Delhi HC holds tax cannot be recovered in guise of suo-moto payment by taxpayer during the course of search proceedings

This Tax Alert summarizes a recent ruling of the Delhi High Court (HC). The writ petition dealt with the issue whether the amount deposited by assessee during the search proceedings can be considered as a voluntary payment of tax.

In the writ petition, assessee alleged that it made payment of tax, interest and penalty under coercion during the course of search proceedings. 

The HC observed that the Central Goods and Services Tax Act, 2017 (CGST Act) and the Rules framed thereunder, makes provisions to enable a person to suo-moto pay arrears of tax, along with interest and penalty. Thus, when the taxpayer takes recourse through such route, the proper officer is restrained from serving any notice, unless the amount which is self-ascertained by the taxpayer falls short of the amount payable as per the law. In such cases, the proper officer is required to issue an acknowledgement accepting the payment.

In the present case, although the payments were made in GST DRC-03, no document has been given by the officers acknowledging acceptance of payment. Failure to follow the prescribed procedure will, as in this case, lead to a conclusion that the deposit of tax, interest and penalty was not voluntary, more so when such deposit was made before the search was concluded. 

Accordingly, HC directed Revenue to return the amount so deposited along with interest. Further, it also directed Central Board of Indirect Taxes and Customs (CBIC) to align its Instruction on deposit of tax during the course of search, inspection or investigation with the directions issued by Gujarat HC.

Comments

  • Judgement of Delhi HC is likely to provide relief in cases where taxes are recovered through coercive means during the course of search, inspection or investigation proceedings and treated as suo-moto payments. 
  • Direction to CBIC to align its Instruction with the guidelines provided by the Gujarat HC is a welcome move and may aid in streamlining the search and investigation proceedings. 

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