2024 (10) TMI 790 - HC - GST

Seeking refund of amount paid - legal contention raised on behalf of the petitioner is that the respondents do not have power to recover amounts during the pendency of investigation that has commenced even prior to issuance of show cause notice at the stage of Sections 67 and 70 and hence have sought for refund of amount paid - HELD THAT - In terms of the Scheme of the CGST Act, it must be noticed that the assessee has an opportunity even before the service of notice under Section 74 (1) on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer , make payment and inform the proper officer in writing regarding such payment as envisaged under Section 74 (5). It must be noted that the payments made by the petitioner of Rs. 1.00 crore on 31.07.2021 and further amount of Rs. 1.50 crores on 03.08.2021 and even if DRC-03 declaration is taken note of, it cannot be stated that in the present case, there is self-ascertainment. For the purpose of self-ascertainment, it is clear that it amounts to a voluntary determination by the assessee himself as regards the liability of tax. In light of the stand taken in the Affidavit dated 10.08.2021 and the averments made in the writ petition filed on 16.09.2021, this element of voluntariness is absent and accordingly, the sine qua non of self-ascertainment is not fulfilled. Though the declaration in Form DRC-03 contains a declaration that the filing is voluntary, the facts as noticed above are sufficient to construe that such declaration was in fact not voluntary. In light of adjudication still to conclude and notice under Section 74 (1) of the CGST Act is already issued, the question of going back to the stage of 74 (5) does not arise, as in terms of Section 74 (5), the self-ascertainment process is to be completed prior to the issuance of notice under Section 74 (1), subject to issuance of notice under Section 74 (7) as regards shortfall. The petition is allowed in part and while declaring that the recovery of tax made from the petitioner which though Revenue contends is deposit made by way of self-ascertainment under Section 74 (5) of the CGST Act, is declared to be illegal and directed to be refunded within a period of four weeks from the date of receipt of certified copy of the order, with interest as is applicable.

Issues Involved:

1. Legality of the investigation under Section 67 of the CGST Act.
2. Validity of summons and statements obtained under duress.
3. Legality of the recovery of Rs. 2.50 crores under Section 74 (5) of the CGST Act.
4. Alleged abuse of power by respondents during the investigation.
5. Request for refund of the amount collected under duress.
6. Transfer of investigation to Mumbai jurisdiction.
7. Imposition of exemplary costs for causing mental agony.

Issue-wise Analysis:

1. Legality of the Investigation Under Section 67 of the CGST Act:

The petitioner challenged the investigation's legitimacy, arguing that the investigation into M/s. Raj Chemicals, which involved the petitioner, was based on statements and e-way bill analyses indicating no actual movement of goods. The respondents initiated the investigation following statements by Sri Vijay Kumar Gupta, a partner at M/s. Raj Chemicals, suggesting tax evasion through fake invoices. The court noted that the investigation was lawfully pursued based on gathered information.

2. Validity of Summons and Statements Obtained Under Duress:

The petitioner claimed that statements were obtained under duress, with the petitioner being detained and coerced into signing documents. The petitioner retracted these statements via an affidavit dated 10.08.2021, asserting they were made under "tremendous duress and mental trauma." The court recognized the retraction as timely and found the statements were not voluntary, undermining their validity.

3. Legality of the Recovery of Rs. 2.50 Crores Under Section 74 (5) of the CGST Act:

The petitioner argued that the recovery was illegal as it was made during the investigation, before any adjudication or show cause notice. The court examined the provisions of Section 74 (5) and concluded that the payments were not a result of self-ascertainment, as the petitioner was coerced, and the declaration of voluntariness in Form DRC-03 was not genuine. The court declared the recovery illegal and ordered a refund with applicable interest.

4. Alleged Abuse of Power by Respondents During the Investigation:

The petitioner detailed instances of alleged abuse, including detention and threats, during the investigation. While the court refrained from making findings on these allegations, it emphasized adherence to guidelines for conducting investigations, as outlined in Instruction No. 01/2020-21 by the Ministry of Finance.

5. Request for Refund of the Amount Collected Under Duress:

The court granted the petitioner's request for a refund of Rs. 2.50 crores, acknowledging that the payment was made under coercion and not as a voluntary self-ascertainment of tax liability. The court directed the refund within four weeks, with applicable interest.

6. Transfer of Investigation to Mumbai Jurisdiction:

The petitioner sought to transfer the investigation to Mumbai jurisdiction. However, this issue was not seriously contested during oral arguments, and the court did not make any specific findings or orders regarding this request.

7. Imposition of Exemplary Costs for Causing Mental Agony:

The petitioner sought exemplary costs against the respondents for causing mental agony. The court did not address this request directly, focusing instead on the legality of the recovery and the procedural aspects of the investigation.

Conclusion:

The court partially allowed the petition, declaring the recovery of Rs. 2.50 crores as illegal and ordering its refund with interest. The observations were limited to the issues raised during arguments, and the court clarified that other contentions regarding the investigation's validity and alleged ill-treatment were not adjudicated. The decision emphasized the importance of adhering to legal procedures and guidelines during investigations.

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