Lakshmikumaran & Sridharan on Landmark Judgement no tax can be collected without the authority of the law stated Constitution of India

Lakshmikumaran & Sridharan on Landmark Judgement no tax can be collected without the authority of the law stated Constitution of India

Recovery made under threat and without the authority of the law leads to violation of the person's Constitutional Rights

The division bench of the Karnataka High Court has affirmed the judgment of the single-judge of the Karnataka High Court in a case related to the Goods and Services Tax (GST) department.

The case pertained to Bundle Technologies Private Limited, wherein the Company deposited the amounts at odd hours during the course of the investigation. Held to be involuntary and without the due process of the law, the GST department was liable to refund that amount.

Speaking with V. Lakshmikumaran, the Managing Partner at Lakshmikumaran & Sridharan, he stated, "The judgment is a welcome relief for taxpayers facing departmental investigation or scrutiny. The timelines for concluding the GST investigation and issuing a show-cause notice for the first year of GST introduction are fast approaching. The lockdowns imposed due to the Covid-19 pandemic has hampered the investigations.

"The GST department has been provided with powers to audit and investigate for issuing the show-cause notice in relation to the amount that escaped assessment, wrong classification, availing, or utilization of inadmissible credit. The assesses shall exercise the option of voluntary payment provided under the CGST Act after independently examining the legal position."

He added, "The courts are reiterating the earlier jurisprudence on coercive recovery during the investigation as incorrect and any recovery made under threat and without the authority of the law leads to violation of the person's Constitutional rights."

Earlier, the Director-General of GST, Hyderabad (DGGI) had initiated an investigation against Bundle Technologies. It alleged non-payment of taxes by the third-party service providers and denied Input Tax Credit (ITC) availed by the Company under the Central Goods and Services Tax (CGST) Act.

During the investigation and recording of the statements of the Company's directors, the authorities threatened to arrest them and coerced them into paying the disputed amount.

Thereafter, the Company filed a writ petition before the High Court of Karnataka against the manner in which the investigation was conducted. It also sought directions from the court to the department to refund the amount.

The court observed that the recovery of the disputed amount by GST authorities during the investigation was incorrect. It stated that statutory powers must be exercised in consonance with the spirit and letter of the law and not in a manner to instil fear in the mind of a bonafide taxpayer.

The court ruled that the amount deposited by the Company was not a voluntary payment under the CGST Act. Also, under the Constitution of India, no tax can be collected without the authority of the law. Else, it amounts to depriving a person of his property. Therefore, the department is liable to refund the amount to the Company.