The Delhi High Court recently ruled in favor of Neeraj Paper Marketing Ltd., directing the Department of Trade & Taxes to refund Rs. 28,20,000/- deposited coercively during a midnight search operation in 2018-19 and 2019-20.
Background:
- Neeraj Paper Marketing Ltd., a business trading in waste paper and craft paper, faced a search operation on 29-7-2022.
- The authorities found a mismatch in GSTR-2A and GSTR-3B entries for the years 2018-19 and 2019-20, leading to a demand for tax payment.
Coercive Deposit Claim:
- Neeraj Paper Marketing Ltd. claimed that the officers coerced them into depositing Rs. 28,20,000/- under GST DRC-03 during the midnight search operation.
- Payments were made in cash and by debiting the Electronic Credit Ledger (ECL).
Legal Proceedings:
- The petitioner argued that the deposit wasn't voluntary as the prescribed procedure for voluntary deposits was not followed.
- The authorities issued a Show Cause Notice, but the amount paid during the investigation was not considered in the demand.
- The court noted that acknowledgments under relevant rules were not issued for the payments.
Court's Ruling:
- The court emphasized that the payments were not voluntary as the procedure for voluntary deposits was not followed.
- Referring to previous judgments, the court stated that not following stipulated procedures indicates non-voluntariness.
- The petitioner's director acknowledged a mismatch but didn't accept incorrect ITC, promising to pay any tax liability arising from the mismatch.
Key Takeaways:
- Voluntary Deposit Procedures: The court highlighted the importance of following the prescribed procedures for voluntary deposits.
- Acknowledgment Requirement: Proper acknowledgment under relevant rules is crucial for validating deposits.
- Mismatch vs. Incorrect ITC: Acknowledging a mismatch doesn't imply accepting incorrect Input Tax Credit (ITC), and liability needs proper ascertainment.
- Coercive Circumstances: Payments made under compelling circumstances, like during a midnight search operation, may not be considered voluntary.
Conclusion: The court's decision underscores the necessity of adherence to procedural requirements for voluntary deposits. Businesses facing tax-related investigations should be aware of their rights and procedures to ensure fair treatment during such operations. The ruling sets a precedent for cases where coercive circumstances may influence deposit decisions during tax investigations.
