19.07.2023: Amount Deposited Voluntarily During Search Not To Be Considered As Collection Of Tax With Authority Of Law – Punjab & Haryana High Court

The Hon’ble High Court of Punjab & Haryana vide its order dated 04.05.2023 in the matter of William E Connor Associates and Sourcing Pvt. Ltd. And Anr. Vs. Union of India and Others in CWP – 733 of 2021, directed the department to refund the amount with interest, which the department got deposited from the assessee during a search in its premise.  It was found that the amount deposited voluntarily by the assessee during search would not amount to collection of tax under Article 265 of the Constitution and to be considered as amount collected without authority of law.

The Petitioners filed the writ petition before the Hon’ble High Court praying for directing the Respondent No. 1 and its agents to immediately refund the amount of Rs. 83,89,196/- along with interest.  It was also prayed to stay the operation of circular No.3/3/2017 dated 05.07.2017 and prohibiting the respondents from assuming jurisdiction on the basis of the illegal search conducted by them and also challenged the vires of CGST Act as violative of Articles 14, 19 and 21 of the Constitution of India.

Facts of the Case: –

  • The Petitioners in the present case, are engaged in providing Export of Business Support Services (HSN9985) to one William E Connor & Associates Limited, Hong Kong (for short-WECA HK) in relation to sourcing of products required by clients of WECA HK from India, in terms of the service agreement with WECA HK.
  • According to the petitioners, the activities undertaken by them amount to export of service in terms of Section 16 of Integrated Goods and Service Tax Act, 2017, to which the provisions of CGST Act are also applicable.
  • The Petitioners claimed refund of input GST as available on export of services by operation of IGST Act read with CGST Act and filed two refund claims before the Jurisdictional GST authorities, seeking refund of accumulated input tax credit along with supporting documents including the service agreement between itself and WECA HK.

Petitioners’ Submissions: –

  • It was submitted on the behalf of the petitioners that the aforesaid refund claims amounting to Rs. 83,89,196/- were initially sanctioned by the revenue authorities and was also disbursed to the petitioners, confirming them as exporters of service. However, later a search was conducted on the premises of the petitioners on 23.12.2020 and 24.12.2020 by a search party comprising of respondents in an illegal manner.
  • That in the said search, the petitioners were made to deposit an amount of Rs. Rs.83,89,196/- on 06.01.2021, under protest and on the assurance that it would be reverted in the input tax credit of the petitioner-company.
  • Thereafter, the petitioners requested the respondents to transfer the aforementioned amount in their Input Tax Ledger by filing a letter. However, their request has not been considered, even after a lapse of two years.
  • Further, it was submitted that no proceedings under Section 74(1) of the CGST Act had been initiated by the revenue, but still the input tax credit has not been transferred in their ledger.
  • Without pressing the prayer for challenging the vires of Circular No. 3/3/2017 dated 05.07.2017, reference was made to judgments of this Court in CWP No.23788 of 2021Diwakar Enterprises Pvt. Ltd. Vs. Commissioner of CGST and Anr. decided on 14.03.2023 and in CWP No. 8035 of 2021 – Modern Insecticides Ltd. and Anr. vs. Commissioner, Central Goods and Service Tax and Anr. decided on 19.04.2023, and it was submitted that the prayer made by the petitioners may be allowed.

Held: –

  • The Hon’ble Court after considering the submissions and facts of the case, found that it is not in dispute that a search was carried out in the premises of the petitioners as on 23.12.2020. A statement of the official of the petitioner-company was recorded by the revenue officers under Section 70 of the CGST Act, and documents were obtained and the panchnama was prepared on the same date.
  • Though, it has been informed on the behalf of the respondents that the revenue department is in the process of issuing a notice under Section 74(1) of the CGST Act. However, it is now clear that till today, no proceedings have been initiated by the respondents for imposing penalty or raising any fresh demand.
  • Further, it was found by the Hon’ble Court that this very issue has been examined by this Court in Diwakar Enterprises Pvt. Ltd.’s case (supra) and Modern Insecticides Ltd’s case (supra). In these cases, this Court while relying upon the judgment passed by the Delhi High Court in case of Vallabh Textiles vs. Senior Intelligence Officer and others, 2022 SCC Online Del 4508 and judgment passed by the Karnataka High Court in Union of India and others vs. Bundl Technologies Pvt. Ltd and others, ILR 2022 Karnataka 3077, observed that any amount deposited voluntarily by the petitioner during search would not amount to collection of tax under Article 265 of the Constitution and an amount collected without authority of law, would not amount to collection of tax and the same would amount to depriving a person of his property without any authority of law and would infringe his rights under Article 300A of the Constitution of India as well.
  • Lastly, it was found by the Hon’ble Court that the respondents have failed to place any material on record to show that they got deposited amount of Rs. 83,89,196/-, from the petitioners with any authority of law.

The Hon’ble Court with the above findings, allowed the writ petition with the direction to the respondents to refund the amount of Rs. 83,89,196/- along with interest @6% from the date of filing of this petition.

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