GST UPDATE No 202 ON DEPOSIT OF TAX DURING SEARCH & SEIZURE

It is customary for the departmental officers to persuade assessees to deposit tax during the course of proceedings of search, seizure and inspection. The revenue authorities often adopt coercive and violent methods under the umbrella of earning revenue and making “recovery” which results in miseries of the businessman. The matter regarding deposit of tax during investigation proceedings has also travelled upto various High Courts. Consequently, CBIC released an Instruction No. 01/2022-23 [GST- Investigation] dated 25.05.2022 to ensure that there is no harassment of taxpayers with respect to tax deposition during investigation proceedings.

There had been various instances noted in the past wherein the taxpayers after voluntarily depositing GST liability through DRC-03 have alleged use of force and coercion by the officers for making “recovery” during search and seizure. It is observed that the taxpayers can voluntarily deposit the tax by logging in to the GST portal and submitting Form DRC-03 on the portal and discharging their self-ascertained liability.

Furthermore, as per Section 79 of CGST Act, 2017, the recovery proceedings can be initiated against the taxpayers only after following a legal process of issuing show cause notice and confirming the demand. Therefore, the CBIC finally released an instruction clarifying that there is no such circumstance wherein the “recovery” of liability can be undertaken during the course of search and seizure. However, there is no bar on the taxpayers for making voluntary payment of self-ascertained liability before or at any stage of initiation of recovery proceedings.

In line with the above, it is pertinent to mention here that there had been various judicial pronouncements as well in uniformity with the above instruction wherein the same view is being upheld by the High Courts. Reliance in this regard can be placed on the following rulings:
·        Madras High Court in the case of M/s Shri Nandhi Dhall Mills India Private Limited V/s Senior Intelligence Officer, Madras High Court
·        Rajasthan High Courtin the case of M/s Dhariwal Products V/s Union of India
·        Gujarat High Court in the case of M/s Bhumi Associate V/s Union of India
·        Telangana High Court in the case of M/s Deem Distributors Private Ltd. V/s Union of India

There are plethora of cases wherein the courts have held that the revenue authorities should follow the procedure prescribed u/s 70 of CGST Act, 2017 before initiating any investigation proceedings against the taxpayer. Further, the amount deposited is not to be considered as voluntary since the same is ordinarily done under coercion and pressure of the revenue authorities. The departmental authorities are bypassing the lawful procedure and trying to extract more money from the taxpayers under the façade of being voluntary deposit failing which the taxpayers are threatened of penal and arrest consequences. There had been various instances in practical life as well wherein the GST officials abuse their powers resulting into harassment of the taxpayers. All thanks to government for recognising the subject matter and releasing an instruction for the same clarifying the above burning issue so that now the revenue authorities would not be able to procure allegedly short paid GST by branding it to be voluntary payment during the search and seizure proceedings. The author of this update has also come across a situation where the DGCI officers have issued summon on 11.59 pm and amount of around one crore (available in taxpayer’s bank account) has been deposited by challan and amount was adjusted through DRC-03. Still it was contended that it was voluntary. This action is a sigh of relief for the taxpayers. It is now expected that the revenue authorities will follow these instructions and understand the intent of legislation behind the same so that the litigations can be reduced to substantial levels thereby bringing clarity. Moreover, CBIC should be appreciated that it is clearly proposed in circular that disciplinary action should be taken against the officer who does not follow this circular. We should all appreciate the circular issued by CBIC following the High court directions.

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GST UPDATE No 202 ON DEPOSIT OF TAX DURING SEARCH & SEIZURE

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