Questioning why an official’s claim should be accepted without any verification, the Madras High Court recently referred to mythological figures such as Harishchandra and Yudhishthir and said that such people have become “extinct”. The court made the observation while flagging a missing Document Identification Number (DIN) on a search warrant issued to a jewellery firm and found that its Rs 32.62 lakh payment during the search was “not voluntary”.
Justice G R Swaminathan was hearing a petition filed by a Kanniyakumari-based firm M/s Bhima Enterprises which is involved in manufacturing and wholesale of jewellery. The firm challenged the August 15, 2023 search authorisation and sought a refund of Rs 32.62 lakh, claiming that the amount was collected through coercion.
“Harishchandras and Yudhishthiras have become an extinct species. The veracity of any claim should be open to verification. Axioms alone can defy the demands for proof. No stand of an official can be taken as an axiom,” the court said on August 5. Harishchandra and Yudhishthir are Indian mythological figures known for steadfastly upholding truth and righteousness.
The case followed a GST search at the firm’s premises on August 16, 2023, under Section 67(2) of the Central Goods and Services Tax Act, 2017. Following the search, the officials seized gold ornaments weighing 3,808.386 grams, valued at Rs 2.22 crore, and gold bullion weighing 5,478.940 grams, valued at Rs 3.20 crore, citing discrepancies in the firm’s stock.
Firm disputed Rs 32 lakh payment
The firm said it was compelled to pay Rs 13.37 lakh on August 16 and Rs 19.24 lakh on August 17, taking the total to Rs 32.62 lakh. The department disputed this and maintained that the payment was voluntary, saying the firm had paid after realising its tax liability. It also claimed to have received credible information about alleged tax evasion and said it had issued search warrants and inspection notices on August 15.
The high court examined under what circumstances a payment made during search proceedings could be legitimately treated as voluntary. Referring to safeguards laid down by the Gujarat High Court in Bhumi Associates vs Union of India, the court said a taxpayer must first ascertain the liability in writing before making payment under Section 74(5) of the Central Goods and Services Tax (CGST) Act.
“Mere description of the payment as voluntary is insufficient,” the court said, adding that the basis of the taxpayer’s ascertainment must be recorded in the taxpayer’s own words. It also said that the officials must inform a taxpayer, whose goods have been seized, that provisional release could be sought by executing a bond and furnishing security. The taxpayer could then make a conscious choice between seeking release or making payment, it added.
“Any payment not made in the manner laid down herein would be treated as involuntary and the assessee can seek refund of the same,” the court added.
Court flags missing DIN
The court also found fault with the absence of a DIN on the August 15, 2023 search authorisation. The department cited technical difficulties for not generating the DIN initially. But the court said the record did not show what the technical difficulty was or what attempts had been made to generate the number. A DIN was later generated on August 25, 2023, but was not shared with the petitioner, the court noted.
The court held that displaying the DIN was mandatory and if it could not initially be generated for an exception recognised by the relevant circular, the reason had to be recorded in the communication, the omission had to be corrected within 15 days and the DIN generated later had to be shared with the person receiving the notice.
Justice Swaminathan also said that inspection, search and seizure are distinct powers and an authorisation to inspect does not automatically confer the power to search and seize.
Fresh assessment ordered
The judge described the search as “not above board” and the warrant as “a jumbled up piece” that “meant everything to everyone”. The court said that the Rs 32.62 lakh payment was not voluntary and noted that the assessee could not have been made to pay a 100 per cent penalty.
However, the court did not order an immediate refund and directed the GST authorities to initiate fresh assessment proceedings, issue notice to the firm and conduct a proper enquiry in accordance with the legal timelines.
Whether the Rs 32.62 lakh should ultimately be refunded was left to the outcome of those assessment proceedings. The court also directed that the period from August 15, 2023 until receipt of the certified copy of the judgment be excluded for limitation purposes.
