The Karnataka High Court has held that the recovery during pending adjudication is contrary to law and accordingly, contrary to Article 265 of the Constitution of India, the amount of Rs.2.50 crores is required to be refunded with interest as would be applicable in case of refund.
The bench of Justice S Sunil Dutt Yadav has observed that 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.
Table of Contents
Background
The petitioner/assessee has questioned the correctness and legality of, Investigation carried out under Section 67 of the Central Goods and Services Tax Act, 2017. The validity of the summons to the witness dated 31.07.2021.
The declaration that the recoveries to the tune of Rs.2.50 crores “extracted coercively” from the petitioner by the respondent-department. The recovery at the office of respondent while responding to the summons under Section 70 of the CGST Act as abuse of power declaring that the recovery of Rs.2.50 crores under Section 74(5) of CGST Act as being illegal.
The assessee sought the relief in respect of the refund of the amount of Rs.2.50 crores collected, while keeping open the other contentions in light of pending adjudication initiated by issuance of show cause notice.
Arguments – Recovery During Pending Adjudication
The assessee contended that they were cooperating in the investigation pursuant to the order passed in the writ petition restraining the department from taking coercive steps compelling the petitioner to pay amounts during the course of investigation.
The assessee contended that the department 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.
The assessee contended that self-ascertainment of tax was not established and that recovery made during investigation was in violation of legal mandate contained in Article 265 of the Constitution of India. The supplies from M/s. Raj Chemicals have been long standing transactions and such supply is evidenced by e-way bills, issue of invoices and proof of transport.
The assessee argued that the show cause notice does not exclude payment of Rs. 2.50 crores which also strengthens the assertion that the amount paid was not towards self-ascertainment.
The department contended that the payment made under Section 74(5) read with Rule 142(2) of the GST Rules would be dealt with or adjusted by the department in accordance with Section 74 of the CGST Act. The DRC-03 specifically indicates nature of payment being ‘voluntary’ and has accordingly sought for dismissal of the petition.
Conclusion – Recovery During Pending Adjudication
The court held that 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.
Case Details
Case Title: M/S. Kesar Colour Chem Industries V/S The Intelligence Officer
Case No.: Writ Petition No.17853 Of 2021 (T-Res)
Date: 26/09/2024
Counsel For Petitioner: Nikita Badheka
Counsel For Respondent: JEEVAN J
