Contributed by: Singh & Associates
Goods & Services Tax was introduced with a primary object to simplify the incidence of indirect taxes in the country. However, this crucial aspect is far from being met and the law itself is getting complicated day-by-day due to various amendments and procedural changes.
In recent months, we have heard and read about various companies undergoing investigations by the Directorate General of Goods and Services Tax Intelligence. While there is no doubt that there have been many tax evaders who have been rightly put to task, in line with aim of minimising the leakage of tax or tax evasion by the Government. Amid this various writ petitions filed wherein the judiciary has come down heavily on the GST authorities for highhanded enforcement of the relevant law during search and investigation stage.
It is well known that during investigation by Revenue Authorities, assesses are persuaded to give an undertaking that tax has not been paid correctly or agree for payment of Tax just to buy peace with the Authorities and avoid any coercive action. However, adjudication by the Revenue Authorities post investigation takes its own course, thus in such a scenario the assesse is left with a prolonged litigation in order to get refund of the amount deposited during investigation paid under protest. Even as the Government is showcasing surge in GST collections as proof of effective anti-evasion steps, the domineering enforcement has been questioned by the judiciary equally.
Recently, the Hon’ble High Court of Madras in the case of Shri Nandhi Dhall Mills India P Ltd. vs. Senior Intelligence Officer, DGGST, WP No. 5192 /2020, has held that merely because an assesse had signed a statement admitting tax liability under stress of investigation and also made payments during investigation, cannot lead to self-ascertainment under Section 74 of the Central Goods & Services Tax Act, 2017 (the CGST Act). In this case, the Hon’ble High Court ordered for refund of tax deposited during the investigation.
The Judgement
The Hon’ble High Court held that Section 74(5) to 74(7) of the CGST Act provides for ascertainment of tax liability either by the assessee or the Revenue Authorities with regard to a voluntary payment. Further it has been held that the Revenue Authorities are required to check the accuracy of ascertainment carried out by the assessee and if the same is acceptable to the Department, it shall not issue a Show Cause Notice. However, if the ascertainment made by the assessee is not accepted, a Show Cause Notice shall be issued for that portion which is payable.
The Hon’ble High Court also observed that payment in instalments which was retracted by the assessee, cannot be construed as self-ascertainment. Further, it has been held that merely because the assessee being under stress of investigation signed a statement admitting tax liability cannot lead to self-ascertainment under Section 74(5) of the CGST Act.
Analysis
The ratio of the above judgement is that under any proceeding initiated, no payment of tax can be made till there is ascertainment by the assessee or the Revenue Authorities. In case, the Assessee makes a payment of tax on its own ascertainment, Revenue Authorities are to verify the same.
Section 74 of the CGST Act contains provisions with regard to issuance of a show cause notice in case of non-payment due to fraud, wilful misstatement or suppression of facts. It states that the no show cause notice shall be issued when the assessee has made payment of tax during initial stages of a proceedings. However, this payment of tax should be acceptable to the Revenue Authorities, in case there is any shortfall, proceedings can continue against the assessee.
The above decision reinforces the position in Law that coercive measures including arrest would only arise when the liability on part of the assessee has been concluded. It also highlights that the right of an assessee for opportunity to resist the demand in terms adjudication, passing of reasoned order and remedies such as appeal, should not be denied.
Hopefully, with such decisions, Revenue Authorities would be more cautious and not employ high-handedness which have been rampant during the GST regime and the rights of assessee to protest the demand for deposit during the investigation can enforced. Thus, the GST investigation wing needs to strike a balance between guarding and enhancing the government revenue and stop leakage of revenue due to tax evasions, and allowing businesses to function.
Contributed by Singh & Associates
The above article is authored by Ms Smita Singh(Partner) and Mr. Harsh Shukla(Principal Associate)
