FEBRUARY 12, 2025

By Vijay Kumar

OVERZEALOUS Revenue officers are known to pressurise assessees into paying up the tax, what they think is payable, even before a proper Show cause Notice is given. Trigger happy Preventive and Audit parties gloat about the voluntary deposits and spot realisations. This may not always be good for Revenue.

Here is the troubling sequence of events submitted by a taxpayer in a writ petition before a High Court.

29.07.2021 9:50 a.m. Five officers of the Bengaluru DGGI (DIRECTORATE GENERAL OF GST INTELLIGENCE) visited the office of the Taxpayer at Mumbai. The Taxpayer extended full cooperation.

29.07.2021 2:30 p.m. Mobile phones were taken away effectively immobilizing the taxpayer's business and banking operations. CPUs and hard disks were also seized.

29.07.2021: All possible details were submitted to the Officers. They were in the office for the entire day.

30.07.2021 12:30 a.m. The officers decided to sleep in the office of the Taxpayer and did not allow the Taxpayer to go home, despite his assurances that he would rejoin the next day. The office is 150 sq ft. Two officers along with the staff of the Taxpayer and Taxpayer himself spent the night in the office. The Taxpayer had to sit all night.

30.07.2021 11:30 a.m. Three officers arrive at the office premises. The Taxpayer was physically removed from his chair and the same was taken by one of the officers. Investigation and threats of arrests continued with renewed gusto.

30.07.2021 Evening: The statement was typed by the Officers and the Taxpayer was not allowed to even read it properly. Only cosmetic changes about personal details were allowed. They forced him to sign the statement failing which he was threatened with arrest.

Finally, after detention and ill treatment in his own office for close to two days, the Taxpayer agreed under pressure to arrange to pay Rs. 1,00,00,000/- (One Crore) as soon as the bank opened and agreed to come to Bengaluru for which summons would be issued.

31.07.2021 12:30 a.m. Late in the night, Statement was coercively got signed and Panchnama signed wherein witnesses were not two persons of good standing from the locality but the drivers of the Officers.

31.07.2021 12:30 a.m. Summons issued to attend at Bengaluru on 2nd August 21. The Taxpayer requested that the 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.

31.07.2021 12:30 p.m. Despite going through two days of mental and physical trauma, under the constant calls from the officers, under their directions Rs. 1 crore paid through RTGS. All through the Investigation the taxpayer had no access to any legal consultation.

03.08.2021 Taxpayer attended the summons and was kept waiting till late afternoon. While all phones and contact details of the Taxpayer were unavailable to him since 30-07-21 due to seizure by the Authorities, these officers directly spoke to the Debtors of the Taxpayer and the Officer made them deposit the payment in the Taxpayer's account. Subsequently after confirming the payment, the Taxpayer's seized phones were returned and it was informed to him to make payment of Rs.1.5 crores by e-challan since they would now be able to access the OTP on phone, while they were before the Authorities in Bengaluru. The Taxpayer was under constant threat of arrest and the payment was condition precedent to allow him to leave the Bengaluru office. The Taxpayer's CA who was also travelling with him, asked the Taxpayer to request the Officers to allow 'under protest' letters which were not accepted.

10.08.2021 Taxpayer was mentally drained and physically exhausted due to the two-day detention in his office and subsequent rush to Bengaluru. After coming back took a few days to mentally and physically recover and finding legal help.

16.09.2021 Taxpayer filed a Writ Petition before the Karnataka High Court pleading that:

1. Statements taken/recorded at 12.30 am on 31.07.2021 and during the summons proceedings at Bengaluru on 03.08.2021 have been retracted by the petitioner by affidavit dated 10.08.2021.

2. The Department does not have the power to recover amounts during the pendency of investigation and hence amount paid has to be refunded.

3. Recovery made during investigation was in violation of legal mandate contained in Article 265 of the Constitution of India.

The Department responded:

1. The petitioner seeks to interfere with the investigation which is being lawfully pursued.

2. The statements were voluntary and deliberate and signed after reading the statements.

3. The payments made were voluntary. The DRC-03 specifically indicates nature of payment being 'voluntary' at serial No.3. (DRC-03 is a form for Intimation of payment made voluntarily or made against the show cause notice.)

4. DRC-03 was generated by the personnel of the petitioner from outside the office of DGGI, Bengaluru.

The High Court declared that the recovery of tax made from the petitioner was illegal and directed it to be refunded within a period of four weeks with interest as applicable. 2024-TIOL-1845-HC-KAR-GST

This was an order by a Single Judge. Aggrieved Revenue took the matter in appeal to the Division Bench on the grounds that:

1. Information was gathered by the Officers of the DGGI, Bengaluru about fake GST invoices without supply of goods and accordingly, a search was conducted.

2. In the Statements recorded, it was confirmed that he received only GST invoices without actual receipt of goods.

3. There was a commission of 0.5% of the taxable value for issuing invoices without supply of goods. So, the supplies purported to have been made are bogus and invoices have been raised without actual supply of goods.

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

5. The deposit was made by way of ascertainment and for the Single Judge to declare it as illegal and direct the refund, is uncalled for.

6. It is clear that the payment was made after the culmination of the search proceeding voluntarily and was not coerced by the Departmental Officers.

7. The writ petition was filed with averments to mislead the Court.

8. The plea of coercion of the respondent was primarily related to the statement recorded by the Officers and not in respect of the payment made voluntarily.

9. 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 Single Judge could not have directed for the refund of the amount.

The High Court Division Bench observed, 2025-TIOL-218-HC-KAR-GST

1. The statement was recorded at 12:30 a.m. on 31.07.2021 after the Officers visited the office of the taxpayer 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 at Bengaluru on 02.08.2024.

2. It is the case of the taxpayer 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 Bengaluru, to which place the taxpayer was summoned.

3. The facts demonstrate the inference that the recording of statement was under the threat, that he shall be arrested.

4. 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 he was in Bengaluru. So, it suggests, the statements were recorded and deposits were made under threat and coercion.

5. 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.

6. 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.

The High Court was convinced that the payments were recovery and were contrary to law and the writ appeal is devoid of merits and was dismissed.

Audacious Audit parties and pestering preventive parties should think twice before forcing the assessees to make voluntary payment of taxes which they are not required to pay. Rather their bosses should be more careful. 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 cause considerable loss to Revenue.

What happens to a businessman if two and a half crores rupees 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?

Even assuming that the ordeal described by the taxpayer was a little far from the truth, it is an accepted fact that an amount of Rs. 2.5 crores was collected from him without the authority of Law by a group of law enforcing officers.

Will our taxpayer get his money back or should he face another round in the Supreme Court?

Until next week

Comments/feedback welcome at vijaywrite@tiol.in or 9848111243 (WhatsApp)