GST paid during search, inspection, investigation

Background

Under the GST regime, search, the investigation against taxpayer or inspection of business premises of taxpayer could be done by dept officers. The proper officer may conduct enquiry about the business activities of the tax payer. They may ask for documents to undertake further investigation, such as major agreements with buyers/vendors, tax invoices issued to buyers, audit report for a particular year, etc. Sometimes there is a tendency to overstep and the proper officer may resort to coercion to somehow corner the assessees to make payment of taxes under threat/pressure. There have been instances of the assessees having approached High Courts for relief in this regard.

The latest CBIC instruction No. 01/2022-23 GST - Investigation addresses the context of deposit of tax during the course of search, inspection or investigation. In this backdrop, the paper writer has analysed the implications of this instruction for assessees.

Analysis of the instruction

• Under CGST Act, 2017 a taxpayer has an option to deposit the tax voluntarily by way of submitting DRC-03 on the GST portal. Voluntary payment of tax before issuance of show cause notice is permissible in terms of provisions of Section 73(5) and Section 74 (5) of the CGST Act, 2017.
• Recovery of taxes not paid or short paid, can be made under the provisions of Section 79 of CGST Act, 2017 only after following the due legal process of issuance of notice and subsequent confirmation of demand by the issuance of adjudication order.
• No recovery can be made unless the amount becomes payable in pursuance of an order passed by the adjudicating authority or otherwise becomes payable under the provisions of the CGST Act and rules made therein.
• No bar on the taxpayers for voluntarily making the payments on the basis of ascertainment of their liability on non-payment/ short payment of taxes before or at any stage of such proceedings.
• The tax officer should inform the taxpayers regarding the provisions of voluntary tax payments through DRC-03.
• Chief Commissioners/ Chief Commissioners, CGST Zones and Pr. Director-General, DGGI are advised that in case, any complaint is received from a taxpayer regarding use of force or coercion by any of their officers for getting the amount deposited during search or inspection or investigation, the same may be enquired at the earliest and in case of any wrongdoing on the part of any tax officer, strict disciplinary action as per law may be taken against the defaulting officers.

This instruction has brought in much-needed clarity on the following

No recovery of tax dues during search inspection investigation

There may not arise any situation where "recovery" of the tax dues has to be made by the tax officer from the taxpayer during the course of search, inspection or investigation, on account of any issue detected during such proceedings.

Strict Action in case of wrongdoing 

When the complaint is received from a taxpayer regarding use of force or coercion by any of their officers for getting the amount deposited during search or inspection or investigation, the same may be enquired at the earliest and in case of any wrongdoing on the part of any tax officer, strict disciplinary action as per law may be taken against the defaulting officers.

Important High Court Decisions

At this juncture, we look at the judicial experience in this regard.

In Union of India Vs Bundl Technologies Private Limited (Karnataka High Court)
Writ Petition No. 4467/2021 (T-Res)

where the amounts were paid contemporaneous to very dates when the investigation was being made and during the time when the petitioners officers/directors were at the place of investigation. The company filed an application seeking a refund thereafter. The Karnataka High Court adjudged that the "right of refund …would be independent of the process of investigation and two cannot be linked together…" and allowed the writ petition of the Petitioner. The Karnataka HC directed the department to consider the refund application of the Petitioner which was collected under coercion during investigation.

In Bhumi Associate vs UOI (2021 (46) G.S.T.L. 36 (Guj.) with regard to Search/inspection proceedings under GST and recovery during such proceedings. In terms of interim directions of High Court, departmental officers barred from making recovery in any mode by cheque, cash, e­payment or adjustment of ITC during search proceedings under any circumstances. Even if assessee comes forward to make voluntary payment, he must be asked/advised to file Form DRC­03 on the next day after end of the search proceedings and not during the presence of officers. In case of any forced payment, the assessee is at liberty to file a complaint and any officer found acting against aforesaid directions should be made liable for strict disciplinary action - Section 67 of Central Goods and Services Tax Act, 2017

Conclusion

Though a welcome clarification, only the rigorous implementation of this measure it is expected would help to provide relief from harassment/terror during search and investigation to taxpayers.

The author can also be reached at roopa@hiregange.com