In CWP No.8035 of 2021-PUNJ HC- Department cannot issue Form GST DRC-01A asking petitioner to make payment of tax, interest and penalty due as no proceedings u/s 74 (1) of CGST Act have been initiated till date as per Rule 142 (1A) of CGST Rules, 2017: P&H HC
Justices Ritu Bahri & Kuldeep Tiwari [19-04-2023]

Read Order: MODERN INSECTICIDES LTD. AND ANOTHER VS COMMISSIONER, CENTRAL GOODS AND SERVICE TAX AND ANOTHER

Mansimran Kaur

Chandigarh, May 3, 2023: The Punjab and Haryana High Court has allowed a petition by directing the respondent-Department to return the amount of Rs 2.54 crore to the petitioner along with interest after noting that the very fact that in two years’ time, no notice has been issued, the deposit of tax during search cannot be retained by the department till the adjudication of notice.

As per the facts stated in the petition, officials of the respondents searched the factory premises of the petitioner and resumed the entire record lying there. The respondents conducted the second search on and took away Avtar Singh (78 years old), Director and Mr. Sahil Sharma, Chartered Accountant of the petitioner.

They were released on the condition of deposit of Rs 2.15 crore, which were deposited through reversal of Input Tax Credit ( ITC) from electronic credit ledger and surrender of refund already applied. The respondents did not supply a copy of Panchnama, copy of the resumed record and electronic gadgets, which were necessary to file returns and comply with the requirements of banks.

 In this backdrop, the present petition was filed. 

It was the case of the petitioners that as per Section 16 of the CGST Act, 2017 read with Rule 36 of CGST Rules, 2017, a registered person may avail Input Tax Credit (ITC) of inputs which are used in the furtherance of business. The ITC under CGST is principally the same with Cenvat Credit Scheme under Central Excise Act, 1944 read with Cenvat Credit Rules, 2004. The Cenvat Credit Rules recognized only two stage dealers’ i.e. first stage dealer and second stage dealer. There could be any number of manufactures, but Cenvat Credit could be availed on the basis of invoice of a manufacturer or first stage dealer or second stage dealer. 

As per CGST Act and Rules, ITC can be availed on the basis of an invoice of a dealer though he may be any stage dealer. Abolition of restriction on the number of stages of dealers coupled with lack of control on activities of dealers, including their registration, is source of temptation and prompted the unscrupulous dealers. 

The Counsel for the respondents argued that the petitioner had voluntarily chosen to make payment of tax along with penalty. The petitioner was called upon to provide information about inputs procured and the final products manufactured, the petitioner never heeded to the queries raised by the department. As per the information received from Customs, Mumbai, it was found that the petitioner  mis-declared the goods to the extent of their value, nature and description and also indulged in illegal import of Pesticides. 

The short question for consideration in this petition was  whether the amount paid by the petitioner onJanuary 16, 2021 , could be retained by the department without issuing the show cause notice under Section 74 (1) of the CGST Act that too after expiry of two years. 

In view of the same, the Division Bench of Justice Ritu Bahri & Justice Kuldeep Tiwari noted that a perusal of Section 74 (5) of the CGST Act shows that if, any person chargeable with tax wants to pay the amount of tax along with interest, before service of notice under Section 74 (1) of the Act, on his own ascertainment of such tax, or the tax as ascertained by the proper office, then he can deposit tax along with interest and inform the proper officer in writing of such payment.

As per sub-section (6) of Section 74, a proper officer, on receipt of such information, shall not serve any notice under sub-section (1), in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder. As per sub-section (7) of Section 74, if the payment falls short of the actual amount due, he shall proceed to issue notice as provided in sub-section (1) with respect to the amount, which falls short of the amount actually payable. Sub-section (8) to Section 74 further provides where any person chargeable with tax under sub-section (1) pays the said tax along with interest payable under section 50 and a penalty equivalent to twenty-five per cent of such tax, within thirty days of issue of the notice, all proceedings in respect of the said notice shall be deemed to be concluded. 

As per sub-section (9), the proper officer, after considering the representation made by the person chargeable with tax, will determine the amount of tax, interest and penalty due from such person and pass an order within five years from the date of furnishing annual return for the financial year, to which, the tax not paid or Input Tax Credit has been wrongly availed, the Court noted. 

Further reference was placed on the judgment in Vallabh Textiles vs. Senior Intelligence Officer and others. The Court stated that the ratio of the judgment passed by Vallabh Textiles’ case was directly applicable to the facts of the present case. In the present case as well, from the date when the search was conducted and amount was deposited, no summons under Section 74 (1) of the CGST Act have been issued till date. Though the respondents can initiate proceedings under Section 74 (1) of the Act by issuing notice within the period of limitation, they cannot retain the amount of Rs.1.54 crore deposited by the petitioner, which as per respondent-department was voluntary. 

It was further noted that the amount was deposited during search and as per judgment passed in Vallabh Textiles’ case (supra), this deposit cannot be taken to be voluntary. Since no proceedings under Section 74 (1) of the CGST Act have been initiated till date, as per Rule 142 (1A) of CGST Rules, 2017, the department cannot even issue Form GST DRC-01A to ask the petitioner to make payment of tax, interest and penalty due, the Court stated. 

Thus, in view of the observations made above, a direction was given to the respondents to return the amount of Rs 2.54 crore to the petitioners along with simple interest at the rate of 6% per annum from the date of deposit till the payment is made. This amount will be refunded to the petitioner within a period of 10 days from the date of receipt of certified copy of this judgment. The petition was allowed accordingly.