Amount Deposited Under Protest Can't Be Treated As Admission Of Tax Liability: Himachal Pradesh High Court

The Himachal Pradesh High Court has held that when a taxpayer deposits an amount “under protest”, it does not amount to an admission of tax liability.A Division Bench of Justice Tarlok Singh Chauhan and Justice Sushil Kukreja observed as follows; “Once the petitioner had deposited the amount 'under protest', the same could not have been considered to be an admission of liability because the necessary corollary of deposit under protest is that the amount towards the alleged liability has been deposited without admitting the liability and inherent therein is his right to challenge the order.” Background Facts: The petitioner, Shyama Power India Ltd. is a company engaged in the business of conducting surveys, design & construction of transmission lines for hydro-electric projects and is duly registered under the Himachal Pradesh GST Act, 2017. On 30th May 2022, the Deputy Commissioner, State Taxes & Excise, Shimla issued a notice to the petitioner, initiating an audit under Section 65 the Himachal Pradesh GST Act for verification of turnover declared, taxes paid, refunds claimed, input tax credit availed, and compliance with GST provisions for the years 2017-18 and 2018-19. In response to the notice, the petitioner submitted a detailed reply with all required documents. Despite this, the Deputy Commissioner, State Taxes & Excise, Shimla, issued an audit memo alleging that the petitioner had wrongly claimed Input Tax Credit amounting to ₹1.11 crore.In response to the audit memo and observations, the petitioner submitted a detailed reply and provided the additional information requested. However, on 18 January 2023, a discrepancy notice was issued by the Assistant Commissioner, State Taxes & Excise, Shimla, alleging tax evasion and directing the petitioner to reverse the wrongly claimed Input Tax Credit, along with interest and penalty under Section 74 of the Himachal Pradesh GST Act. Thereafter, the petitioner again submitted a detailed reply on 16 February 2023 with detailed copies of affidavits of transportation of goods from Delhi and their delivery at Totu, Shimla. Even after all this, the petitioner received the final audit report from the Deputy Commissioner, State Taxes & Excise, Shimla.Contentions: The petitioner stated that due to repeated pressure being created from the authorities, it decided to reverse the allegedly wrong Input Tax Credit by depositing the amount claimed “under protest” and decided to continue exercising its legal remedies.However, shockingly, the Commissioner, State Taxes and Excise passed an order under Section 74 of the Act and levied an interest of Rs. 1,32,34,923/- along with a penalty of Rs. 1,11,45,134/- on the petitioner and treated the amount already deposited 'under protest' to be an admitted liability. Aggrieved, the petitioner tried to file an appeal against the demand, but the GST portal only allowed for disputing the penalty and interest, with no option to challenge the basic demand. Due to which the petitioner was unable to file an appeal against the main demand. Left with no other option, the petitioner submitted a rectification application under Section 161 of the HP GST Act, 2017, before the Commissioner, State Taxes and Excise and requested to rectify the order passed under Section 74, which restricted the liability only to the extent of interest and penalty. It contended that the amount was deposited under protest without admission of any liability. However, the commissioner refused to rectify the order, stating that there was no discrepancy between the show cause notice and the final demand. The petitioner submitted that the commissioner did not address the core issue in the rectification application of the creation of tax liability. Therefore, the petitioner approached the High Court seeking quashing of the order passed by the Commissioner, State Taxes and Excise, which levied interest of ₹1.32 crore and penalty of ₹1.11 crore under Section 74 of the HP GST Act. Findings:The Court observed that the Commissioner, State Taxes and Excise handled the case in an unacceptable manner and it raises serious concerns. The Court remarked that when the petitioner had deposited the amount 'under protest', it could not have been considered to be an admission of liability. The Court further noted that the commissioner had decided the case solely on the basis of the payment made by the petitioner of Rs 1,11,45,134/- under protest by treating it as an admission of liability. The commissioner should have conducted a proper inquiry and should not have solely relied on the show cause notice.Thus, the Court allowed the writ petition and quashed the order imposing interest and penalty under Section 74 of the HP GST Act. It further directed the commissioner to issue a fresh notice that showed only the disputed tax amount of ₹1.11 crore for the alleged wrongful Input Tax Credit, so that the petitioner can challenge it by filing an appeal before the Appellate Authority.Case Name:...

Amount Deposited Under Protest Can't Be Treated As Admission Of Tax Liability: Himachal Pradesh High Court

Mehak Aggarwal

Tags