[Opinion] Refund of Deposit During Search/Investigation

Mahi Yadav – [2024] 158 taxmann.com 648 (Article)

Overview

The Article delves into the nuances of tax refund scenarios during search or investigation proceedings under the Central Goods and Services Tax (GST) Act, 2017. It navigates through the constitutional provisions, court decisions, and regulatory directives. Anchored by Article 265 of Indian Constitution “no tax shall be charged or collected except by authority of law”, the discussion unfolds with a focus on jurisdictional issues and the necessity for adjudication before any recovery of amount. The legal symphony crescendos with insights from cases like Suretex Prophylactics (India) Pvt. Ltd. and unfolds further through directives like Instruction No. 01/2022-23, which accentuates the requirement for an adjudicating authority’s imprimatur. The Article then weaves through instances of involuntary deposits during searches, emphasizing the significance of procedural adherence. The legal composition concludes with a nuanced exploration of self-assessment under Section 74(5) of the CGST Act, 2017, portraying court decisions that calls for refunds in situations where deposits are made under investigation stress. Overall, the overview provides a comprehensive and engaging journey through the complexities of tax refund dynamics within the GST framework.

Refund in Absence of Jurisdiction

Article 265 of the Indian Constitution specifies that “no tax shall be charged or collected except by authority of law”. Moreover, the tax collection without any authority of law would also amount to depriving person of his property without any authority of law and this would be violative of Article 300 A of the Constitution.

In case Suretex Prophylactics (India) (P.) Ltd. v. Union of India, the Karnataka High Court opined that since the petitioner had made the payment under protest and it had not been preceded by an adjudication order, the respondents lacked the jurisdiction or authority of law to recover INR 1.5 crores, which is clearly violative of Article 265 of the Constitution of India. As a result, the petitioner would be entitled to a refund of the aforesaid amount that the respondents had collected without jurisdiction or authority of law.

In case of Diwakar Enterprises Pvt. Ltd. v. Commissioner of CGST, the Honorable High Court observed that if tax is collected without any authority of law, the same would amount to depriving a person of his property without any authority of law and would infringe his right under Article 300 A of the Constitution of India as well. In the instant case, as per the department, the petitioner has deposited the impugned amount voluntarily but no receipt was given by the Proper Officer after accepting the impugned amount. Therefore, it was held that the amount deposited by the petitioner under protest was liable to be refunded along with 6 % interest.

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