GST investigation wing: No ‘mandatory’ recoveries

Mumbai: Several high courts have in the past come down heavily on the alleged coercive action taken by goods and services tax (GST) officials for recovery of dues in the course of an investigation or a search & seizure operation. In a bid to tackle the issue, the GST investigation wing has issued an internal instruction clarifying that there is no requirement for “mandatory” recovery of tax dues during the course of investigations.
The instruction has been issued to ensure correct application of the law and to protect the interests of taxpayers. It has been signed by Vijay Mohan Jain, commissioner (GST-investigations) in the Central Board of Indirect taxes and Customs (CBIC). The instruction points out the GST provisions under which recovery of unpaid taxes or short payments can be made only after the due process of issue of a notice and confirmation of demand by an adjudication order has been followed.
“Therefore, there may not arise any situation where ‘recovery’ of the tax dues has to be made by the GST officer from the taxpayer during the course of search, inspection or investigation, on account of any issue detected during such proceedings,” states the instruction. It further adds that the law does not bar the taxpayer from ‘voluntarily’ making payment of any GST liability ascertained by him or the GST officer in respect of such issues, either during the course of such proceedings or subsequently.
“This reference to voluntary payment is something that could be misconstrued and misused,” says the CFO of a company in the food and beverages sector. Indirect tax specialist and founder of a CA firm, Sunil Gabhawalla, told TOI, “In a way, the instruction acknowledges the challenges of coercive recoveries faced by taxpayers during investigation and clarifies the official stand of the government, which has always been the legal position. But, as the use of force and coercion is more often than not difficult to document and demonstrate, the instruction will have limited practical utility at the ground level.”
“It would have been more helpful if the investigating authorities are instructed to dispose of the cases and issue show-cause notices in a time-bound manner (like 3 months from the date of initiation of investigation) and are strictly instructed not to look at any recovery, either forceful or voluntary,” adds Gabhawalla.
Interestingly, the Karnataka HC had held in the case of Bundl Technologies, which operates the Swiggy delivery platform, that payment made as a “goodwill gesture” during investigation cannot be treated as self-ascertained tax. The court had directed refund of the money, running into several lakhs, that had been deposited during the investigation.