AMOUNT DEPOSITED AT MIDNIGHT DURING INVESTIGATION IS NOT VOLUNTARY

[Mr. M. GOVINDARAJAN]

Determination of tax

A registered assessee is to pay the tax on the supply of goods and services to other persons.  If the tax is not paid the assessee is liable to pay tax, interest and also penalty.  Section 73 of the Central Goods and Services Tax Act, 2017(‘Act’ for short) and Section 74 authorize the officers to determine the tax that is not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized.

Voluntary payment of tax

Section 73(5) and Section 74(5) of the Act provides for the payment of tax voluntarily by the registered person.  Section 73(5) of the Act provides that the person chargeable with tax may, before service of notice or, as the case may be, the statement, pay the amount of tax along with interest payable thereon on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.

Section 74(5) of the Act provides that the person chargeable with tax may, before service of notice, pay the amount of tax along with interest payable and a penalty equivalent to 15% of such tax on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.

Issue

The issue to be discussed in this article is as to whether the payment of tax under coercion of the Departmental officer is said to be paid voluntarily with reference to case law.

Case law

The Delhi High Court in the following case law held that the tax paid or deposited in the midnight during the search conducted by the Authorities will not amount that the registered person paid the tax voluntarily-

In NEERAJ PAPER MARKETING LTD. VERSUS SPECIAL COMMISSIONER, DEPARTMENT OF TRADE AND TAXES, GNCTD & ORS. - 2023 (12) TMI 293 - DELHI HIGH COURT, the petitioner is carrying on a business of trading of waste paper and craft paper.  The Department conducted a search in the business premises of the petitioner on 29.07.2022 under Section 67(2) of the Act.  The search was conducted for the following reasons-

• The petitioner had suppressed transaction relating to supply of goods and services.
• The petitioner had suppressed the transaction relating to stock of goods in hand.
• The petitioner claimed input tax credit in excess of entitlement under the Act.
• The petitioner had indulged in contravention of the provisions of GST laws with intention to evade payment of tax.

The investigation team inspected the documents relating to the period 2017-18 to 2020-21.  It was revealed that there was a mismatch of Rs. 60 lakhs in GSTR-2A and GSTR-3B during the year 2018 - 19 and Rs.20 lakhs in the year 2019-2020.  The team recorded the statement of the Director and they coerced the Director to deposit Rs.25,20,000/- on 29.07.2022 (Rs.20,70,000/- by cash and Rs.4,50,000/- through input tax credit) and Rs.3,00,000/- on 30.07.2022 at mid night of both days under GST DRC - 03.  In the statement recorded the Director admitted that there is a difference between GSTR - 2A and GSTR-3B and he undertook all the tax liability.  He also committed to pay the interest and penalty, if any. 

The petitioner sent a letter to the Department on 12.12.2022 requesting to refund the entire amount deposited on 29.07.2022 under GST DRC - 03 along with interest.  Since there was no response in regard to his claim the petitioner filed the present writ petition before the High Court with the prayer to direct the Department to refund the amount collected coercively during the search conducted along the interest @ 12% from the date of deposit to the date of refund.  The Department contended the following before the High Court-

• The payments were made voluntary as the petitioner had acknowledged its liability during the inspection conducted on 29.07.2022.
• The Statement of the Director was recorded on that date and that he had admitted that there was a mismatch in the returns filed for the financial years 2018 - 19 and 2019 - 20.
• Since the Director of the petitioner had not retracted the statement recorded on 29.07.2022 it is open for the petitioner to contend that the petitioner had not deposited the amount voluntarily but under coercion.

The main issue arose to be considered by the High Court is as to whether the payments made by the petitioner would be considered as voluntary payments as the petitioner accepted the liability to pay the tax under Section 73(5) or Section 74(5) of the Act. 

The High Court observed that the respondents have not followed the procedure in respect of voluntary deposits made by a tax payer.  The acknowledgement under Rule 142(2) has not been followed.  The respondents have not issued any acknowledgment accepting the said payment in Form GST DRC - 04.

The High Court further observed that the Department issued two show cause notices demanding tax amount-

• Rs.6065610/- towards mismatch of input tax credit in terms of GSTR-3B and GSTR-2A along with interest Rs.43,67,248/- and a penalty of Rs.6065610/- under section 74 of the Act for the first show cause notice; and
• Rs.2627366/- towards mismatch of input tax credit in terms of GSTR-3B and GSTR-2A along with interest Rs.1418776/- and a penalty of Rs. 2627366/- under section 74 of the Act for the second show cause notice.

The High Court observed that though the show cause notice indicated the payment of tax by the assessee, it is not provided for any credit of the same.   The Department neither acknowledged the amount deposited by the tax payer on 29.07.2022 nor have they granted the benefit of the said deposit, while issuing the proposed demand under section 74(7) of the Act.    The High Court relied on the judgment in M/S. VALLABH TEXTILES VERSUS SENIOR INTELLIGENCE OFFICER AND ORS. - 2022 (12) TMI 1038 - DELHI HIGH COURT in which it was held that not following the stipulated procedure would also lead to the conclusion that the payments were not voluntary.   

The High Court further observed that while the petitioner has accepted that there was a mismatch in its return regarding the input tax credit, he did not acknowledge the input tax credit was incorrectly availed.  On the contrary the Director of the petitioner had acknowledged that in case there was any tax liability, the same would be paid with interest and penalty.  The Department have not ascertained the said liability and no notice has been issued to the petitioner under Rule 142(1A) of the CGST Rules communicating the details of any tax, interest or liability as ascertained.  The payments were made at 11.19 pm and at 12.48 am during the search operations.  Therefore the High Court accepted the contentions of the petitioner that the amount has not been deposited voluntarily but under coercion. 

The High Court allowed the petition and directed the Department to refund the amount deposited by the petitioner Rs.23,70,000/- in cash along with interest @ 6% per annum from 13.12.2022 to till the date of payment and to refund Rs.4,50,000/- by reversing debit from the petitioner’s Electronic Credit Ledger.