Recovery By Department During Pendency Of Investigation In The Name Of 'Self-Ascertainment Of Tax' U/S 74 CGST Act Is Violative To Art 265: Karnataka High Court

The High Court therefore clarified that when notice sought to be issued u/s 74(1) indicate a fresh and complete adjudication and does not refer to short fall of actual tax required to be paid as contemplated u/s 74(7), the State itself is estopped from contending that there was self-ascertainment by the assessee.

Single Bench of Justice Sunil Dutt Yadav observed that “if the Authority was of the view that petitioner had made payments as a part of the process of self-ascertainment u/s 74(5) of the CGST Act, the proceedings would terminate”. (Para 25)

“If the Authorities were of the view that the self-ascertainment and the amount paid u/s 74(5) would fall short of the amount actually payable, the Authority could in terms of Section 74(7) proceed to issue a notice as provided for u/s 74(1) in respect of such amount which falls short of the amount actually payable”, added the Bench.

Facts of the case:

During investigation of the firm Raj Chemicals, the statements of one of its partner Vijay Kumar Gupta was recorded u/s 70 of CGST Act, in which he referred to supplies made by the firm to entities including that of the petitioner/ assessee related to invoices raised without actual supply of goods. Upon analysis of e-way bills & the Fastag data, the respondent/ Department found that the vehicles had not moved. This resulted in investigation and even before issuance of show cause notice, forcible recovery was made and it was sought to pass it off as voluntary payments as per prescribed procedure prescribed. The petitioner therefore sought for refund of the amounts paid under duress, and contended that self-ascertainment of tax was not established and the recovery made during investigation was in violation of legal mandate of Article 265 of the Constitution.

The petitioner therefore approached the High Court challenging the legality of investigation carried out u/s 67 of CGST Act and sought for declaration that the recoveries to the tune of Rs.2.50 crores 'extracted coercively' in Form GST PMT–06 Payment Challan. The petitioner also contended that recovery at the office of respondent, pending investigation, while responding to the summons u/s 70 of CGST Act, was an abuse of power.

Observations of the High Court:

The Bench noted that the assessee has an opportunity even before the service of notice u/s 74(1) based on 'his own ascertainment of such tax or the tax as ascertained by the proper officer', make payment and inform the proper officer in writing regarding such payment as envisaged u/s 74(5).

The Bench referred to Section 74(8) of CGST Act, to observe that once the person chargeable with tax pays tax, interest, and penalty, then all proceedings in respect of the said notice shall be deemed to be concluded.

Referring to the payments made by the petitioner of one crore and further amount of one & half crore, as well as the 'DRC-03 declaration', the Bench stated that such is not self-ascertainment of tax.

The Bench also referred to the summary of show cause notice, to found that the State itself has not accepted the self-ascertainment.

Thus, the Bench stated that the recovery made pending adjudication, could be construed as 'recovery' contrary to Article 265 of the Constitution of India.

Hence, the High Court directed the Department to refund the amount of Rs.2.50 crores along with interest, which was alleged to be recovered by the Department in the garb of 'self-ascertainment' and partly allowed the Assessee's petition.

Counsel for Petitioner/ Assessee: Advocates Nikita Badheka, Parth Badheka and Pradeep Kumar J.

Counsel for Respondent/ Revenue: Advocate Jeevan J. Neeralgi

Case Title: Kesar Colour Chem Industries vs. Intelligence Officer

Case Number: Writ Petition No. 17853 of 2021

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