Vallabh Textiles vs Senior Intelligence Officer

1.The sole question which arises for our consideration is: whether the cumulative sum of Rs.1,80,10,000/- deposited on behalf of the petitioner concern, during search proceedings carried out between 16.02.2022 and 17.02.2022, was a voluntary act or not.

2.The petitioner claims, that the aforementioned amount was deposited in four (4) tranches, between 01:28 A.M. and 07:03 A.M. on 17.02.2022.

3.It is the petitioner’s case, that the search commenced at about 03:30 PM on 16.02.2022 and ended at 09:30 AM on 17.02.2022.

4.Respondents no. 1 and 2 [“official respondents”]/revenue, however, contend to the contrary.

4.1.It is the official respondents/revenue’s broad stand, that the aforementioned amount was deposited against challan(s) submitted in the prescribed form i.e., Form GST DRC-03, each of which is dated 17.02.2022.

5.The official respondents/revenue, thus, take the position, that the allegation of coercion is an afterthought, which was raised only on 25.05.2022 after summons had already been served on the petitioner concern.

6.The principal controversy in the matter was noticed, when the matter was listed before the Court for the first time on 05.07.2022. On that date,notice was issued in the petition. The official respondents/revenue were represented by Mr Satish Kumar, senior standing counsel who appeared on behalf of respondents no. 1 and 2, and Ms Anushree Narain, who appeared on behalf of respondent no.3.

7.It is pertinent to note, at this juncture, that on the returnable date i.e., 26.08.2022, Mr Vivek Sarin, who appears on behalf of the petitioner concern confined the relief sought in the writ petition to prayer clause (a), which concerns, in effect, the relief for return of Rs.1,80,10,000/- along with statutory interest, deposited on behalf of petitioner-concern.

7.1.Consequently, it was indicated to us, that other reliefs will not be pressed in the instant writ action.

Background:

8.Before we proceed further, it would be relevant to etch out the broad backdrop in which the present writ petition has been preferred.

9.The petitioner-concern, which is in the business of trading in Ready Made Garments (RMG) is also engaged in selling these very goods on behalf of third parties, albeit in the domestic market, on a commission basis.

10.It is alleged by the official respondents/revenue, that the petitioner concern, inter alia sold goods, in cash, on behalf of two entities i.e., Empire Apparels Pvt. Ltd. (“EAPL”) and M/s Navrang Enterprises (“NE”), during the period spanning between July 2017 and February 2022.

11.The official respondents/revenue claim that the RMGs sold, in cash, on behalf of the aforementioned entities by the petitioner-concern were worth Rs.149.90 crores against which it received by way of a commission [at the rate of 5%] Rs.7.50 crores. It is alleged that the commission was also received in cash.

11.1.Thus, according to the official respondents/revenue, the petitioner oncern failed to disclose the said cash transactions, and pay the requisite tax on the commission earned by it.

12.It was because of this intelligence which was received by the official respondents/revenue, that a search at the petitioner-concern’s premises was conducted between 16.02.2022 and 17.02.2022.

12.1.The said premises, as per the stand of the official respondents/revenue, was unregistered.

13.It is also the official respondents/revenue’s case, that at the time of the search, one Mr Sumit Jain i.e., the manager and authorized representative of the petitioner-concern was found at its premises

14.The official respondents/revenue claim, that amongst other things, it was discovered that the petitioner-concern maintained a ledger concerning cash sales, albeit in soft form, in a laptop, which was ultimately resumed by them.

14.1.This apart, it is also averred by the official respondents/revenue, that the ledger contained the details such as the party to whom the cash sale was made, the name of the transporter, date of sale, transporter name, lorry receipt number of the transporter, as also information concerning the value of the sales transactions, and the commission earned on such transactions.

15.It appears, that the officers carrying out the search, apart from the laptop, also resumed various registers, physical bill books and documents, which according to them, contained details of clandestine clearances made by the petitioner-concern.

16.Evidently, a panchnama was drawn on 17.02.2022, which bears the signatures of Mr Sumit Jain, and two other persons i.e., one Mr Deepak Kumar Jha [pancha no.1] and one Mr Anil Kumar [pancha no.2], who the official respondents/revenue claim, were independent witnesses to the search proceedings.

17.The official respondents/revenue also aver, that simultaneous searches were carried out at the premises of NE and EAPL, whose goods, as indicated above, were allegedly sold, in cash, by the petitioner-concern.

17.1.It is stated, that the search at the premises of NE and EAPL was carried out on 16.02.2022.

18.Apparently, statements of the proprietor of NE i.e., one Mr Kamal Kishor Karnani, and the Director of EAPL, namely one Mr Vinod Baid were recorded.

18.1.These statements, as per the official respondents/revenue, confirm that the aforementioned entities had their goods sold in cash via the petitioner concern, for which it was paid a commission.

18.2.The said statements, according to official respondents/revenue, also reveal that the petitioner-concern was paid a commission at the rate of 5%. .

19.It is further averred, that the result of this exercise was, that NE deposited with the official respondents/revenue Rs.1.15 crores, which included tax, interest and penalty.

19.1.This amount, it is stated, was deposited via a prescribed challan i.e., DRC-03, dated 17.02.2022.

20.It is claimed, that likewise, EAPL voluntarily deposited with the official respondents/revenue Rs.1.32 crores, which also included tax, interest and penalty.

20.1.It is claimed, that likewise, EAPL voluntarily deposited with the official respondents/revenue Rs.1.32 crores, which also included tax, interest and penalty.

21.It is averred by the official respondents/revenue, that Rs.1,80,10,000/- which has been deposited by the petitioner-concern, included the following components:

(i)Tax at the rate of 18% on the commission earned during the relevant period i.e., Rs.7.49 crores; quantified at Rs.1.35 crores.

(ii)Interest amounting to Rs.24,85,000/-

(iii) Penalty at the rate of 15% amounting to Rs.20,25,000/-.

Submissions of the counsels:

22.Given this backdrop, submissions were advanced by the counsel for the parties.

22.1.On behalf of the petitioner-concern, the submissions made, can be paraphrased as follows:

22.2.he deposit of Rs.1,80,10,000/- was not voluntary. The statements and documents, on which the signatures of Mr Sumit Jain were obtained on 17.02.2022 and 24.02.2022, were a product of coercion

22.3.Since the copies of documents have not been furnished till today, the official respondents/revenue have contravened the provisions of Section 67(5) of the CGST Act, 2017 [hereafter referred to as “2017 Act”].

22.4.Between 16.02.2022 and 17.02.2022, when the search was carried out, CCTV cameras were switched off. The enquiry conducted on 24.02.2022 was not backed by camera recording.

22.5.The so-called independent witnesses were connected to the official respondents/revenue. Mr Deepak Kumar Jha was a computer operator, working in tandem with the official respondents, while Mr Anil Kumar was seen to be driving the vehicle of one of the officers included in the search party. This has resulted in the violation of Instruction No.1/20-21 [GST Investigation] dated 02.02.2021 issued by the Ministry of Finance, Department of Revenue, Central Board of Indirect Taxes and Customs, GST-Investigation Wing.

22.6.The deposit made during the search was in contravention of the provisions of Rule 142(1A) and 142(2) of the Central Goods & Service Tax Rules, 2017 [hereafter referred to as “2017 Rules”]; the assertion being that there was no notice issued by the proper officer, ascertaining the tax, interest and penalty payable by the petitioner-concern, as envisaged under sub-rule (1A) of Rule 142; and if it is to be assumed, for the sake of argument, that the petitioner-concern’s representative made an ascertainment on his own concerning tax, interest and penalty that was required to be paid, upon payment being made, the proper officer was obliged in law to issue an acknowledgement qua the same in the prescribed form i.e., GST DRC-04 as stipulated in sub-rule (2) of that very rule i.e., Rule 142.

22.7.The deposit of the aforementioned amount, if construed as having been preceded by self-ascertainment, a show-cause notice cannot possibly be issued. The petitioner-concern’s representatives are, however, repeatedly being summoned, for enquiries and/or investigations.

22.8.These actions taken on behalf of the official respondents/revenue are inconsistent with the provisions of Section 74(5) of the 2017 Act, which provides for self-ascertainment before service of notice under sub-section (1) of the said section i.e., section 74 of the 2017 Act.

22.9.Section 76(6) of the 2017 Act, in no uncertain terms, provides that no notice under sub-section (1) of the said section will be issued in respect of the tax so paid or any penalty payable, either under the 2017 Act, or the 2017 Rules made thereunder.

22.10.In seeking a deposit of the aforementioned amount while the search proceedings were on, the official respondents/revenue have violated Instruction No. 01/2022-2023 dated 25.05.2022, issued by the GST Investigation Wing.

23.In rebuttal, Mr Satish Kumar, who appears on behalf of the official respondents/revenue, drew our attention to the assertions made in the pleadings filed in the case, to demonstrate that the petitioner-concern was avoiding payment of tax, by making cash sales, on behalf of NE and EAPL.

Analysis and reasons:

24.Having heard the learned counsel for the parties, it is quite evident, that the issue at hand can only be determined, having regard to the circumstances in which the aforementioned amount was deposited.

25.The 2017 Act and the 2017 Rules made therein, do make provisions for enabling a person chargeable with tax to pay tax, along with interest, before being served with a notice for payment of tax, which either has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilized for any reason. 1

26.This regime is set out in Section 73 of the 2017 Act.

27.Broadly, this regime also applies, where a notice has been issued under sub-section (1) of Section 73, and the proper officer serves a statement containing details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for such periods other than those covered under sub-section (1) of Section 73. 5

28.In cases which involve one or more of the aforementioned ingredients i.e., fraud, wilful misstatement or suppression of facts to evade tax, para  materia provisions are contained in Section 74 of the 2017 Act, with small variations.

29.These provisions have to be read alongside Rule 142, found in Chapter XVIII of the 2017 CGST Rules.

30.Sub-rule (1) of Rule 142 of the 2017 Rules makes a provision for service of notice for raising a demand for recovery of tax; a provision which we are not concerned with in this matter, as it is not the case of the official respondents/revenue that a notice was served.

32.Clearly, the facts which have emerged, disclose that although payments were made in the prescribed form i.e., GST DRC-03, no document has been placed on record by the official respondents/revenue, demonstrating acknowledgement of having accepted the payment.

33.Besides this, the following circumstances reveal, that the amounts deposited [the cumulative sum being Rs.1,80,10,000/-] did not have an element of voluntariness attached to it.

34. It is also not in dispute, that the search proceedings commenced on 16.02.2022 at about 03:30 PM and were concluded on the following day i.e., 17.02.2022 at 09:30 A.M.

35.The fact, that deposits were made [during the early hours of 17.02.2022] when the search had not concluded, would show that the payments were not voluntary. The deposits made were not aligned with provisions of sub-section (5) of Section 73 or sub-section (5) of Section 74.

36.As noted above, if the payments/deposits were voluntary, then an acknowledgement of having received the payment should emanate from the proper officer, as mandated in the prescribed form i.e., GST DRC-04, as prescribed under sub-section (2) of Rule 142 of the 2017 Rules.

37.The malaise of officials seeking to recover tax dues (in contrast to voluntary payments being made by assesses towards tax dues) during search, inspection or investigation was sought to be addressed by the GST–Investigation, CBIC via Instruction No. 01/2022-2023 dated 25.05.2022. For the sake of convenience, the said instruction is extracted hereafter:

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