GST Amount Deposited During Search Held to Be Involuntary;
Department Directed to Refund
Background of the Case
Sapphire Intrex Limited,
a company engaged in various service activities including trading of
securities, leasing, and commission services, filed a writ petition before the
Delhi High Court seeking refund of ₹2,30,00,000. This amount was deposited
during a GST search operation carried out on 20 October 2021 under Section
67(2) of the CGST Act.
The company claimed that
the payment was made under duress during ongoing search proceedings and
not voluntarily. The refund was claimed under Section 54 of the CGST Act, but
the GST department issued repeated deficiency memos and delayed the
processing of the refund citing pending adjudication of a subsequent show cause
notice (SCN).
·
Case Title: Sapphire
Intrex Limited v. Union of India & Ors.
·
Court:
Delhi High Court
·
Case No.:
W.P.(C) 14572/2022
·
Date of Judgment:
14 December 2023
Petitioner’s
Submissions
The petitioner raised the
following legal points:
- The deposit of ₹2.3 crore was made under
coercion, late in the night during the search operation, and hence,
not voluntary under Section 73(5) or 74(5) of the CGST Act.
- The payment was made before any
show cause notice was issued, and thus cannot be retained without
adjudication.
- No acknowledgement (Form DRC-04)
was issued as required under Rule 142(2) of the CGST Rules, confirming
that the payment was not accepted as voluntary.
- Repeated deficiency memos for
the refund claim were vague, time-barred, and contrary to CBIC’s
own circular dated 18.11.2019, which discourages multiple deficiency memos
unless substantive new deficiencies arise.
- The refund claim cannot be withheld
solely because the SCN has not been adjudicated, especially when the
refund arises from an under-protest payment and not due to any assessed
demand.
Respondents’
Submissions
The GST department
defended its action on these grounds:
- The amount was deposited voluntarily
by the company via Form DRC-03, and no coercion was applied.
- The refund applications were incomplete,
lacking valid documents such as a proper CA certificate as per Rule
89(2)(m).
- Since the SCN dated 23.06.2022
proposing appropriation of the amount was still pending, the refund could
not be processed.
- They also argued that the taxpayer
had an alternative remedy and should have approached the proper
officer.
High
Court’s Key Observations
The Bench rejected the
department’s arguments and ruled in favor of the petitioner, making the
following key points:
- Involuntary Payment:
The Court held that the ₹2.3 crore was not deposited voluntarily,
but under duress and compelling circumstances, as the search
extended till past midnight and there was no formal admission of tax
liability.
- Violation of Article 300A:
Collecting tax without adjudication or legal authority amounts to deprivation
of property under Article 300A of the Constitution of India.
- No DRC-04 Issued:
The Court noted that no acknowledgement (DRC-04) was issued after
the DRC-03 payment, confirming that the payment was not treated as
voluntary under the Rules.
- Due Process Required:
Citing CBIC's Instruction No. 01/2022-23 and the Vallabh
Textiles case, the Court emphasized that no tax recovery can be
made during search or inspection unless proper procedure is followed
and a final adjudication is made.
- Refund Claim Valid:
Since the payment was not a result of any order or adjudicated liability,
the petitioner is entitled to refund irrespective of pending SCN.
Court’s
Decision
The Delhi High Court
held:
“The deposit was made by
the petitioner under duress and not voluntarily. Therefore, the respondents are
directed to forthwith process the refund claim of ₹2,30,00,000.”
The Court did not go
into the merits of the pending SCN but clarified that the department is not
precluded from taking lawful steps in future to protect revenue interests,
including action under Section 83 of the CGST Act, if applicable.
Conclusion
This judgment reinforces
the constitutional and legal principle that tax cannot be collected without
authority of law or due process. Any amount forcibly recovered during GST
investigations, especially before issuance of a show cause notice, must be
treated as involuntary and refundable.
The Court strongly
reminded tax authorities that DRC-03 payments must be genuinely voluntary
and followed by issuance of DRC-04. Also, vague or repetitive deficiency
memos are not acceptable and refund claims must be processed promptly.
The Sapphire Intrex
ruling joins a growing line of decisions (e.g., Vallabh Textiles, Bhoomi
Associates) ensuring taxpayer rights are protected during GST
investigations and enforcement actions.
Disclaimer: All the Information is based on the notification, circular advisory and order issued by the Govt. authority and information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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