NOVEMBER 06, 2024

By Vijay Kumar

IN a recent (Instruction No. 27/2024-Customs, dated 01 November 2024), the CBIC (Central Board of Indirect Taxes and Customs) issued certain guidelines to Principal Chief Commissioners, Chief Commissioners, Principal Commissioners and Commissioners.

Para 2.6 of the Circular had a marvellous guideline:

During the course of search or investigation proceedings there may not be tax due to 'recover'. During such proceedings in CI cases the investigating o?cer should appropriately inform the entity regarding the legal provisions related to voluntary payment .

This implies that when officers discover no tax due, they should ideally say, "Great news! You owe us nothing. Thanks for cooperating; sorry for the trouble; you can go out and live happily without tax worries!" However, the CBIC insists that this conversation doesn't end there. The officers are required to inform the taxpayer appropriately the legal provisions related to voluntary payment . What are the legal provisions related to voluntary payment?

1. That since there are no dues, there is nothing to pay – voluntary or otherwise;

2. That even if there are any dues, you are not required to make any payment now - voluntary or otherwise;

3. You can make the payment after getting the mandatory Show Cause Notice and/or adjudication;

4. If you still feel generous and cautious , you can make a voluntary payment.

The Circular did not mention as to what informing the taxpayer appropriately means.

Recently, the Allahabad High Court in WRIT TAX No. - 1399 of 2024 on 12.09.2024 - 2024-TIOL-1886-HC-ALL-GST, held that such requests for voluntary payment tantamount to pressure tactics. Here's the scene:

Superintendent, Central Goods and Services Tax, issued a letter to an assessee stating:

1. It was observed that you have made total payment of Rs. 29,05,40,752/- to GNIDA during FY 21-22 to FY 23-24 for which you are liable to pay GST amounting of Rs.5.23 Cr. However, you have made voluntary payment of Rs.50,00,000/- only on 01.02.2024 vide DRC-03 towards total tax liability of Rs.5.23 Crore.

2. In view of the above and to avoid any penal action and increasing interest liability in this regard, you are advised to continue voluntary payment of remaining tax liability along with applicable interest as per section 50 of CGST Act 2017 at the earliest possible.

So, the Superintendent had politely advised the taxpayer to make voluntary payments. Maybe that is very appropriate. But the taxpayer perhaps knew that this advice will soon metamorphose into a demand with all attendant embellishments. So, he took the matter to the High Court in Writ. The High Court observed:

1. From a perusal of the letter, it appears that the Department is advising the petitioner to make voluntary payments without issuing any show cause notice/demand notice/recovery notice against the petitioner. The entire procedure is unknown in law.

2. Counsel on behalf of the respondents has not been able to indicate any provision under which such a letter could be issued by the authorities.

The High Court quashed and set aside the impugned letter dated March 13, 2024, with a direction upon the authorities to be cautious in future and not issue such letters that tantamount to pressure tactics by the Department.

The High Court not only quashed the letter but cautioned the Department against issuing such letters that tantamount to pressure tactics by the Department.

More than seventeen years ago in my column,  DDT 590 11.04.2007, I observed,

Audacious Audit parties and pestering preventive parties should think twice before forcing the assessees to make voluntary payment of duties which they are not required to pay. This may not be a worthwhile exercise as, when the department ultimately loses the case, the voluntary payment along with interest has to be returned and there is the risk of the Finance Minister being told by the courts about the lethargic and adamant attitude which causes considerable loss to Revenue.

In DDT  1671 11.08.2011, I had observed,

When the Customs and Central Excise officers raid you, they normally force you to make a  voluntary  statement and also make a  voluntary  payment of duty much before issue of a notice. One should be very careful before giving such voluntary statements and making voluntary payments. Both the statement and the voluntary payment will be used by the Department against the assessee in proving evasion.

In  Ebiz Com Pvt Ltd Vs Union of India  -  2016-TIOL-1958-HC-DEL-ST, the Delhi High Court observed,

74. In the circumstances outlined earlier, when the MD of a company is in judicial custody, the offer made to pay the alleged arrears of service tax dues of such company even without an SCN can hardly be characterised as 'voluntary'. The loss of liberty, and more disconcertingly, the loss of reputation, is bound to compel even the most rational person to succumb to the extreme pressure that such circumstance subjects him to.

See this classic case of voluntary payment.

Even while a search was going on in his premises, the taxpayer had a brilliant revelation and he  voluntarily  paid a tax of over Rs. 1.8 crores during the night.

But in the High Court, he submitted:

1. The deposit of Rs.1,80,10,000/- was not voluntary.

2. The statements and documents, on which the signatures were obtained were under coercion.

3. When the search was carried out, CCTV cameras were switched off.

4. The so-called independent witnesses were connected to the revenue. One was a computer operator, working in tandem with the officials, while the other was seen driving the vehicle of one of the officers in the search party.

5. There was no notice issued by the proper officer, ascertaining the tax, interest and penalty payable.

The Counsel for Revenue submitted that the fact that the taxpayer had accepted, that such transactions took place and had deposited amounts, towards tax, interest and penalty would show that the amounts were deposited voluntarily.

The High Court noted the fascinating timings when the voluntary payments were made – absolutely without any coercion.

1. Rs. 35,00,000/- at 01:28 AM

2. Rs. 1,00,00,000/- at 02:15 AM

3. Rs. 20,25,000/- at 05:04 AM

4. Rs. 24,85,000/- at 07:03 AM

The High Court observed,

The violation of the safeguards put in place by the Act, Rules and by the Court, to ensure that unnecessary harassment is not caused to the assessee, required adherence by the revenue, as otherwise, the collection of such amounts towards tax, interest and penalty would give it a colour of coercion, which is not backed by the authority of law.

The High Court concluded:

1. That the amounts which were deposited lacked an element of voluntariness.

2. The amount of Rs.1,80,10,000/- should be returned to the petitioner, along with interest at the rate of 6%.

Please see  2022-TIOL-1591-HC-DEL-GST

Why does this happen? What mystic forces ignite passion in an assessee that he makes four voluntary payments totalling Rs. 1.8 Crores at 01:28 AM, 02:15 AM, 05:04 AM and 07:03 AM on the same night? Just imagine the horror drama that must have been tortuously enacted from 1.28 am to 7.03 am, which time is normally spent sleeping by ordinary people. Just after midnight, you don't usually go round organising finance because some GST officers think that you owe money to the government. Most people just get a midnight snack, but they opted for a midnight tax payment! What do you call a committee of tax collectors at 3 AM? A "Voluntary Payment Task Force"-where every transaction feels like a heist!

What happens to a businessman if nearly two crores are collected from him, when he claims that he need not pay any tax and that the amount is unfairly retained by the department under the pretext of 'voluntary payment'? Are our taxmen out to destroy business? Their job is to collect the correct tax, not a penny more, not a penny less - and that too legally. What has the government achieved? They end up paying interest for this voluntary payment. Why can't these premier investigative agencies be trained to follow the laws?

And I wonder what would have happened if there was no facility of online payment. Would taxpayers be forced to hand over bags of cash in dark alleys under the stern gaze of the GST officers? As they show in films!

A taxpayer found a genie who granted him one wish: "There should not be any tax demands on me"

The genie replied, "Sure, you make ‘voluntary payment' instead."

While on this, I heard another story of voluntary payment.

On August 29, 2024, a taxpayer in Dharmapuri got an unexpected call from a Superintendent of GST, who must have been really bored because he insisted the taxpayer come to his office immediately. Later that evening, the taxpayer was asked to return with their auditor in tow.

On September 7, 2024, the Superintendent inspected the taxpayer's premises. On September 18, the Superintendent alleged the taxpayer of having fake bills. The Superintendent then declared that there was a tax liability of around Rs. 1.5 crore and requested Rs. 5 lakhs as "voluntary payment" plus an additional Rs. 10,000 monthly. This time the payment was not to be to the government chest of course.

After a little haggling (who doesn't love a good negotiation?), the payment was slashed to Rs. 4 lakhs, with an initial payment of Rs. 2 lakhs due in two days.

On October 3, the Superintendent demanded an in-person meetup at a shop. The taxpayer was a bit hesitant, leading the Superintendent to suggest a new payment plan: Rs. 1 lakh upfront and six monthly payments of Rs. 50,000, plus that pesky Rs. 10,000 monthly for the ‘privilege' of not getting a GST notice.

The next day, during yet another meeting, the Superintendent essentially said, "Pay up, or I'll make your life a living nightmare!"

Finally fed up, the taxpayer decided it was time to call in the cavalry and filed a complaint with the CBI. On 26.10.2024, the CBI opened a case against the Superintendent and Inspector under Section 7 of the Prevention of Corruption Act - a plot twist!

Until next week