GST Recovered during search, inspection or investigation is Illegal unless its voluntary: HC

Delhi High Court has recently directed revenue to return Rs.1,80,10,000/- to the petitioner-concern, along with interest at the rate of 6% (simple) per annum. This amount was recovered during GST Department during GST search made on petitioner-concern. This decision was taken in line with directions issued by the Gujarat High Court in Bhumi Associate.

The petitioner-concern, in the business of trading in ReadyMade Garments (RMG), is also engaged in selling these goods on behalf of third parties, albeit in the domestic market, on a commission basis.

It is alleged by the official respondents/revenue, that the petitioner- concern, inter alia sold goods, in cash, on behalf of two entities i.e., Empire Apparels Pvt. Ltd. (“EAPL”) and M/s Navrang Enterprises (“NE”), during the period spanning between July 2017 and February 2022.

The official respondents/revenue claim that the RMGs sold, in cash, on behalf of the aforementioned entities by the petitioner-concern were worth Rs.149.90 crores against which it received by way of a commission.

Thus, according to the official respondents/revenue, the petitioner- concern failed to disclose the said cash transactions, and pay the requisite tax on the commission earned by it.

It was because of this intelligence which was received by the official respondents/revenue, that a search at the petitioner-concern’s premises was conducted between 16.02.2022 and 17.02.2022.

The said premises, as per the stand of the official respondents/revenue, was unregistered.

It is also the official respondents/revenue’s case, that at the time of the search, one Mr Sumit Jain i.e., the manager and authorized representative of the petitioner-concern was found at its premises.

The official respondents/revenue claim, that amongst other things, it was discovered that the petitioner-concern maintained a ledger concerning cash sales, albeit in soft form, in a laptop, which was ultimately resumed by them.

This apart, it is also averred by the official respondents/revenue, that the ledger contained the details such as the party to whom the cash sale was made, the name of the transporter, date of sale, transporter name, lorry receipt number of the transporter, as also information concerning the value of the sales transactions, and the commission earned on such transactions.

It appears, that the officers carrying out the search, apart from the laptop, also resumed various registers, physical bill books and documents, which according to them, contained details of clandestine clearances made by the petitioner-concern.

Evidently, a panchnama was drawn on 17.02.2022, which bears the signatures of Mr Sumit Jain, and two other persons i.e., one Mr Deepak Kumar Jha [pancha no.1] and one Mr Anil Kumar [pancha no.2], who the official respondents/revenue claim, were independent witnesses to the search proceedings.

The official respondents/revenue also aver, that simultaneous searches were carried out at the premises of NE and EAPL, whose goods, as indicated above, were allegedly sold, in cash, by the petitioner-concern.

It is stated, that the search at the premises of NE and EAPL was carried out on 16.02.2022.

Apparently, statements of the proprietor of NE i.e., one Mr Kamal Kishor Karnani, and the Director of EAPL, namely one Mr Vinod Baid were recorded.

These statements, as per the official respondents/revenue, confirm that the aforementioned entities had their goods sold in cash via the petitioner-concern, for which it was paid a commission.

The said statements, according to official respondents/revenue, also reveal that the petitioner-concern was paid a commission at the rate of 5%.

It is further averred, that the result of this exercise was, that NE deposited with the official respondents/revenue Rs.1.15 crores, which included tax, interest, and penalty.

This amount, it is stated, was deposited via a prescribed challan i.e., DRC-03, dated 17.02.2022.

On behalf of the petitioner concern, it has been submitted that the deposit of Rs.1,80,10,000/- was not voluntary. The statements and documents, on which the signatures of Mr. Sumit Jain were obtained on 17.02.2022 and 24.02.2022, were a product of coercion.

Court held that since the amounts which were deposited on behalf of the petitioner-concern, lacked an element of voluntariness, should be refunded along with interest at the rate of 6% (simple) per annum.

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