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Refund the GST of Rs. 2 Crores, paid by petitioner under coercion and threat : High Court to Revenue

Merely because an assessee has, under the stress of investigation, signed a statement admitting tax liability and has also made a few payments as per the statement, cannot lead to self-assessment or self-ascertainment. The ascertainment contemplated under Section 74(5) is of the nature of self-assessment and amounts to a determination by it which is unconditional, and not one that is retracted as in the present case.

- High Court

The petitioner is registered as a Small Scale Industry under the MSME Act and is an assessee under the provisions of the GST Act, 2017. An investigation was conducted in the premises of the petitioner on 22.10.2019 and various documents and registers seized. In the course of that investigation, a statement was recorded from one S.A.Kumar, who has also deposed to the affidavit filed in support of this writ petition, to the effect that the petitioner has not discharged its GST liability correctly. In the statement, he accepts the mistakes in completion of GST and assures the respondents that the liability would be discharged at the earliest with applicable interest. A scheme of payment has also been set out for the tax remaining unpaid, as follows:

TIME LINE FOR PAYING GST LIABILITY ON TAXABLE OUTWARD SUPPLIES MADE DURING THE PERIOD FROM JULY, 2017 TO OCTOBER, 2019 (UP TO 21.10.2019)

22.10.2019 - ₹ 1,00,00,000/- paid

23.10.2019 - ₹ 1,00,00,000/-

30.10.2019 - ₹ 1,00,00,000/-

07.11.2019 - ₹ 1,00,00,000/-

13.11.2019 - ₹ 1,00,00,000/-

20.11.2019 - ₹ 1,00,00,000/-

27.11.2019 - ₹ 1,00,00,000/-

04.12.2019 - Balance amount as quantified by the GST Department

This undertaking has been signed by the Managing Director on 22.10.2019. In line with the undertaking, the petitioner has, on the same day remitted a sum of ₹ 1 crore in FORM GST DRC-03 corresponding to Rule 142(2) and (3) and Section 74(5) of the Act. The second installment of the tax was paid on 30.10.2019.

However, on 05.11.2019 the Managing Director of the petitioner has retracted his statement in the following terms:

To

The Office of Senior Intelligence

DGGI, Regional Unit,

No.5, Williams Road, Melapudur

Cantonment, Tiruchirappalli – 620 001

Tamil Nadu

Respected Sir,

Sub: Search conducted at our premises on 22-10-2019

Reg Ref: Mahazar dated 22-10-2019

This has reference to the search proceedings conducted by your Ld. Authority at our premises at No.270, Narasimman Road, Shevapet, Salem, Tamil Nadu 636 002 on 22-10-2019, wherein we would like to retract the version/statement mentioned in the MAHAZAR dated 22-10-2019. We would further like to inform you that your Ld. Authority had failed to mention the actual facts in the Mahazar which were informed to your Ld. Authority during the search proceedings along with relevant supporting documents in support of our claim.

In this regard, we would like to present the actual facts before your Ld. Authority and the reason for why GST has not been discharged by our company M/s.ShriNandhiDhall Mills India Private Limited for the period from July 2017 to September 2019:

.............

13) Further, we request you to kindly make a note that despite we are supplying Nil/exempted goods, we have been forcibly made to make the payment of GST liability for the tax period July 2017 to March 2018 of ₹ 1,00,00,000/- immediately on the same day i.e.22-10-2019 under the influence of coercion, threat and in a state of panic without providing any workings of determination of tax liability;

14) It has been 15 days from the date of search and yet your office has not provided us with the workings of actual determination of tax liability despite receiving frequent follow up calls from your office on enquiry of discharge of tax liability for which we are not bound to make any payment as per the provisions of CGST Act, 2017;

15) Based on the above facts, we would like to bring to your notice that Shri.S.A.Kumar signed the MAHAZAR and paid an amount of ₹ 2,00,000/- under the influence of coercion, threat and in a state of panic without giving an opportunity to read the content of the Mahazar and without providing the workings of the actual determination of tax liability;

........

 

Thus, the petitioner has stated that it has no liability to tax, that the MD and officials were forced to accept liability to tax and the admission was, by no means, voluntary. The petitioner has also made serious allegations about the high handedness of the authorities during the conduct of search and the scant regard expressed for the sentiments of the family of the Managing Director and employees of the petitioner. They state that the visit was on the eve of Deepavali and investigation was carried out in an intrusive and acrimonious fashion. The petitioner, leave alone celebrating the festival, could not even disburse bonus and gifts to its employees. In all, not just high handedness, but also malafides is attributed in the conduct of the proceedings.

Arguments by Revenue

The aforesaid allegations have been strenuously denied by the respondents. According to the respondents, the petitioner has been engaging in large scale tax evasion and has not been paying tax that it is legitimately bound to pay. It was for this reason that it had voluntarily offered to remit tax. The very fact that the petitioner had remitted not one but two instalments of tax would reveal that the payments were voluntary as, if they had been coerced as alleged, the payments would have stopped with the first instalment. They would also state that there has been no co-operation extended by the petitioner in the proceedings for enquiry and no appearances/compliance with the summons issued and it is for this reason that the proceedings for investigation are being delayed.

Held by High Court

Records were summoned to examine whether there was an ascertainment in this case. The records revealed the tabulation of instalments furnished by the assessee at the time of recording of statement and out of which the first two instalments have been paid. These, according to Mr.Sundareswaran constitute self-ascertainment and trigger the provisions of Section 74(5) and (7).

Had this been the position, the records must contain material to show that (i) the assessee accepts the ascertainment made by it and (ii) the revenue has applied its mind and arrived at the position that the self-ascertainment by the assessee is inadequate. However, statement recorded at the time of search admitting GST liability and setting the scheme of instalments have been retracted by the petitioner on 05.11.2019 and the petitioner has consistently and vehemently been contested the liability to tax. With this, the requirement of ‘ascertainment’ under Section 74(5), fails. Merely because an assessee has, under the stress of investigation, signed a statement admitting tax liability and has also made a few payments as per the statement, cannot lead to self-assessment or self-ascertainment. The ascertainment contemplated under Section 74(5) is of the nature of self-assessment and amounts to a determination by it which is unconditional, and not one that is retracted as in the present case. Had such ascertainment/self-assessment had been made, there would be no further proceedings contemplated, as Section 74(6) states that with ascertainment of demand in Section 74(5), no proceedings for show cause under Section 74(1) shall be issued. In this case, enquiry and investigation are on-going, personal hearings have been afforded and both the parties are fully geared towards issuing/receiving a show cause notice and taking matters forward.

Thus, the understanding and application of Section 74(5) in this case, is, in my view, wholly misconceived.

In SCA.No.3196 of 2021 pending before the Gujarat High Court in the case of M/s.Bhumi Associate vs. Union of India through the Secretary, the Court has formulated the following guidelines for resolution and the matter is still pending consideration.

“The Central Board of Indirect Taxes and Customs as well as the Chief Commissioner of Central/ State Tax of the State of Gujarat are hereby directed to issue the following guidelines by way of suitable circular/instructions:

(1) No recovery in any mode by cheque, cash, epayment or adjustment of input tax credit should be made at the time of search/inspection proceedings under Section 67 of the Central/Gujarat Goods and Services Tax Act, 2017 under any circumstances.

(2) Even if the assessee comes forward to make voluntary payment by filing Form DRC03, the assessee should be asked/ advised to file such Form DRC03 on the next day after the end of search proceedings and after the officers of the visiting team have left the premises of the assessee.

(3) Facility of filing complaint/ grievance after the end of search proceedings should be made available to the assessee if the assessee was forced to make payment in any mode during the pendency of the search proceedings.

(4) If complaint/ grievance is filed by assessee and officer is found to have acted in defiance of the aforestated directions, then strict disciplinary action should be initiated against the concerned officer.”

In the light of the discussion as above, the mandamus as sought for by the petitioner is granted. The amount of ₹ 2.00 crores collected shall be refunded to the petitioner within a period of four (4) weeks from today.

 



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Published by

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on Apr 9, 2021


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