union of India - 1996 (12) TMI 50 - SUPREME COURT, CCE v. Narmada Chematur Pharmaceuticals Ltd. and CIT v. Excel Industries Ltd., which recognize that the Revenue cannot retain taxes beyond what is lawfully due.

[YAGAY and SUN]

If the DRC-03 payment was obtained under coercion during the enforcement action, additional support may also be drawn from GST jurisprudence holding that amounts recovered during search without proper adjudication cannot automatically attain finality. Accordingly, the focus of the reply should remain on proving the one-to-one correlation between the stock taxed during search and the stock subsequently sold, and seeking appropriation/adjustment of the DRC-03 payment against the output tax liability rather than permitting a second recovery.

[KASTURI SETHI]

Full FACTS are not available. For correct and concrete reply full facts are a must.

[KASTURI SETHI]

In continuation of my views at serial no.9, full facts at the first instance saves experts' precious time.

[Shilpi Jain]

You can show the DRC-03 to explain the differences between GSTR-1 and 3B. You are right that tax cannot be demanded on the same transaction more than once.

AI Summary

Double taxation in GST on the same goods is impermissible where earlier DRC-03 payment is properly reconciled.
GST paid voluntarily through Form DRC-03 during search and seizure on identified stock should not be demanded again on the subsequent sale of the same goods, where the taxpayer can prove identity through stock records, invoices and quantitative reconciliation. The core issue is whether the later sales relate to the very same goods already taxed, because a second levy on the same subject matter would amount to double taxation. The burden is on the taxpayer to establish the one-to-one nexus and seek adjustment of the earlier payment against the later output liability.