RECOVERY OF AMOUNT FROM THE ASSESSEE WITHOUT SHOW CAUSE NOTICE OR DEMAND

[Mr. M. GOVINDARAJAN]

According to the provisions of laws prevailing in India, the Department is entitled to recover the tax amount with interest if the assessee fails to deposit the same in time and file return within the specified period.  The assessee pays the tax on self assessment basis.  The provisions of tax laws provide that if the tax is not paid or short paid or not levied or short levied or getting erroneous refund the Department is to issue show cause notice with directions to give reply within the time specified in the show cause notice.  The assessee is to file objections, if any, to the Adjudicating Authority along with the documents he relied upon.  The Adjudicating Authority is to adjudicate the issue.  He may drop the show cause notice or he may confirm the demand either fully or partially.  Any amount ordered to be paid is payable along with the interest.  The Adjudicating Authority may also impose penalty on the assessee.  But the tax cannot be recovered without observing the above formalities which requires complying with the principles of Natural Justice.  In many of the cases the assessees are compelled to deposit certain amount but before judicial forum they argue that the assessees deposited the same voluntarily.  Even though it is voluntary payment the same cannot be retained by the department unless a show cause notice is issued and adjudicated and the demand is made after confirmation of the levy of tax in adjudication.  Otherwise the entire amount deposited by the assessee is to be refunded with interest.  This has been illustrated in the following case laws:

In ‘Century Metal Recycling Pvt. Ltd. v. Union Of India’ - 2008 (10) TMI 96 – P&H High Court, the High Court observed  that as far as the amount deposited by the petitioners is concerned, case of the petitioners is that the same was deposited under coercion. Case of the respondents was that the same was deposited voluntarily. The High Court held that whatever be the position, unless there is assessment and demand, the amount deposited by the petitioners cannot be appropriated. No justification has been shown for retaining the amount deposited, except saying that since it was voluntarily deposited. In view of this admitted position, the petitioners are entitled to be returned the amount paid.

In ‘Century Knitters (India) Ltd. vs. Union of India’ -  2013 (6) TMI 245 – P&H High Court, the High Court found that as on date no crystallized liability has been shown to be existing against the petitioners. Further, only a show cause notice has been issued where under a liability to the extent of ₹ 50 lakhs could be fastened. Insofar, as the matters which are under investigation, it has not been shown that any show cause notice in respect thereof has been issued by the respondent-department so far.

The High Court put on a specific query to the learned counsel for the revenue relating to any provision in the statute on the basis of which the revenue could provisionally retain the amount, learned counsel for the revenue candidly admitted that there is no such provision to retain the amount except to refer to Section 42 of the Customs Act, 1962. Further, on a query as to whether any order requiring the petitioners to refund the duty drawback as canvassed by the revenue had been passed, learned counsel for the revenue was unable to show that there existed any such order or authorization from any competent authority. It was only urged that it was a disputed question of fact as to whether the amount was deposited voluntarily or under coercion. Be that as it may, whatever be the situation, the revenue cannot retain any amount to which it legally not entitled to as the same would be violative of Article 265 of the Constitution of India.”

The High Court held that it is trite law that unless a demand, which is finalized and is existing which is liable to be discharged, the revenue cannot retain any amount unless there exists specific provision in the statute for the retention of the amount.

In ‘Concepts Global Impex v. Union of India and others’ – 2018 (11) TMI 688 – Punjab & Haryana High Court,  the petitioner in the present writ petition at the time of import of goods, paid the duty.  The amount was paid to avoid delay in clearance and demurrage charges payable to the port authorities. However, the Directorate of Revenue Intelligence, New Delhi pressurized the petitioner to pay another sum of ₹ 40,00,000/- while detaining the goods in transit.   The petitioner under the pressure of the DRI officials paid a sum of ₹ 40,00,000/- without there being any show cause notice or the order.

The petitioner submitted the following before the High Court-

•  when the amount was taken from the petitioner without there being any show cause notice or order passed confirming that demand, the same was in violation of Article 265 of the Constitution of India;
• even if demand is confirmed against the petitioner in terms of show cause notice dated 24.04.2017 issued to him, for filing appeal, the petitioner will have to deposit only 10% of the duty;
• hence, recovery of money under coercion at this stage is without authority of law and the amount needs to be refunded.

The Revenue submitted the following-

•  the amount was paid by the petitioner voluntarily, finding that he had violated the law while importing the goods by paying the duty on transaction value instead of the maximum retail price;
• the duty was leviable at the higher rate;
• the show cause notice had already been issued to the petitioner on 24.04.2017, andthe proceedings are still pending.

The High Court considered the submissions put forth by both the parties.  The High Court found that it is not dispute that a sum of ₹ 40 lakhs has been deposited by the petitioner without a show cause notice or any demand made by the Revenue.   The only ground relied on by the Revenue is that the amount has been paid by the petitioner voluntarily.

The show cause notice was issued to the petitioner on 24.04.2017 and more than one year has already been elapsed but no order has been passed. Even if demand is confirmed against the petitioner, for hearing of appeal up to the CESTAT, only 10% of the amount is to be deposited, whereas the proceedings in the present case have not been concluded yet.  The High Court held that the recovery of any amount from the petitioner without any show cause notice adjudicated or making any demand.  The High Court directed the Revenue to after retaining the amount of ₹ 6,00,000/-, balance amount deposited by the petitioner be refunded to him within a period of four weeks from the date of receipt of copy of the order.