2023 (4) TMI 1184 - HC - GST

Seeking refund of tax deposit during search proceedings - whether the amount paid by the petitioner on 16.01.2021, could be retained by the department without issuing the show cause notice under Section 74 (1) of the CGST Act that too after expiry of two years? HELD THAT - Though the respondents can initiate proceedings under Section 74 (1) of the Act by issuing notice within the period of limitation, they cannot retain the amount of Rs.1.54 crore deposited by the petitioner, which as per respondent-department was voluntary. The amount was deposited during search and as as per judgment passed in Vallabh Textiles case 2022 (12) TMI 1038 - DELHI HIGH COURT , this deposit cannot be taken to be voluntary. Since no proceedings under Section 74 (1) of the CGST Act have been initiated till date, as per Rule 142 (1A) of CGST Rules, 2017, the department cannot even issue Form GST DRC-01A to ask the petitioner to make payment of tax, interest and penalty due. The very fact that in two years time, no notice has been issued, the deposit of tax during search cannot be retained by the department till the adjudication of notice, which can take more time in future. A direction is being given to the respondents to return the amount of Rs.2.54 crores to the petitioner(s) along with simple interest at the rate of 6% per annum from the date of deposit till the payment is made. This amount will be refunded to the petitioner within a period of 10 days from the date of receipt of certified copy of this judgment. Petition allowed.

Issues Involved:
1. Refund of Rs. 2.54 crores to the petitioners.
2. Supply of copies of Panchnama and other resumed documents.
3. Legality of tax deposit under duress during search operations.
4. Compliance with Section 74 of the CGST Act and Rule 142 of CGST Rules.
5. Voluntariness of tax deposit during search operations.

Summary:

1. Refund of Rs. 2.54 crores to the petitioners:
The petitioners sought a direction to the respondents to refund Rs. 2.54 crores, which they claimed was taken without issuing any show cause notice and passing any order. The court noted that the amount was deposited during search operations and argued that it was not voluntary. The court directed the respondents to return the amount along with simple interest at the rate of 6% per annum from the date of deposit till the payment is made. This refund must be completed within 10 days of receiving the certified copy of the judgment.

2. Supply of copies of Panchnama and other resumed documents:
The petitioners requested copies of the Panchnama dated 05.03.2020 and 15.01.2021, along with other electronic gadgets and documents resumed during the search. The respondents provided copies of the Panchnamas and the list of resumed documents during the court proceedings. The court acknowledged this compliance.

3. Legality of tax deposit under duress during search operations:
The court examined whether the tax deposits made by the petitioners during the search operations were voluntary. The court referred to the Delhi High Court's judgment in Vallabh Textiles vs. Senior Intelligence Officer, which held that deposits made during search operations were not voluntary if made under duress. The court concluded that the petitioners' deposits were not voluntary and directed the refund of the amount.

4. Compliance with Section 74 of the CGST Act and Rule 142 of CGST Rules:
The court analyzed the provisions of Section 74 of the CGST Act, which outlines the procedure for voluntary tax payment before the issuance of a show cause notice. The court found that the respondents had not issued any notice under Section 74(1) of the CGST Act within the stipulated time frame. The court also referred to Rule 142(1A) of the CGST Rules, which requires the issuance of Form GST DRC-01A for tax payment. The court held that the respondents could not retain the deposited amount without following these procedures.

5. Voluntariness of tax deposit during search operations:
The court emphasized that the deposit of tax during search operations should be voluntary and free from coercion. The court cited the Delhi High Court's judgment in Vallabh Textiles, which stated that tax deposits made during search operations were not voluntary if made under duress. The court concluded that the petitioners' deposits were not voluntary and ordered the refund of the amount.

Conclusion:
The court allowed the petition and directed the respondents to refund Rs. 2.54 crores to the petitioners along with simple interest at the rate of 6% per annum from the date of deposit till the payment is made. The refund must be completed within 10 days of receiving the certified copy of the judgment.

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