Goods & Services Tax (GST) in IndiaAmount Paid Under Protest Entitled to be Refunded

The High Court of Karnataka in the case of Suretex Prophylactics (India) Pvt. Ltd. v. Union of India, [W.P.No. 2444 of 2022 decided on 27.02.2023] held that no refund can be made except it authorised by the adjudicating authority or is otherwise payable as per the provisions mentioned under the Goods and Services Tax Act and Customs Act 1962.  

FACTS

Suretex Prophylactics (India) Pvt. Ltd. (hereinafter referred as “the Petitioner”) is registered as a 100% Export Oriented Unit (hereinafter referred to as “EOU”) and  is involved in the activity of manufacturing and selling of rubber contraceptives.

On 19.03.2014, due to fire accident, the raw materials, packing materials, etc of the Petitioner were destroyed. On 20.03.2014, the Petitioner filed a police complaint followed by an application before the Assistant Commissioner of Central Excise, insinuating about the happenings at the factory.

In light of the recent events, the Petitioner filed for insurance claim from 11.06.2014 to 30.06.2016 for which they received an insurance amount which did not include the tax or duty component.

The Principal Commissioner of Customs and Deputy Commissioner of Exports (hereinafter referred as the “Respondent Nos. 2 and 3” respectively) searched the Petitioner’s factory because of several threats and cases filed under the Customs Act, 1962 (hereinafter referred to as the “Customs Act”). While on search, they took hold of various documents of the Petitioner after which they collected a sum of INR 1.5 crores from the Petitioner under coercion and protest.

As a consequence of the abovementioned events, the Petitioner submitted a letter to Respondent No. 3 pleading for a refund of the amount paid under coercion. As per the letter, the Petitioner appealed for Article 265 of the Constitution of India that states no tax can be levied without the authority of law therefore clearing that the Respondent had wrongfully demanded INR 1.5 crores from the Petitioner and since the payment was made under protest, the same deserves to be refunded

The Petitioners gave clarifications regarding all the questions and queries posed by the Respondents in this case. Yet, the Respondents made no efforts to allow the refund.

Hence, aggrieved by the actions of the Respondents, the Petitioner has filed the present petition.

ISSUES BEFORE THE HIGH COURT

1. Whether the amount paid during the investigation by the Petitioner can be considered to be voluntarily paid, under section 74(5) of the Central Goods and Services Act (hereinafter referred to as “CGST Act”)?

2. Whether the amount was recovered from the Petitioner during investigation under the coercion and threat of arrest?

CONTENTIONS BY BOTH THE PARTIES

The Petitioner submitted that no adjudication or order has been passed by the Respondent which gives them the authority to demand money from the Petitioner. Further, the Respondents’ theology their ‘statement of objections’ stated that the Petitioner didn’t make the payment voluntarily. Hence, or its clear that out was recovered under pressure, protest or coercion.

The Petitioner contended that the Respondent do not have the authority to demand INR 1.5 crores, which makes their recovery illegal, violating Article 265 of the Indian Constitution. Thus, because of lack of any legal authorization, the Respondents wrongfully have wrongfully acquired the aforementioned INR 1.5 crores and hence, it should be refunded to the Petitioner.

The Petitioner further stated that, the amount recovered from the petitioner can’t be referred in the same way as duty or tax. It was a pre-deposit and should be rightfully returned to the Petitioner.

The Petitioner argued that no customs duty is payable when finished goods, raw materials, spares, consumables, plant, machinery, etc. are destroyed by fire.

Thus, the recovery of the amount made by the Respondent were without the authority of law and Petitioner had paid the same during the course of the investigation and hence, the recovery is entitled to be refunded to the Petitioner.

The Respondent stated that the Petitioner intentionally insured the value of imported goods and excluded the custom duty, removing the question of refund of customs duty or tax. The Petitioner didn’t pay the customs duty when the fire destroyed the goods and since the same wasn’t included in the fire policy obtained by the Petitioner. Thus, as per Sections 58, 59, and 65 of the Customs Act, the Petitioner was not entitled  for a refund of the amount paid by it.

The Respondent further contended that the Petitioner is entitled to pay the duty of the imported goods which were destroyed in the fire accident and since the Petitioner had not applied for the remission of duty as per Section 23 of the Customs Act in case of lost or damaged goods,   the Petitioner is not entitled  for a refund.

The Respondent’s further contended that as the show cause notice had already been issued for the purpose of adjudication dated on 11.02.22, there is no reason to demand for a refund.

DECISION AND FINDINGS

The Court observed that based on the circular dated 25.05.22, there can’t be a recovery or demand made by the Department without the order of the adjudicating authority or without being in accordance to the provisions of Goods and Services Tax, 2017 Act and Customs Act. Additionally, the circular dated on 19.01.22 defines what qualifies under the purview of arrears. Considering, the amount recovered from the Petitioner isn’t an arrear as it was recovered without the authority of law, it deserves to be refunded back to the Petitioner.

In the present case, it is crystal clear that the recovery made by the Respondents from the Petitioner is without the order of the adjudicating authority. Moreover, it is clear that  that the recovery from the Petitioner was not made voluntarily and there is no doubt that it was recovered under pressure or protest. Considering that tax levied without the order of the adjudicating authority is a violation of Article 265 of the Constitution of India. The High Court directed the Respondents to refund the amount under protest paid by the Petitioner  during the investigation.

AMLEGALS REMARKS

The Court in this case has rightly observed the fact that the amount paid by the Petitioner was not voluntarily and hence deserved to be refunded. The Court by observing this has rightly uphold the principle of discretion cannot be exercised arbitrarily.

Moreover, it might be claimed that because ‘to protest’ is a fundamental right for a taxpayer, paying duty/tax under protest is a luxury of fundamental right, and no special rules are required. ‘Under protest’ is an essential component of the ‘natural justice principles. Payment of taxes under protest implies a legal challenge to the matter on its grounds. Not accepting the judgement, order, notification, or circular in order to pursue natural justice, and especially not at the expense of revenue, is a challenge to your basic right or constitutional privilege.

Thus, in due course of investigation, without issuance of any order or  determination of final tax liability, when the payment is made by the assessee, it is regarded as payment under protest and hence, shall be refunded.

– Team AMLEGALS assisted by Ms. Aayushi Udeshi (Intern)

For any query or feedback, please feel free to get in touch with himanshi.patwa@amlegals.com or rohit.lalwani@amlegals.com