Dismissed¶201

The Intelligence Officer v. M/S Kesar Color Chem Industries

Karnataka HC28 Jan 2025WA/1649/2024

Case brief

AI extract

What is this about?

CGST Act Section 74(5) self-ascertainment voluntariness absent; coercive recovery during investigation/search before SCN; deposits through Form GST DRC-03 refundable; Article 265; Article 226 disputed questions of fact; belated retraction affidavit one week; DGGI Bengaluru summons; M/s Raj Chemicals fake invoice episode; Lovelesh Singhal (Delhi HC) relied upon; Vallabh Textiles referred; writ appeal dismissed; refund Rs.2.5 crores with interest.

What did the court decide?

No relief to the appellants; the writ appeal was dismissed, upholding the learned Single Judge's direction for refund of Rs.2,50,00,000 with applicable interest to the respondent. I.As. No.1/2024 and 2/2024 were disposed of as infructuous. ¶201

The Intelligence Officer Vs M/S Kesar Color Chem… — GST and Indirect Tax | Karnataka HC (2025)

What the court decided

AI extract

Outcome

¶201

Issue for consideration

Whether the conclusion of the learned Single Judge — that the deposits of Rs.1,00,00,000 (31.07.2021) and Rs.1,50,00,000 (03.08.2021) made during investigation were not voluntary self-ascertainment under Section 74(5) CGST Act but coercive recoveries requiring refund — is justified. +2 more

¶154

Court's answer

The statements of the proprietor and the two deposits cannot be separated: the statements were recorded while the officers remained in the respondent's office past midnight and at Bengaluru under summons, and the deposits were made under threat and coercion, so it cannot be concluded there was no allegation of threat and coercion for the payment of the amounts.

¶158

Ratio / Principle

The attempt to distinguish Lovelesh Singhal (Delhi HC) on the ground that the statements there were recorded at midnight was rejected; the court must look at the facts in totality to conclude whether there was threat and coercion resulting in the statements recorded and also the deposits made.

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Key takeaways

On a cumulative reading of the facts, the learned Single Judge was right in concluding (paragraphs 24 and 28 of the impugned order) that the payments were recovery and contrary to law, i.e., the element of voluntariness essential to self-ascertainment under Section 74(5) CGST Act was absent.ratio¶196
Pending decision on whether any tax is payable at all, the deposited amounts could not remain with the appellants, since it stood concluded that the deposits were not voluntary — with which the Division Bench agreed.ratio¶162

Detailed headnote1 paragraphs

Writ Appeal (Karnataka HC, coram V Kameswar Rao and S Rachaiaih; judgment per V Kameswar Rao J, dt. 28.01.2025) by DGGI officers dismissed. The appeal challenged the Single Judge's order (dt. 26.09.2024 in WP No.17853/2021) directing refund of Rs.2.50 crores collected from M/s Kesar Color Chem Industries during investigation, before adjudication on the SCN of 30.11.2022. Following a search at the respondent's Mumbai premises (29-30.07.2021), statements of the proprietor were recorded at 12:30 a.m. on 31.07.2021 and on 03.08.2021 at Bengaluru under summons, and deposits of Rs.1 crore and Rs.1.5 crore were made via Form GST DRC-03. Held: statements recorded and deposits made under threat of arrest cannot be separated; the element of voluntariness essential to 'self-ascertainment' under Section 74(5) CGST Act is absent, so the payments were recovery contrary to law and to Article 265 of the Constitution, warranting refund with interest pending adjudication. The retraction affidavit sworn within a week (10.08.2021) is not belated; the objection of disputed questions of fact under Article 226 fails as the relevant facts are undisputed. Counsel's reliance on Lovelesh Singhal (Delhi HC) was endorsed; attempts to distinguish it rejected. Sanjay Sitaram Khemka and Thansingh Nathmal (SC) distinguished on facts. Appeal dismissed; I.As. disposed as infructuous.

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WA No.1649 of 2024

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 28^TH DAY OF JANUARY, 2025

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PRESENT

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THE HON'BLE MR JUSTICE V KAMESWAR RAO

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AND

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THE HON'BLE MR JUSTICE S RACHAIAH

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WA NO. 1649 OF 2024

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BETWEEN:

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1 . THE INTELLIGENCE OFFICER, DIRECTORATE GENERAL OF GST INTELLIGENCE, NO. 112, S P ENCLAVE, ADJACENT TO KARNATAKA BANK, K H ROAD, BENGALURU - 560027.

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2 . THE SENIOR INTELLIGENCE OFFICER, DIRECTORATE GENERAL OF GST INTELLIGENCE, NO. 112, SP ENCLAVE, ADJACENT TO KARNATAKA BANK, K H ROAD, BENGALURU - 560027.

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…APPELLANTS

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(BY SRI. ARAVIND KAMATH, ASG A/W SRI. NEERALGI JEEVANBABU JAGADISH, CGSC)

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AND

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M/S KESAR COLOR CHEM INDUSTRIES, A PROPRIETARY CONCERN HAVING ITS OFFICE AT 3^RD FLOOR, 301, PLOT 74/78, PRASHANT CHAMBERS, BHANDARI STREET, MUMBAI - 400003. (BY SMT. NIKITA BADHEKA AND SRI. PARTH BADHEKA, ADVOCATES FOR SRI. SANDEEP HUILGOL, ADVOCATE)

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…RESPONDENT

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WA No.1649 of 2024

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THIS WRIT APPEAL IS FILED U/S 4 OF THE KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE THE IMPUGNED ORDER DATED 26/09/2024, PASSED ARISING OUT OF WP NO.17853/2021 BY DISMISSING THE SAME AND STAY THE ORDER FOR GRANTING OF REFUND, ETC.

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THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 19.12.2024, COMING ON FOR PRONOUNCEMENT THIS DAY, V KAMESWAR RAO J ., DELIVERED THE FOLLOWING:

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CORAM: THE HON'BLE MR JUSTICE V KAMESWAR RAO AND THE HON'BLE MR JUSTICE S RACHAIAH

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CAV JUDGMENT

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(PER: THE HON'BLE MR JUSTICE V KAMESWAR RAO)

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This intra-court appeal lays a challenge to an order dated 26.09.2024 passed by the learned Single Judge in WP No.17853/2021. The writ petition was filed interalia challenging the investigation carried out under Section 67 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’ for short); the validity of the summons to the witness dated 31.07.2021; declaration that the recoveries to the tune of Rs.2,50,00,000/- from the respondent on 31.07.2021 and on 03.08.2021 as being illegal.

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Suffice to state, in paragraph No.2 of the impugned order, the learned Single Judge has noted that, the respondent has confined the writ petition for the relief of refund of the amount of Rs.2,50,00,000/keeping open the other contentions in the light of pending adjudication, initiated by issuance of

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show-cause notice.

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The appellants had initiated proceedings during investigation of M/s Raj Chemicals, wherein the statement of one Vijay Kumar Gupta (one of the partners of M/s Raj Chemicals) was recorded under Section 70 of the CGST Act. The statement of Vijay Kumar Gupta had referred to supplies made by M/s Raj Chemicals to entities including the respondent herein, whereby invoices were raised without actual supply of any goods from M/s Raj Chemicals.

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The case of the appellants is that, on an analysis of the e-way bills, it is revealed that the vehicles have not moved as evidenced by the RFID/fastag data.

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A show-cause notice came to be issued on

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30.11.2022 to the respondent. The case of the respondent before the learned Single Judge was, during

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the course of investigation and prior to issuance of show-cause notice, a forcible recovery was made which is being sought to pass off, as voluntary payments as per the procedure prescribed. The payments made by the respondent were to the extent of Rs.1,00,00,000/-

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on 31.07.2021 and Rs.1,50,00,000/- on 03.08.2021.

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The case of the respondent in the writ petition

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as depicted by the learned Single Judge in the

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impugned order is as under:

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Sl. No.	Date	Time	Event
1	29.07.2021		Bengaluru DGGI visit Rasik Kunj, Ground Floor, Mathuradas Road, Kandivali Mumbai 400067, which is the registered place of business of Petitioner. Since the building is undergoing redevelopment, Nil Mahazar is drawn and Petitioner informs that he is sitting in Additional place of business carrying out business.
2	29.07.2021	9:50 a.m.	The Respondents, total 5 officers visit the office of the Petitioner at 301 Prashant Chamber 74/78 Bhandari Street, Masjid Bunder West, Mumbai 400003. The Petitioner extends full cooperation.
3	29.07.2021	2:30 p.m.	All mobile phones taken away

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			having Mobile No 9324545262 and 9820185583, rendering the Petitioner unable to carry on business or banking. Additionally CPUs and hard disks also seized
4	29.07.2021		All possible details with regards to Raj Chemicals were submitted to the Officers. They were in the office for the entire day.
5	30.07.2021	12:30 a.m.	Respondents decided to sleep in the office of the Petitioner and did not allow the Petitioner to go home, despite assurances that he will rejoin working hours next day. The office is 150 sq ft. 2 officers along with the staff of the Petitioner and Petitioner himself spent the night in the office. The Petitioner had to sit all night. (Details mentioned at para 23 onwards in the Petition).
6	30.07.2021	11:30 a.m.	3 officers along with Respondent No 2 arrive at the office premises. The Petitioner was physically removed from his chair and the same was taken by Respondent No.2. Investigation and threats of arrests continued with renewed gusto.
7	30.07.2021	Evening	The statement was being typed by the Respondents and the Petitioner was not allowed to even read the same properly. Only cosmetic changes about personal details were allowed. They were forced to sign the statement failing which he was threatened with arrested (sic).
			Finally after detention and ill treatment in his own office for close to 2 days, Petitioner agreed under pressure to arrange ad hoc 1,00,00,000/- to pay as soon as the bank opens and agreed to come to Bengaluru for which summons would be issued.
8	31.07.2021	12:30 a.m.	Late in the night, Statement was coercively signed and Panchnama signed wherein	A-11- Part of SCN

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			witnesses were not 2 people of good standing from the locality but the drivers of the Respondents. The Panchnama wrongly mentions the time as 11 30 pm 30-07-21.
9	31.07.2021	12:30 a.m.	Summons issued to attend Bengaluru on 2nd August 21. The Petitioner requested that last 3 days have taken a toll on his health and he is exhausted, and he requested that he be allowed to attend after a few days. Which initially the officers agreed but constantly called the Petitioner on 2nd August 21 and directed him to come on 3rd August 21.	B-Page 65
10	31.07.2021	12:30 p.m.	As soon as possible, despite going through 2 days of mental and physical trauma, under the constant calls from the officer under their directions 1 crore paid through RTGS at the Bank. All through the Investigation the petitioner had no access to any legal consultation.	Page 63
11	03.08.2021		Petitioner attends the summons and was kept on waiting till late afternoon. Whilst all phones and contact details of the Petitioner was unavailable him him (sic) since 30-07-21 due to seizure by the Authorities, these officers directly spoke to the Debtors of the Petitioner, the Respondent made them deposit the payment in the Petitioner's account. Subsequently after confirming the payment, the Petitioner's seized phones were returns and it was informed to him to make payment of 1.5 crores by e-challan since they would now be able to access the OTP on phone, whilst they were before the Inv Authorities in Bengaluru (details para 46 onwards). The Petitioner was under constant threat of arrest and the payment was condition precedent to allow him to leave	C Page 67

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		the Bengaluru office. The Petitioner's CA who was also traveling with him, asked the Petitioner to request the Officers to allow under protest letters which were not accepted.
12		DRC-01 for both payments i.e. 31-07-21 and 03-08-21 attached are herewith, wherein the Petitioner was strictly forced to make payment under 74(5).
13	10.08.2021	Petitioner was mentally drained and physically exhausted due to the 2- day detention in his office and subsequent rush to the Bengaluru. After coming back took a few days to mentally and physically recover and finding legal help, where he was directed to note down the entire details in an Affidavit and file an interim retraction affidavit till the Statement is received.	H Page 149
14	16.09.2021	Petitioner filed Writ Petition before the Hon'ble Karnataka HC.
15	03.09.2021	Hon'ble HC, grants protection to the Petitioner from coercive recovery and Petitioner agrees to cooperate with Investigation.
16	01.12.2022	SCN issued by the DGGI transferred to Nodal Officer. Petitioner never called again after attendance on 03-08-21. The Petitioner has complied with each and every detail in the SCN and attended on various occasions.	Copy to be present- ed in Court

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In substance the case of the respondent was

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that, the statements which were recorded at 12:30 a.m.

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on 31.07.2021 and also during the summons proceedings at Bengaluru on 03.08.2021 were retracted

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WA No.1649 of 2024

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by filing an affidavit dated 10.08.2021. The case was also that, the appellants do not have the power to recover amounts during the pendency of investigation that had commenced even prior to issuance of showcause notice at the stage of Sections 67 and 70 of CGST Act and hence, had sought for the refund of the amount(s). In fact, the respondent’s case was also that, the supplies from M/s Raj Chemicals have been long standing transactions and such supply is evidenced by e-way bills; issue of invoices and proof of transport. It is also stated that, the show-cause notice issued does not exclude payments of Rs.2,50,00,000/- which also strengthens the case of the respondent that the amount paid was not towards self-ascertainment.

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The case of the appellants before the learned

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Single Judge was that, an information of evasion of tax was gathered by the Officers of DGGI while conducting investigation in respect of M/s Raj Chemicals. The statement of Vijay Kumar Gupta was recorded which would indicate the role of the respondent in tax evasion constituting receipt of invoices without actual supply of

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WA No.1649 of 2024

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goods. It was specifically asserted that, the payments made by the respondent during investigation through Form GST DRC-03 dated 03.08.2021 as well as payment made under identical circumstances on 31.07.2021 were voluntary and it is to be construed to be a part of self-ascertainment under Section 74(5) of the CGST Act.

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It was stated that, the amounts were generated by the respondent from outside the Office of DGGI, Bengaluru. Even the retraction of the statements vide affidavit dated 10.08.2021 was belated. A stand was taken by the appellants that, the payment made under Section 74(5) read with Rule 142(2) of the GST Rules would be dealt with or adjusted by the department in accordance with Section 74 of the CGST Act.

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On the allegation of coerciveness, it was stated that, the respondent had visited the Investigation Branch of the Bengaluru Unit on 29.07.2021 and in the

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continued extended investigation, statements were recorded in the early hours of 31.07.2021.

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WA No.1649 of 2024

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It was stated by the respondent that he was not permitted to make any substantive changes to the statements recorded and when he signed such statements, he was under tremendous duress and mental trauma. He was forced to sign the statements prepared by the Officials on 31.07.2021 at 12:30 a.m. and such statements contains coerced admissions and grave threat to his freedom by constant threats of arrest.

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The learned Single Judge referred to the affidavit dated 10.08.2021 wherein a reference was made to the recording of the statements on 31.07.2021 and 03.08.2021, which according to the learned Single Judge were proximate in time so as to construe the retraction was made within reasonable time of recording of statements and accordingly, is required to be taken note of.

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The learned Single Judge has, in paragraphs No.20 to 28, stated as under:

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“20. In terms of the Scheme of the CGST Act, it must be noticed that the assessee has an opportunity even before the service of notice under Section 74(1) on the basis of "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 under Section 74(5).

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21. Upon such payment, in terms of Section 74(5) of the CGST Act, the Proper Officer in terms of Section 74(6) is barred from serving any notice under sub-section 74(1), though in terms of Section 74(7), whether Proper Officer is of the opinion that the amount paid under Section 74(5) falls short of the amount payable, he shall proceed to issue notice under Section 74(1).

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22. Section 74(7) of the CGST Act states

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that,

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"74. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any willfulmisstatement or suppression of facts.-

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(7) Where the proper officer is of the opinion that the amount paid under sub- section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in subsection (1) in respect of such amount which falls short of the amount actually payable.

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WA No.1649 of 2024

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(emphasis supplied)

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23. In terms of Section 74(8), once the person chargeable with tax pays tax, interest and penalty "... all proceedings in respect of the said notice shall be deemed to be concluded."

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24. It must be noted that the payments made by the petitioner of Rs.1.00 crore on 31.07.2021 and further amount of Rs.1.50 crores on 03.08.2021 and even if 'DRC-03 declaration' is taken note of, it cannot be stated that in the present case, there is self-ascertainment. For the purpose of self-ascertainment, it is clear that it amounts to a voluntary determination by the assessee himself as regards the liability of tax. In light of the stand taken in the Affidavit dated 10.08.2021 and the averments made in the writ petition filed on 16.09.2021, this element of voluntariness is absent and accordingly, the sine qua non of self-ascertainment is not fulfilled. Though the declaration in Form DRC-03 contains a declaration that the filing is voluntary, the facts as noticed above are sufficient to construe that such declaration was in fact not voluntary.

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25. It is also to be noted that, if the Authority was of the view that petitioner had made payments as a part of the process of selfascertainment under Section 74(5) of the CGST Act, the scheme of Section 74 contemplates that proceedings would terminate either on acceptance of self-ascertainment or if the Authorities were of

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the view that the self-ascertainment and the amount paid under Section 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 under Section 74(1) in respect of such amount which falls short of the amount actually payable. In the present case, the show cause notice issued dated 30.11.2022 would clearly indicate that the notice sought to be issued under Section 74(1) would indicate a fresh and complete adjudication and is not a notice as regards short fall of actual tax required to be paid as contemplated under Section 74(7) and accordingly, the State itself is estopped from contending that there was self-ascertainment.

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26. A perusal of the summary of show cause notice and the show cause notice would indicate that the State itself has not accepted the selfascertainment

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27. In light of adjudication still to conclude and notice under Section 74(1) of the CGST Act is already issued, the question of going back to the stage of 74(5) does not arise, as in terms of Section 74(5), the self- ascertainment process is to be completed prior to the issuance of notice under Section 74(1), subject to issuance of notice under Section 74(7) as regards shortfall.

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28. If that were to be so, the recovery made pending adjudication in the present factual matrix being one which could be construed to be a

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recovery contrary to law and accordingly, contrary to Article 265 of the Constitution of India, the amount of Rs.2.50 crores is required to be refunded with interest as would be applicable in case of refund.”

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Submissions:

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Sri. Aravind Kamath, learned ASGI appearing

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for the appellants would contest the impugned order passed by the learned Single Judge by stating that, an information was gathered by the Officers of the DDGI, BZU, Bengaluru in respect of M/s Raj Chemicals that they are issuing fake GST invoices without supply of goods in violation of the provisions of CGST Act and accordingly, a search was conducted at the premises of M/s Raj Chemicals. During the search operation, the statement of Vijay Kumar Gupta was recorded wherein he has confirmed that they have not received any goods from the entities, but only GST invoices without actual receipt of goods. He also received commission of 0.5% of the taxable value for issuing invoices without supply of goods. The e-way bills were issued on the basis of vehicle details provided by the brokers and since the

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goods have not actually been supplied, the vehicles would not have been moved. So, the supplies purported to have been made by M/s Raj Chemicals to the entities located outside Delhi and Haryana from April 2020 to June 2021 are bogus and invoices have been raised without actual supply of goods, which includes M/s Kesar Colour Chem Industries (the respondent) as one of the entities which has received invoices without actual supply of goods. Though the place of business of the aforesaid industry is in Mumbai, it was found that the premises is an empty land. The search was conducted on additional place of business from 10:30 a.m. on 29.07.2021 to 23:30 p.m. on 30.07.2021.

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According to Sri. Kamath, the proprietor of the industries has agreed that there was irregular availment of input tax credit based on the invoices issued by M/s Raj Chemicals. The input tax credit availed and utilized amounts to Rs.4,88,45,468/- and that as a token of liability towards irregular availment of input tax

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credit, he voluntarily undertook to pay the entire liability along with interest and penalty.

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Sri. Kamath would submit that a summon was issued on 31.07.2021 by the DGGI, Bengaluru for appearance of the proprietor of the respondent on 02.08.2021. The proprietor appeared on 03.08.2021 at 11:00 a.m. when his statement was recorded, wherein he agreed to the availment of input tax credit in accordance with the provisions of Section 16 of CGST Act, by deposting a further amount of Rs.1,50,00,000/-.

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Sri. Kamath states that, the deposit made is by way of ascertainment and for the learned Single Judge to declare it as illegal and directed the refund, is uncalled for. He lay stress on the fact that the challan for deposit of Rs.1,00,00,000/- was generated on 31.07.2021 at 12:48 hours on 31.07.2021 and DRC-03 was generated voluntarily under Section 74(5) of CGST Act on 31.07.2021 which was subsequent to closure of

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search proceedings at 23:30 p.m. on 30.07.2021. Thus, it is clear that the payment was made by the

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proprietor after the culmination of the search proceeding voluntarily and was not coerced by the Departmental Officers as was the case of the

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respondent.

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In fact, Sri. Kamath would state that, the affidavit dated 10.08.2021 was never submitted/ furnished to the Authorities. The same was filed for the first time along with the writ petition. Hence, the reliance placed by the learned Single Judge on the affidavit which was prepared 7 days after the payment on 03.08.2021 by enclosing the same along with the writ petition, could not have been relied upon by the learned Single Judge.

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Sri. Kamath would also state that, the writ petition was filed with averments to mislead the Court. Moreover the disputed questions of fact could not have been gone-into and interfered with by the learned Single Judge.

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He also stated that, the learned Single Judge

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had also failed to appreciate that Rule 142(1)(a) of the

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CGST Rules which regulate the procedure in the case of voluntary payment under Section 74(5) of the CGST Act, a notice was issued to the respondent as the respondent had made payment in part (voluntarily) and in response to the same, the respondent gave a reply dated 24.11.2022 denying the entire liabiliby including the voluntary payment made by him and hence, a show-cause notice was issued for the entire liability by proposing to appropriate the amount which was already paid voluntarily by the respondent.

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Sri. Kamath has drawn our attention to the affidavit filed along with the writ petition by the respondent to state that, the plea of coercion of the respondent was primarily related to the statement recorded by the appellants’ Officers and not in respect of the payment made voluntarily by the respondent. In other words, to say that statements were taken under coercion is different from the fact that the respondent was coerced to deposit the amount of Rs.2,50,00,000/-. Since no such stand has been taken that the payments have been made under coercion, the learned Single

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Judge could not have directed for the refund of the amount. Hence he stated, the direction of the learned Single Judge is liable to be set aside and the appellants be allowed to continue with the proceedings on the show-cause notice and to pass a final order. If any liability is fastened upon the respondent the payment already made shall be adjusted, otherwise the respondent is liable to the refund. In support of his submissions, he has relied upon the following judgments of the Supreme Court on the proposition that the disputed questions of fact cannot be gone into in proceedings under Article 226 of the Constitution of India:

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i) Sanjay Sitaram Khemka -Vs.State of Maharashtra and others [(2006) 5 SCC 255] ;

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ii) Thansingh Nathmal -Vs.- Superintendent of Taxes, Dhubri and others [1964 SCC OnLine SC 13] .

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On the other hand, Smt. Nikita Badheka, learned counsel appearing for the respondent would state that, the undisputed facts in this case are,

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a. the appellant had carried out search proceedings on the premises of the respondent from 10:30 a.m. on 29.07.2021 to 11:30 p.m. on 30.07.2021 following which the respondent was coerced into making the payment of Rs.1,00,00,000/- at 12:48 p.m. on 31.07.2021;

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b. thereafter, summon dated 31.07.2021 was issued to the proprietor of the respondent to appear before the appellant’s Office in Bengaluru;

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c. the proprietor of the respondent appeared before

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the appellants on 03.08.2021. He was once again coerced into making a further payment of Rs.1,50,00,000/- at around 03:00 p.m. when the summon proceedings were going on;

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d. the proprietor of the respondent swore a notarized affidavit dated 10.08.2021 stating the aforesaid payments were not self-ascertained or voluntary in nature and were rather, made under duress imposed upon the said proprietor by the appellants;

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She stated, keeping in view the aforesaid admitted facts and the direction given by the learned Single Judge, the purpose of filing the present appeal by the appellants is only to frustrate/delay the legitimate claim of refund granted to the respondent by the learned Single Judge. The impugned order is based on a clear exposition of law. The legal position with regard to coercive recovery during investigation and summons is well settled, wherein it is clearly said that any coercive recovery is subject to judicial review. She also stated, the case of the appellants that statement of Vijay Kumar Gupta of M/s Raj Chemicals was recorded, cannot be accepted by the respondent as no such statement was provided to the respondent at the time of investigation. Whether such a statement is relevant or not need to be determined at the stage of investigation. In any case, the respondent had the occasion to obtain confirmation letter dated 14.12.2021 from M/s Raj Chemicals which prove that the entire transactions of sale and purchase are genuine.

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She highlights the fact that the appellants visited the respondent on 29.07.2021 in the morning. Subsequently, the investigation continued for 48 hours wherein the respondent was detained illegally in the Office by the Investigation Department for almost two days without any rest or respite. The investigation was not completed at 11:30 p.m. on 30.07.2021 as in fact the appellants had left at 12:30 a.m. on 31.07.2021 after forcibly taking an undertaking from the proprietor to arrange funds and make the payment of Rs.1,00,00,000/- next day morning, else the proprietor would be arrested. The payment was made within 12 hours. The investigation had exceeded 36 hours and it was at that time, that the appellants had in fact issued summons to the respondent to appear on 02.08.2021 in Bengaluru with the threat that if an amount of Rs.1,00,00,000/- is not paid immediately upon the bank opening on the very same date i.e., 31.07.2021, the appellants shall arrest the respondent. Hence, it is an admitted fact that the payment was made fully under the control and influence of the Investigation Authority

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while in Mumbai, as the summons were issued for attendance in Bengaluru. She stated, a similar approach was taken on 03.08.2021 when the appellants detained the proprietor of the respondent at the Bengaluru DGGI Office and an amount to the tune of Rs.1,50,00,000/- was illegally recovered from the respondent. Despite such illegal recoveries, the appellants’ claim that the payments have been made voluntarily, was rightly not accepted by the Learned Single Judge.

¶140

Even otherwise, if the case of the appellants is that the first tranche of payment of Rs.1,00,00,000/was voluntary made at 12:30 p.m., then the second tranche of payment was illegal as having been made at the time of summons proceedings. Insofar as the plea of the appellants that the affidavit was not sent to the Authorities is concerned, the facts would reveal that the investigation/payment had happened during peak covid and also the fact that the appellants had refused to accept the produced letters and as such, the respondent had no other option, but to file with the writ petition.

¶141

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Hence, the retraction affidavit dated 10.08.2021 is justified and not an afterthought as sought to be alleged.

¶144

She stated that, the only power existing under the GST Laws with the appellants is, to demand the tax, interest or penalty after initiating the adjudication proceedings under Section 73(1)/ Section 74(1) of the CGST Act. The self-ascertainment as per Section 73(5) or Section 74(5) is not a single standalone action which is done by the taxpayer. The above section read with Rule 142 is the entire process of self-ascertainment. Sections 73(5)/74(5) itself state that if the taxpayer wishes to make payment on a self-ascertainment basis, they would make the payment in DRC 03 and inform the proper Officer in writing of such a payment. No such intimation was ever been given by the respondent.

¶145

Further, Rule 142(2) clearly states that, upon intimation of ascertainment of liability being paid by the taxpayer, the Officer would make available an acknowledgement in DRC 04 on online portal. Neither the respondent had intimated the payment to the Officer nor the

¶146

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Officer/appellants provided any DRC 04 which aspect had been noted by the learned Single Judge. In support of her submission that specific instructions given by the GST Investigation Wing clearly lays down how the investigation is to be conducted and no deposit of tax can be made voluntarily, she has relied upon the judgment of the Delhi High Court in the case of Lovelesh Singhal -Vs.- Commissioner, Delhi Goods and Services Tax and others [(2024) 121 GSTR 422 (Delhi)] . She states, in the given facts, the present appeal filed by the appellants is liable to be rejected.

¶149

Analysis:

¶150

Having heard the learned counsel for the parties and perused the record, the learned Single Judge has allowed the writ petition on a finding that the deposit of the amount of Rs.1,00,00,000/on 31.07.2021 and Rs.1,50,00,000/on 03.08.2021 cannot be treated as a self-ascertainment as the element of voluntariness is absent. According to the learned Single Judge, the sine qua non of self-

¶151

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¶153

ascertainment is not fulfilled and as such, the payment is under coercion, the same is liable to be refunded back to the respondent.

¶154

The issue is whether such a conclusion of the learned Single Judge is justified?

¶155

The submission of Sri. Kamath was as there is no allegation that the deposit of the two amounts was under coercion and duress, the finding of the learned Single Judge is not sustainable. We are not in agreement with the said submission for the reason that, the statement of the proprietor of the respondent was recorded at 12:30 a.m. on 31.07.2021 after the Officers of the appellants visited the office of the respondent at 10:30 a.m. on 29.07.2021 and continued to be in the office till 23:30 p.m. on 30.07.2021 and thereafter, also served summons for appearance of the proprietor at Bengaluru on 02.08.2024. It is the case of the respondent that, he was forced to sign the statement at 12:30 a.m. when the Officers were still in office and similarly the statement of 03.08.2021 was recorded at

¶156

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Bengaluru, to which place the proprietor of the respondent was summoned. The facts demonstrate the interference that the recording of statement was under the threat, that he shall be arrested. It is also a fact that, one deposit was made in the afternoon of 31.07.2021 and the same was after he was issued summons for appearance in Bengaluru on 02.08.2021 (appeared on 03.08.2021). So in that sense, there was likelihood that he may be arrested at Bengaluru if he does not deposit the money is writ large. Similarly, second payment was made on 03.08.2021 while the proprietor of the respondent was in Bengaluru. So it suggests, the statements were recorded and deposits were made under threat and coercion. The statements and the payments made cannot be separated nor it can be concluded that there is no allegation of threat and coercion for the purpose of payment/deposit of the amounts.

¶159

Section 74(1) of the CGST Act contemplates that the assessee has an opportunity under Section 74(5) to make his own ascertainment of tax and deposit

¶160

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the same. The appellants’ case is that the respondent has deposited the amount upon self-ascertainment of tax, which stand is contested by the respondent by stating that the deposit was under threat and coercion, otherwise no amount is payable. So, the issue is whether any tax is payable at all? So, pending decision on the issue, can the amount remain deposited with the appellants? The answer has to be “NO”, more so when it is concluded by the learned Single Judge that the same was not voluntary, with which we agree.

¶163

Having said that, insofar as the affidavit dated 10.08.2021 is concerned, the plea of Sri. Kamath is, such an affidavit was not given to the Authorities and it is for the first time filed along with the writ petition with an intention to resile out of the statements made to the appellants cannot be relied upon, is unsustainable. This we say so because, the only stand of the appellants in the appeal/affidavit is, the same is belated. If that be so it is noted, the affidavit is dated 10.08.2024 i.e., one week after the statement dated 03.08.2024 was made.

¶164

One week is not a large period to be considered as

¶165

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fatal/belated. Learned counsel for the respondent is justified in relying upon the judgment of the Delhi High Court in the case of Lovelesh Singhal (supra), wherein the Delhi High Court has, in paragraphs No.21 to 24, 28 to 32, 35 and 36, held as under:

¶168

“21. The next question to be examined is whether the petitioner is entitled to reversal of the ITC that was debited from his ECL. As noted above, according to the petitioner, he was coerced to make the deposit of tax by debiting the ECL at 2 : 06 a.m. on October 8, 2022.

¶169

22. According to the respondents, the concerned officers of the Department had reached the principal place of business as well as other additional places of business at about 4 p.m. on October 7, 2022. The respondents state that the petitioner provided access to its additional place of business at 3411/249, 2nd floor, Hansapuri, Tri Nagar, Delhi but the relevant documents were not available at the said place. Accordingly, the officers had insisted that the access to the principal place of business (Property No. 66, Third Floor, Pocket-13, Sector-24, Rohini, Delhi), which was closed, be provided. The respondents have averred in their counter-affidavit that the “petitioner also requested not to break open or seal the premises as it would bring bad name to its business and the petitioner requested the

¶170

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Officers to wait at the additional place of business at Tri Nagar till the time keys got arranged by some family member at 12 : 30 a.m.” According to the respondents, the survey and inspection at the principal place of business began after 12 : 30 a.m. and was concluded at 02 : 30 a.m. on October 8, 2022.

¶173

23. Admittedly, the petitioner had deposited a sum of Rs. 18,72,000 at 2 : 06 a.m. by debiting the ECL. Concededly, the search and inspection proceedings were continuing at the material time.

¶174

24. In the given facts, we are inclined to accept the petitioner's claim that the deposit was made under duress and in compelling circumstances. The petitioner had been subjected to the search/inspection operations way beyond the normal business hours. Admittedly, the petitioner was called upon to provide copies of various books of account. The statement recorded on the said date-which is also relied upon by the respondents- clearly indicates that the petitioner had provided several documents to the concerned officers including the trading account for the period April 1, 2022 to October 7, 2022; cash book for the period October 1, 2022 to October 7, 2022; stock group summary as on October 7, 2022; copies of the last purchase and sale bills; profit and loss account for the period April 1, 2021 to March 31, 2022; and parties ledger.

¶175

xx xx xx xx xx xx

¶176

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28. Given the scheme of permitting the taxpayers to voluntarily deposit tax prior to issuance of notices (either under section 73 or section 74 of the CGST Act) to avail of the benefit of absolving themselves from the liability to pay penalty either in entirety or in excess of 15 per cent. of tax payable as the case may be; in cases where the said tax is collected under coercion, the same is required to be returned.

¶179

29. It is not necessary to examine in detail any controversy whether such payments were made voluntarily. Clearly, where a taxpayer turns around and states that the payments had not been made involuntarily and the circumstances prima facie indicate so, the taxpayer must be granted the benefit of withdrawing such payments. Obviously, in such cases, the taxpayer would forfeit immunity from levy of any penalty and the concerned authorities are not precluded from proceeding against the taxpayer in respect of any default and to the full extent as permissible under law.

¶180

30. It is relevant to note that the payment of tax on a self-ascertainment basis would necessarily require acceptance of the grounds on which such payments had been made. In the present case, it would be necessary for the petitioner to acknowledge the underlying liability on account of which the tax is paid. This is also required to be acknowledged by the respondents.

¶181

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31. However, in the present case the petitioner has disputed that he is liable to pay any tax. There is no determination of the petitioner's liability to pay tax. Clearly, in such circumstances, the tax deposited by the petitioner cannot be considered as voluntary and within the scheme of section 73(5) of the CGST Act.

¶184

32. It is also important to note that the requisite procedure under rule 142 of the CGST Rules has also not been complied with. Admittedly, the respondents have not issued any acknowledgement accepting the payment made by the petitioner in form GST DRC-04 as required under the CGST Rules. In Vallabh Textiles v. Senior Intelligence Officer [(2023) 120 GSTR 213 (Delhi); 2022 SCC OnLine Del 4508.] , a Coordinate Bench had held that failure to follow the prescribed procedure would also lead to the conclusion that the deposit made by the taxpayer was not voluntary.

¶185

35. However, it appears that the said directions have not been implemented. In Vallabh Textiles v. Senior Intelligence Officer [(2023) 120 GSTR 213 (Delhi); 2022 SCC OnLine Del 4508.] , a Co-ordinate Bench of this Court had respectfully concurred with the aforesaid directions.

¶186

36. The Central Board of Indirect Taxes and Customs (CBIC) has also issued instructions

¶187

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emphasizing that the tax must be collected only after following the due process of law. The relevant extract of the said instructions dated May 25, 2022 are set out below:

¶190

“3. It is further observed that recovery of taxes not paid or short paid, can be made under the provisions of section 79 of the CGST Act, 2017 only after following due legal process of issuance of notice and subsequent confirmation of demand by issuance of adjudication order. No recovery can be made unless the amount becomes payable in pursuance of an order passed by the adjudicating authority or otherwise becomes payable under the provisions of CGST Act and rules made therein. Therefore, there may not arise any situation where ‘recovery’ of the tax dues has to be made by the tax officer from the taxpayer during the course of search, inspection or investigation, on account of any issue detected during such proceedings. However, the law does not bar the taxpayer from voluntarily making payment of any tax liability ascertained by him or the tax officer in respect of such issues, either during the course of such proceedings or subsequently.

¶191

4. Therefore, it is clarified that there may not be any circumstance necessitating ‘recovery’ of tax dues during the course of search or inspection or investigation proceedings…”. ”

¶192

The judgment was sought to be distinguished

¶193

by Sri. Kamath by stating the statements which were

¶194

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recorded in the relied upon case were in the midnight and it is on that basis, the Court has come to the conclusion that the deposits made were under coercion and duress. The said submission is not appealing. The Court need to look into the facts in totality to come to a conclusion whether there was threat and coercion resulting in the statements recorded and also the deposits made. On a cumulative reading of the facts of this case, we are of the view that the learned Single Judge is right in coming to a conclusion in paragraphs No.24 and 28 of the impugned order which we have reproduced above that the payments were recovery and were contrary to law.

¶197

Insofar as the submission of Sri. Kamath as the writ petition involved disputed question of facts, the same could not have been gone into in proceedings under Article 226 of the Constitution of India is concerned, there is no dispute on the proposition advanced by Sri. Kamath, but the said proposition may not be applicable in the case in hand in view of the undisputed facts noted by the learned Single Judge that

¶198

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payments made were during investigation both at Mumbai and Bengaluru.

¶201

In the facts of the case we are of the view that, writ appeal is devoid of merits and the same is liable to be dismissed . It is ordered accordingly.

¶202

In view of dismissal of the appeal, IAs No.1/2024

¶203

and 2/2024 are disposed of as infructuous.

¶204

Sd/(V KAMESWAR RAO) JUDGE

¶205

Sd/(S RACHAIAH) JUDGE

¶206

The Intelligence Officer v. M/S Kesar Color Chem Industries

Case brief

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The Intelligence Officer v. M/S Kesar Color Chem Industries

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