The Hon’ble High Court of Delhi vide its order dated 14.12.2023 in the matter of Sapphire Intrex Limited Vs. Union of India & Ors. in W.P. (C) – 14572 of 2022, ordered for refund of the amount deposited by the assessee under duress and in compelling circumstances, finding that the assessee had not admitted the liability to pay the amount and there is no adjudication of the liability.  Moreover, the show cause notice was issued much after the said deposit. Further, it was found that there is no dispute that no acknowledgment in FORM GST DRC – 04 as required under CGST rules have been issued to the assessee by the department accepting the payment made.

The Petitioner filed the writ petition before the Hon’ble High Court praying for directions to the Respondent to refund an amount of Rs. 2,30,00,000/-, which was coercively recovered by  from the Petitioner, along with interest from the date of payment to the date of refund.  Also, prayer was made to quash the impugned deficiency memo bearing C. No. GST EAST/MCIE/R – 161/Refund/Sapphire Intrex Ltd/271/2022 dated 22.08.2022 and the impugned deficiency memo bearing C. No. GST EAST/MCIE/R-161/Refund/Sapphire Intrex Ltd/272/2022 dated 22.08.2022 issued by the Respondent No. 2.  Further, it was prayed to quash the impugned letter bearing C. No. II(3)GST East/MCIE/Range 161/Refund/Sapphire Intrex Ltd./271/2022 dated 17.10.2022 issued by the Respondent No. 5.  Lastly, directions were sought to the Respondent No. 2 to process refund claims bearing ARN AA070822010019L (for an amount of Rs. 36,35,360/-) and AA070822010080W (for an amount of Rs. 1,93,64,642/) both dated 04.08.2022 filed by the Petitioner and grant refund expeditiously in a time bound manner.

Facts of the Case: –

• The petitioner is a public company engaged in supply of services such as trading in shares & securities, renting of immovable properties, commission, and brokerage, etc, in New Delhi and is duly registered under the CGST Act, 2017.
• That a search operation was conducted at the premises of the petitioner on 20.10.2021, by the officers of GST Anti-Evasion department, under Section 67(2) of the Act. During search, the petitioner was coercively made to deposit an amount of ₹2,30,00,000/- and the payment details were intimated vide FORM GST DRC-03 bearing ARN AD071021006167P.
• The petitioner, thereafter, wrote a letter and an email dated 21.10.2021, to the Inspector, Office of Joint Commissioner (Anti-evasion), Central Tax, Delhi East claiming that the payment made by the petitioner is under protest and that it reserves the right to apply for refund of the amount so deposited.
• Pursuant to which, a show cause notice was issued to the Petitioner by Respondent No. 3, demanding the recovery of GST amounting to Rs. 36,35,359/- under Section 74(1) of the Act and Section 20 of the IGST Act, 2017, and further sought to appropriate the amount of ₹2,30,00,000/-, deposited by the petitioner during investigation, towards the proposed demand.
• Subsequent to which, the petitioner filed two separate refund claims in FORM GST RFD- 01 claiming refund of the amount of Rs. 2,30,00,000/- in terms of Section 54 of the Act read with rule 89 of the CGST rules.
• With respect to the refund claims filed, Respondent No. 2 issued two deficiencies memos both dated 28.07.2022 in FORM GST RFD – 03 under Rule 90 (3) of the CGST Rules. One stating ‘self-declaration under Rule 89(2)(1) if amount claimed does not exceed two lakh rupees, certification under Rule 89(2)(m) otherwise-not uploaded’ (February 2019-20) and another stating ‘Documents in support of the claim are not sufficient. (March 2019-20)’
• The petitioner responding to the deficiency memos, with respect to first set of deficiency memos filed two separate rectified refund claims dated 04.08.2022 amounting to ₹36,35,360/-(period February 2019-2020) and ₹1,93,64,642/- (period March 2019-2020), enclosing along with DRC-03 dated 20.10.2021, under-protest payment letter dated 21.10.2021, SCN dated 23.06.2022, and the copy of certificates issued by a CA certifying that the amount paid the petitioner has not been claimed/adjusted against the regular liability of GST, and also not availed as input tax credit.
• Thereafter, Respondent no. 2 issued second set of deficiency memos dated 22.08.2022 (in FORM GST RFD-03) under Rule 90(3) of the CGST Rules allegedly pointing out the same deficiencies as were pointed out in the first set of deficiency memos dated 28.07.2022, and further advised the petitioner to once again file fresh refund claims after the rectification of the said deficiencies.
• The petitioner filed a letter dated 07.09.2022 with Respondent no. 2 requesting to process the rectified refund claims both dated 04.08.2022, along with applicable interest.
• However, on 17.10.2022, Respondent no.5 issued the impugned letter dated 17.10.2022, intimating the petitioner that as the SCN dated 23.06.2022 issued to it has not been adjudicated, the refund claims filed by it cannot be processed. It further recommended the petitioner to file fresh refund claim after adjudication of the SCN.

Submissions of the Petitioner: –

• It was submitted on the behalf of the Petitioner that it is a settled principle of law that no amount can be recovered by the department before the demand against the assessee is crystalised. The amount in dispute i.e., Rs. 2,30,00,000/- has been deposited by the Petitioner, while the search proceedings had not been concluded and before issuance of SCN dated 23.06.2022.  Thus, the collection/recovery by the respondents is illegal and in contravention of the Instruction No. 1/2022-2023 (GST Investigation) dated 25.02.2022 issued by the CBIC.
• To support its stand, reliance was placed on Union of India and Others v. Makemytrip (India) Private Limited – (2019) 11 SCC 765; Century Metal Recycling Pvt. Ltd. and another v. Union of India and others – 2009 (234) ELT 234 (P&H); M/S Century Knitters (India) Ltd. v. Union of India and others – 2013.
• It was submitted that the payment made was not voluntary and was collected/recovered under coercion by the respondents from the petitioner. The non-issuance of acknowledgement from the proper officer in FORM GST DRC-04 under Rule 142(2) of the CGST Rules vitiates the stand that the said payment was voluntary and the respondents are liable to refund the said amount with interest, which was coercively recovered during the search proceedings.  To strengthen its contentions, reference was made to the decision of Vallabh Textiles v. Senior Intelligence Officer and Ors. :2022 SCC OnLine Del 4508.
• Further, the second deficiency memos both dated 22.08.2022 issued by the respondents are in contravention of the paragraph 11 of the Circular dated 18.11.2019 as the petitioner had rectified the deficiencies mentioned in the first deficiency memos both dated 28.07.2022. The said circular clarifies that no second deficiency memo is to be issued in respect of refund application filed afresh, after rectification of deficiencies, unless the earlier deficiencies remain unrectified, or any other substantive deficiency is noted subsequently, and the same is binding on the respondents.  In this regard, reliance was placed on the decisions Commissioner of Central Excise, Bolpur v. Ratan Melting & Wire Industries – (2008) 13 SCC 1; RDB Textiles v. Commissioner of Central Excise and Services Tax, Kolkata- IV Commissionerate – (2018) 14 SCC 42; Union of India and Others v. Arviva Industries India Limited and Others – (2014) 3 SCC 159.
• Also, the said set of second deficiencies memo are vague and contrary to principles of natural justice, without pointing out any new deficiency, much less a substantive one. It is obligatory on part of the respondents to issue an unambiguous and clear deficiency memo so as to enable the taxpayer to rectify the deficiencies. No reason was specified as to why the documents uploaded by the petitioner are not sufficient in support of the claim. Furthermore, the said memos nowhere provide that the CA certificate uploaded by the petitioner is, allegedly, not as per the Rule 89(2)(m) of the CGST Rules.  Reference was made to the judgments of Mohinder Singh Gill and Another v. Chief Election Commissioner, New Delhi and Others – (1978) 1 SCC 405; Rashmi Metaliks Ltd. and Anr. v. Kolkata Metropolitan Development Authority and Ors. – (2013) 10 SCC 95; Dipak Babaria and Another v. State of Gujarat and Others – (2014) 3 SCC 502; M/s Lupin Ltd. v. Union of India and Ors. – Jammu and Kashmir High Court.
• The said set of deficiencies memos both dated 22.08.2022 issued by the respondents are time barred under Rule 90 of CGST Rules, which lays down the prescribed period of fifteen (15) days for the refund applications to be scrutinised and accordingly acknowledged by the proper office. Relying on the judgment of Jian International v. Commissioner of Delhi Goods and Services Tax – 2020 SCC OnLine Del 260, it was submitted that if no deficiency memo is issued within the stipulated period, the refund application is presumed to be complete in all respects.
• Lastly, it was submitted that the letter dated 17.10.2022, which in effect rejects the refund claims filed by the petitioner, without giving the petitioner any show cause notice and/or any opportunity of being heard, is illegal. It is issued in violation of the principles of natural justice and contrary to the binding Circular dated 18.11.2019. it was stated that the adjudication of the SCN dated 23.06.2022 is immaterial and not a pre-requisite for processing of the refund claims filed by the petitioner under the residuary category as the refund is not arising as a result of any order or proceedings.

Respondents’ Submissions: –

• On the other hand, it was submitted on the behalf of the respondents that that the petitioner’s claim that ₹2,30,00,000/- was illegally collected from it during search proceedings is incorrect and there is no question of ‘illegal collection’ as the amount was voluntarily deposited by the petitioner vide FORM GST DRC-03, which is an intimation of payment made voluntarily or made against the show cause notice or statement under Section 142 of the CGST Rules.
• That the second set of deficiency memos were issued in consonance with the guidelines of the Circular No. 125/44/2019-GST dated 18.11.2019 as the petitioner did not rectify the original deficiencies as pointed out in the first set of deficiency memos. Further, the Certificate provided by the petitioner from a Chartered Accountant is not as prescribed under Rule 89(2)(m) of the CGST Rules and the basic document in this case i.e. adjudication order on the basis of which refundable amount can be ascertained, was not uploaded by the petitioner.
• The petitioner was well aware that the SCN dated 23.06.2022 issued to it, in which the entire amount of ₹2,30,00,000/- has been proposed to be appropriated against the tax/interest & penalty, is pending for adjudication. Therefore, the petitioner’s liability cannot be ascertained until and unless the SCN dated 23.06.2022 is adjudicated/decided.
• The said second set of deficiency memos both dated 22.08.2022, were issued in time and not time barred on account of holidays from 19.08.2022 to 21.08.2022.
• It was also submitted that the amount under protest was deposited by the petitioner vide FORM GST DRC- 03 on 20.10.2021, and as per the amended Rule 90 of CGST Rules, applicable refund, if any, can be claimed by the petitioner within two years of issuance of adjudication order in respect of SCN dated 23.06.2022, which is yet to be adjudicated.
• Lastly, it was Counsel submitted that the petitioner had an alternative efficacious remedy to approach the proper officer against the deficiency memos.

Held: –

• The Hon’ble Court after considering the submissions, facts of the case and the provisions of law applicable, found that the first and foremost question to be addressed is whether the petitioner is entitled to the refund of the amount that was made through its cash ledger. According to the petitioner, it was coerced to make the deposit of tax through the cash ledger vide Debit Entry No. DC0710210203804 dated 20.10.2021 while the search and inspection proceedings were continuing at the material time.
• It was found by the Hon’ble High Court that it is an admitted case that while the payment was made by the petitioner, it had not admitted the liability to pay the amount. It is also not in dispute that there is no adjudication of the liability and the Show Cause Notice demanding the recovery of GST and the appropriation of the amount of Rs. 2,30,00,000/- deposited by the petitioner was issued on 23.06.2022, that is, much after the said deposit.
• Further, it has been not been denied on the behalf of the respondents that an assessee cannot be forced to pay any amount during the course of investigation. If any amount is collected without any authority of law, the same amounts to depriving the person of its property and infringes its rights under Article 300A of the Constitution of India.
• The Hon’ble Court after considering the facts, accepted that the deposit was made by the petitioner under duress and compelling circumstances. The search operations started at around 3:45 p.m. on 20.10.2021 and went way beyond the normal business hours, that is, up to 00:30 a.m. on 21.10.2021.
• Also, there is no doubt that a tax payer can voluntarily pay tax prior to issuance of the Show Cause Notice in terms of Section 73(5) of the Act. In terms of Section 73(6) of the Act, in case a person chargeable with tax before service of notice under Section 73(1) or before giving any statement under Section 73(3) of the Act, makes a voluntary payment of tax with interest, the proper Officer is not to serve any notice in respect of tax so paid or any penalty payable under the provisions of the Act or the CGST Rules made thereunder.  These provisions do not empower the Department to compel the tax payer to pay any tax.
• It was found by the Hon’ble High Court that if the tax payer, after such payment, turns around and claims that the payment had not been made voluntarily and the circumstances, as mentioned above, also point out towards the same, it must be accepted that the payments were not made voluntarily. Though, in such circumstances, the tax payer will forfeit the immunity which he is entitled to, in terms of Section 73(6) of the Act from levy of any penalty.
• It was noted by the Hon’ble High Court that the requisite procedure under Rule 142 of the CGST Rules, has also been complied with in the present case. It is not disputed that any voluntary deposit in Form GST DRC-03 is to be followed by an acknowledgement accepting the payment as being voluntarily made by issuance in Form GST DRC- 04. The respondents, admittedly, have not issued Form GST DRC-04 as required under the CGST Rules.
• The Hon’ble Court took note of the judgment of this in Lovelesh Singhal Prop Shivani Overseas v. Commissioner, Delhi Goods and Services Tax & ors.: – 2023- DHC- 8631-DB, wherein it was held that ‘Admittedly, the respondents have not issued any acknowledgement accepting the payment made by the petitioner in Form GST DRC-04 as required under the CGST Rules. In Vallabh Textiles v. Senior Intelligence Officer and Ors. (supra), a Coordinate Bench had held that failure to follow the prescribed procedure would also lead to the conclusion that the deposit made by the taxpayer was not voluntary.” and the judgment of Gujarat High Court in M/s Bhumi Associate v. Union of India – decided on 16.02.2021.
• The Hon’ble High thereafter, referred to the instructions dated 25.05.2022 issued by CBIC in this regard, wherein it was clarified that ‘recovery of taxes not paid or short paid, can be made under the provisions of Section 79 of CGST Act, 2017 only after following due legal process of issuance of notice and subsequent confirmation of demand by 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 CGST Act and rules made therein…………………. However, the law does not bar the taxpayer from voluntarily making payment of any tax liability ascertained by him or the tax officer in respect of such issues, either during the course of such proceedings or subsequently………….

Therefore, it is clarified that there may not be any circumstance necessitating ‘recovery' of tax dues during the course of search or inspection or investigation proceedings.…..”.

• From the above, the Hon’ble Court found that the issue raised is covered by the aforementioned earlier decisions of this Court. Accordingly, we allow the petitioner’s claim for refund and direct the respondents to forthwith process the same.
• With respect to the other issues raised by the petitioner i.e., the issuance of multiple deficiency memos and that the adjudication of the Show Cause Notice is not a pre-requisite for processing the refund for claim; the claim for refund cannot be withheld merely because the Department, pursuant to the deposit, issued the SCN and is proposing to demand GST, the Hon’ble Court found that Since the deposit made by the petitioner has been held to be involuntary and the respondents are directed to forthwith process the petitioner’s claim for refund, it was not considered apposite to adjudicate other issues raised by the petitioner.
• However, the Hon’ble Court made it clear that it has not decided anything on the merits of the SCN or the liability of the petitioner, if any, to pay the GST. It was also clarified that the respondents are not precluded from taking any other necessary steps in accordance with law. The Department is also not precluded from passing appropriate order including any order under Section 83 of the CGST Act, for protecting the interest of the Revenue in accordance with law, if the conditions for passing such orders are satisfied.

The Hon’ble Court with the above observations and findings, allowed the writ petition.

To read the complete judgment 2023 Taxo.online 1376