Mere Signing Of Statement Admitting Tax Liability, Making Payments Under Stress Of Investigation Doesn't Amount To Self-Ascertainment: Madras High Court

The petitioner/assessee is registered as a small-scale industry under the MSME Act. An investigation was conducted into the premises of the petitioner and various documents and registers were seized. In the course of that investigation, a statement was recorded in which it was stated that the petitioner had not discharged its GST liability correctly. In the statement, it was accepted that there were mistakes in the computation of GST and assured the respondents/department that the liability would be discharged at the earliest with applicable interest. A scheme of payment has also been set up for the tax that remains unpaid.

The undertaking was signed by the Managing Director. In line with the undertaking, the petitioner has, on the same day, remitted a sum of Rs.1 crore in FORM GST DRC-03 corresponding to Rule 142(2) and (3) and Section 74(5) of the Act. The second instalment of the tax was also paid.

However, later on, the managing director of the petitioner retracted his statement.

The petitioner has stated that it has no liability for tax, that the Managing Director and officials were forced to accept liability for tax, and that the admission was, by no means, voluntary. The petitioner has also made serious allegations about the highhandedness of the authorities during the conduct of the search and the scant regard expressed for the sentiments of the family of the Managing Director and employees of the petitioner. The visit was on the eve of Deepavali, and the investigation was carried out in an intrusive and acrimonious fashion. The petitioner, let alone celebrating the festival, could not even disburse bonuses and gifts to its employees. In all, not just highhandedness, but also mala fides, were attributed to the conduct of the proceedings.

The department contended that the petitioner was engaged in large scale tax evasion and was not paying tax that it was legitimately bound to pay. It was for this reason that it had voluntarily offered to remit tax. The very fact that the petitioner had remitted not one but two instalments of tax would reveal that the payments were voluntary, as, if they had been coerced as alleged, the payments would have stopped with the first instalment. There has been no cooperation extended by the petitioner in the proceedings for enquiry and no appearances/compliance with the summons issued, and it is for this reason that the proceedings for investigation are being delayed.

The legal issue raised is as to whether the petitioner is entitled to a refund of the amounts paid during the investigation and the revenue relied upon the provisions of Section 74 of the Income Tax Act.

Section 74 provides for a determination of tax not paid or short paid, or erroneously refunded, or the wrongful availment or utilisation of an Input Tax Credit (ITC) by reason of fraud, willful misstatement, or suppression of facts. If the officer feels that any circumstances arise in any case, he shall issue a show cause notice to the person concerned, calling for an explanation and also proposing interest under Section 50 and a penalty equivalent to the tax proposed to be levied. Section 74(2) states that the notice shall be issued at least six months prior to the time limit specified in Section 74(10) for the issuance of the order of assessment.

Section 74 (5), read with sub-section (6), provides that the first opportunity must be given to an assessee for an amicable settlement of an assessment before the authorities. It states that an assessee may, prior to receipt of notice, pay the tax along with interest under section 50 and a penalty equivalent to 15% of such tax, on the basis of a self-ascertainment or as ascertained by the proper officer under information to him. On receipt of the information, sub-section (6) provides that no show-cause notice shall be served under section 74(1) in respect of the tax and interest.

The provisions of Section 74 (5) and (6) of Section 74 thus provide an opportunity for the assessee and the revenue to ascertain the proper amount of tax, interest, and penalty and, even in cases where there might have been a shadow of misdeclaration or short payment of tax or wrongful availment or utilisation of ITC, a closure of the proceedings at that stage on the basis of either self-ascertainment by the assessee and acceptance of the same by the revenue or vice versa.

The court observed that the ascertainment contemplated under Section 74 (5) is of the nature of self-assessment and amounts to a determination that is unconditional, and not one that is retracted. If such an ascertainment/self-assessment had been made, there would be no further proceedings contemplated, as Section 74 (6) states that with the ascertainment of demand in Section 74 (5), no proceedings for show cause under Section 74 (1) shall be issued. In this case, inquiry and investigation are on-going, personal hearings have been afforded, and both parties are fully geared towards issuing or receiving a show cause notice and taking matters forward.

Case Title: M/s. Shri Nandhi Dhall Mills India Private Limited Versus Senior Intelligence Officer

Case No: W.P. No.5192 of 2020 and WMP. No.6135 of 2020

Dated: 07.04.2021

Counsel For Petitioner: Advocate Hari Radhakrishnan

Counsel For Respondent: Senior Panel Counsel V. Sundareshwaran

Citation: 2022 LiveLaw (Mad) 166

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