The Right to Refund and Section 74(5) Of The CGST Act
Authored By:
Akul Mishra
Research Intern, Legal WIND
Date of Judgement: 14th September 2021
Bench: Hon’ble Justice S. Sunil Dutt Yadav
Court: High Court of Karnataka
Citation: WP 4467/2021
Introduction:
The case judgment by the Hon’ble Karnataka HC has differentiated between the Right To Refund and process of investigation in the factual case context and has held that the two cannot be linked together and has additionally held that goodwill donation of money by companies cannot be held as tax. The Karnataka HC also directed the department to consider a refund application for the petitioner which was collected under coercion during the investigation. The question of coercion and the lack of proper evidence in the investigation by the Directorate General of GST Intelligence (DGGI) have been addressed in this case.
Facts of the Case:
The facts of the case from the petitioner’s point of view and submission are stated that the petitioner represents an E-commerce platform under the name Swiggy which is registered under the Central Goods and Services Tax Act, 2017. The petitioner has stated the use of third-party service providers during busy seasons and the consideration charged by the third-party providers includes the Goods and Services Tax (G.S.T.) and the petitioner has paid the GST which is availed as Input Tax Credit of the same. It is further submitted that an investigation had been initiated by the DGGI, Hyderabad Zonal Unit concerning third service providers who had been identified as ‘Greenfinch’. It was thereby held by the department that Greenfinch was a non-existent third party and thus, the Input Tax Credit availed by payment of G.S.T. to the third party was fraudulent. The petitioner continued to state that the statement of directors and employees was taken in two offices at Hyderabad and Delhi respectively. It was further specifically asserted that on 29.11.2019, the petitioner was forced to make a payment of ₹15 crores after a threat over the arrest of the company directors, and the same was paid on the next day at 4:00 A.M. the next day.
The petitioner has further stated that the directors had responded to summons dated 26.12.2019 at the DGGI office, Hyderabad but they were held in force even after 20:00 hours and threats of arrest had been made. The petitioner had to make a payment of Rs. 12,51,44,157/- as a bond for the release of the directors. In conclusion, the petitioner was coerced in paying Rs. 27,51,44,157/- under illegal methods without following the due process of law under the CGST act. The no cause issued by the department even after 10 months of the investigation, constrained the seek of refund. The petitioner has also made a formal refund application under the Jurisdictional GST Office, dated 16.12.2020.
Key Issues raised:
1) Whether the claim of fraudulent Input Tax Credit as claimed by the department was correctly identified.
2) Whether the payments made are under due process of law under the CGST Act, 2017 and not illegal.
3) The contention of refund as claimed by the petitioner is acceptable under the factual context.
ARGUMENTS RAISED:
Contentions by Respondent:
1.The respondent has objected by stating that ‘Greenfinch’ does not exist and the suppliers are non-existent and the summons were initiated based on this basis of investigation. The petitioner had availed wrongful Input Tax Credits without actual receipts of services.
2.It has defended the inconclusive progress of the investigation due to the hampers of the pandemic and the huge encompassing of the country due to the petitioner’s irregularities has been a factor. It has vehemently denied any coercion and has stated that the powers of investigation have been dutifully followed and has asserted that there is a lack of evidence to substantiate the petitioners claim of involuntary payment and has asserted that the letter from the petitioner dated 30.11.2019 was in contrary to claim of involuntary payment and coercion.
3.The respondent continued to point out the non-existence of ‘Greenfinch’ and has submitted various offences committed by both parties under Section 132(5) of CGST Act, 2017. It has also been stated that the payments as per the communication were taken as a goodwill gesture and the payments are termed as payment of tax in self-ascertainment under Section 74(5) of the CGST Act.
4.The question of coercion and locking of premises was done within the rules, for the safety of the petitioners, and access to legal and other professionals had been done in due course of the investigation. The officers had no orders for arrest other than the due process of investigation and there were unfair apprehensions claimed by the petitioner and no such coercion occurred.
5.In light of the refund application made by the petitioner, the petitioner has exercised its statutory right and invoked the schemes available under the statutory part of the act and the action of submitting a writ petition is impermissible.
Contentions raised by the Respondent:
1.The claim of coercion and duress has been admitted through facts that can also be made out from the respondent and contention raised in such should not be decided in the process of rejecting the writ application. There is only one dispute related to the investigation period between 28.11.2019 and 30.11.2019 where the petitioner has made a deposit that had been confirmed through the money credited to the Electronic Cash Ledger. The letter of intimation of payment concerning the Rs.15 crore payment was made without the words ‘with protest’ due to an object from the department. The letter of intimation with the protest was sent finally on 30.11.2019 to the DGGI.
2. The investigation between 26.12.2019 and 27.12.2019 had involved a forceful stay of the directors in the summons office till early morning on the 27th, and a transaction of Rs 12,51,44,157/- was deposited in the electronic cash ledger, and the directors were forced to file a DRC-03[1] and the process concluded in the early morning on the 27th. A letter detailing the payments was sent including the statements of the Directors was recorded.
3. In the relevant period for which the investigation had commenced, the petitioner was filing GST returns and paying tax regularly. The petitioner as a regular tax-payer stated that there was an unfair manner of the investigation proceedings and it is ready to comply with lawful demand and the adjudication till the end of the investigation.
4. The payments were termed as ones under protest which could be obtained from the communications made to the department after the payment had been made.
5. As a no-show cause notice had been sent, the payments had remained with the department. As the investigation is prolonged and inconclusive, the petitioner has the right to seek a refund of tax which would not remove their obligation to serve the demands made after adjudication.
CASE ANALYSIS:
The court has noticed that the application submitted by the petitioner has been the statutory remedy but the way of communication by the department has merely deduced the claim for refund as premature, as the same in the course of an investigation. In the case of Godavari Sugar Mills v/s State of Maharashtra[2] can infer a legal deduction that if an amount is wrongfully withheld with substantial proof, the writ jurisdiction can act upon the refund claim by the petitioner as the prolonged investigation will not meet the retention of the claimed amount. The fact that a refund application has been made does not take away the proceedings for the present case when the final direction is for the consideration for the refund application and the remedy of refund will not displace current proceedings which is a ground for dismissal. The procedure under the scheme in subsection 5 of section 74, CGST Act is formed on conclusions based on subsections 6, 7, 8. The payment of tax, in this case, cannot be considered as self-ascertainment under the procedure of section 74(5) of the CGST act. The letter of the petitioner on 30.11.2019 is clear and is asserted that the contention of refund is not a liability admission. The contention that the payment was made of self-ascertainment was only put forward as a defense against the petitioner's claim of involuntary payment and is hence rejected. The affidavit submitted by the respondents does admit locking of doors and thus the apprehensions by the petitioners are reasonable especially with a lack of communication on there is no power on officers to make arrests and how the investigation was committed. The petitioner has submitted enough evidence to show taxes were paid throughout and when the money was deposited at the cash ledger. The summoning investigation itself can confirm that amounts were paid where there was no obligation. How the investigation occurred and the facts it is evident that the payment was not voluntary as a matter of haste by the department to ensure that taxes would be paid on the periods by which the claim of non-availment of ITC has been claimed, instead of carrying out with the investigation.
The court refers to the case of D.K.Basu v/s State of West Bengal[3] and considered the fact that a taxpayer will have their rights enshrined under Article 21 which cannot be blocked on the fact that there is no interference in investigation proceedings. The precedent mentioned in the case of Paramvir Singh Saini v/s Baljit Singh[4] and others where it was held and instructed for the installation of CCTV cameras in national investigation offices, which involves the scope of video recording under CCTV cameras and can be brought out in legal proceedings at an appropriate stage. The court has also stated that it would not put pressure or any burden on the investigation and the department is allowed to conduct and complete the investigation at its discretion. The court also would not question the constitutional validity of section 16 (2) (c) of the Act as claimed by the respondent. to avoid the redressal of the petition. The court has held that “the consideration of the right to refund in the present factual matrix would be independent of the process of investigation and the two cannot be linked together”.
Judgment:
The court has accordingly held that refund applications will be considered and suitable orders will be passed within four weeks from the date of the order. The observations of the court will be the basis of the refund application and hence, the writ petition is disposed of and has been signed by the judge.
REFERENCES:
1)Bimal Jain , “Karnataka HC : Swiggy’s payment made during investigation is not considered as ascertained tax, refund of same is allowed” CaClubIndia , 24th October 2021.
2)Vinay Kumar and Sachin Mishra, “Unreported Decisions-ST-November 2021” The Chamber Of Tax Consultants, November 2021.
3)Reportable, Karnataka HC writ petition 4467 of 2021 (https://ctconline.org/wp-content/uploads/pdf/2021/seminar-presentation/unreported-decisions/Bundl-HC-Order-Nov-2021.pdf) pg 4-48.
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