Tax Deposited During Search Can't Be Retained By Department Till Adjudication Of Notice: Punjab and Haryana High Court

The Punjab and Haryana High Court has held that deposits of tax during searches cannot be retained by the department until the adjudication of the notice.

The bench of Justice Ritu Bahri and Justice Kuldeep Tiwari has directed the department to return the amount of Rs. 2.54 crores to the petitioner along with simple interest at the rate of 6% per annum from the date of deposit until the payment is made.

The officials of the department/respondents searched the factory premises of the petitioner/assessee and resumed the entire record lying there. On March 7, 2020, they deposited a sum of Rs. 39,15,583. The respondents conducted the second search on January 15, 2021, and took the director and chartered accountant of the petitioner to their office at Rishi Nagar, Ludhiana.

The department detained Avtar Singh, the 78-year-old director, and Sahil Sharma, the chartered accountant of the petitioner, till 1.00 a.m. They were released on the condition of a deposit of Rs. 2.15 crore, which was deposited through the reversal of the input tax credit (ITC) from the electronic credit ledger and the surrender of the refund already applied. The respondents did not supply a copy of the Panchnama, a copy of the resume record, or electronic gadgets, which are necessary to file returns and comply with the requirements of banks.

The issue raised was whether the amount paid by the petitioner on January 16, 2021, could be retained by the department without issuing the show cause notice under Section 74 (1) of the CGST Act, and that too after the expiration of two years.

The respondents argued that the petitioner has voluntarily chosen to make a payment of tax along with a penalty. The petitioner was called upon to provide information about inputs procured and the final products manufactured, but the petitioner never heeded the queries raised by the department. As per the information received from Customs, Mumbai, it was found that the petitioner has mis-declared the goods to the extent of their value, nature, and description and also indulged in the illegal import of pesticides.

The court held that the amount was deposited during the search and cannot be taken to be voluntary. Since no proceedings under Section 74 (1) of the CGST Act have been initiated to date, the department cannot even issue Form GST DRC-01A to ask the petitioner to make payment of tax, interest, and penalties due.

Case Title: Modern Insecticides Ltd. Versus Commissioner, Central Goods and Service Tax and another

Citation: 2023 LiveLaw (PH) 77

Case No.: CWP No.8035 of 2021

Date: 19.04.2023

Counsel For Appellant: Sanjay Kaushal

Counsel For Respondent: Sourabh Goel

Click Here To Read The Order