Madras High Court
M/S.Mns Enterprises vs The Additional Director General on 31 August, 2021
W.P..No. 20067 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
RESERVED ON : 15.11.2021
PRONOUNCED ON : 4.03.2022
CORAM
THE HONOURABLE MR.JUSTICE C.SARAVANAN
W.P.No.20067 of 2021
and WMP.No.21321 of 2021
(Through Video Conferencing)
M/s.MNS Enterprises
(Represented by its Proprietor
Shri.Sheik Dawood) ... Petitioner
vs
The Additional Director General
Directorate of GST Intelligence,
Tower-II, BSNL Building,
Greams Road,
Chennai 600 006. ... Respondent
Prayer: Petition filed under Article 226 of the Constitution of India to issue a
Writ of Mandamus to direct the respondent to refund the amount of
Rs.88,17,754/- recovered by the respondent, from the customer of the
petitioner forthwith.
1/25
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W.P..No. 20067 of 2021
For Petitioner : Mr. G.Nataajan
For Respondents : Mr.Rajnish Pathiyil
Senior Panel Counsel.
ORDER
The question that falls for consideration in this writ petition is whether
the petitioner can seek for a mandamus for refund of amounts lying in the
petitioner's electronic cash ledger ?
2. The writ petitioner is a proprietary concern and is represented by its
proprietor Sheik Dawood. This writ petition has been filed for a Mandamus
to direct the respondent to refund Rs.88,17,754/- lying in the petitioner's
Electronic Ledger under Chapter IX of CGST Rules, 2017. The aforesaid
Electronic Ledger of the petitioner has been frozen and therefore, the
petitioner is unable to utilize the above amount.
3. The case of the petitioner is that the respondent had issued a
summons to the petitioner's proprietor Sheik Dawood. Thereafter, the
petitioner's proprietor was also arrested on 01.09.2021 and remanded to
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judicial custody. It is further case of the petitioner that Statements were
obtained from the proprietor of the petitioner and during interrogation a letter
dated 31.08.2021 was extracted from the petitioner's proprietor on
01.09.2021 to make it seem as if on the petitioner's request, one of the
customer namely, Nobal Tech Industries Pvt. Ltd., was to remit amounts due
to the petitioner as outstanding to be directly paid into the petitioner's
aforesaid GSTN Account bearing No. GSTN : 33ASMPS4462L1Z6.
4. It is the case of the petitioner that this letter was obtained under
coercion and therefore, the amounts which is lying in the electronic ledger of
the petitioner has hampered with day-to-day business of the petitioner
inasmuch as it has resulted in a liquidity crunch and the petitioner is unable to
pay either to the suppliers or pay salary to the employees.
5. It is further submitted that after the proprietor of the petitioner was
arrested on 01.09.2021, this writ petition was prepared on 07.09.2021 and
filed on 09.09.2021 and thus, the petitioner has withdrawn the statement
immediately. It is the case of the petitioner that as per letter dated
01.09.2021, the amount which the said customer was to pay the amount
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W.P..No. 20067 of 2021
directly into the GSTN Account of the petitioner has been resiled/retracted in
the affidavit filed in support of the present writ petition.
6. It is further submitted that the petitioner was under judicial custody
till 31.10.2021 and was released only after the expiry of the statutory period
of remand under Section 167 (2) of Cr.P.C.
7. The learned Counsel for the petitioner has placed reliance on the
decision of the learned Single judge of this Court in the case of V.N.Mehta &
Company vs. Assistant Commissioner, Headquarters preventive unit,
Chennai reported in 2020 (34) G.S.T.L.148(Mad.), wherein, while
examining Section 79 of CGST Act, a learned Single Judge of this Court has
held that Section 79 (1) of the Act contemplates that only if any amount
payable by a person to the Government under any of the provisions of the Act
or Rules therein is not paid, the proper Officer can proceed to recover the
amount from one or more method referred therein. It is therefore submitted
that the amount payable by a person will only mean only the amount that is
payable after a proper determination of the amount in a manner known to
law.
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8. The learned counsel for the petitioner submits that by forcing the
customer to directly remit the amount into the petitioner's GSTN account
without issue of Show Cause Notice was without authority of law, the
respondent has practically crippled the business of the petitioner apart from
placing the proprietor of the petitioner under judicial custody for a period of
two months and contrary to safeguards prescribed under the Act.
9. The learned counsel for the petitioner further submits that when the
law requires a particular thing to be done in a particular manner then it has to
be done in that manner. The learned counsel for petitioner further submits
that Section 79 of the CGST Act is similar to a recovery mechanism
prescribed under Section 11 of the Central Excise Act, 1944, Section 87 of the
Finance Act, 1994 under Chapter V of the Finance Act, 1994. The learned
counsel for the petitioner further states that the proper method under the
CGST Act for the Department is to first throughly investigate and thereafter
issue a proper show cause notice under Sections 73 and 74 of CGST Act,
2017 and adjudicate to same in the manner prescribed under the said Act. He
further submits that this provision is similar to 11 A of the Central Excise Act,
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1944 and 73 of Finance Act, 1994. He therefore submits that recovery of tax
can be only in the manner known to law and therefore recovery of the
amount as tax would be contrary to Article 265 of the Constitution of India.
The learned Counsel for petitioner has also placed reliance on the decisions of
the Bombay High Court and the Chattisgarh High Court in the following two
cases:
1) New India Civil Erectors Pvt. Ltd., Vs. Union of
India reported in 2020 (43) G.S.T.L. 17(Bom.).
2) S.Kumar's Associates Vs. Addl. Commr. (Prev.)
of Cus., C.Ex. & S.T., Bilaspur reported in 2020 (38)
G.S.T.L.29(Chattisgarh).
10. Defending the action of the petitioner, the learned counsel for the
respondent submits that under the provisions under the CGST Act, 2017
there is a special dispensation and therefore, the decisions cited by the learned
counsel for petitioner are not of no relevance. The learned counsel for
respondent submitted that the petitioner has himself admitted and had given a
voluntary statement on 31.08.2021 and 1.09.2021 and had further sent a
request to one of the customers namely Nobal Tech Industries Pvt. Ltd., to
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directly remit the amounts due into petitioner's GST Account having GSTN :
33ASMPS4462L1Z6. That apart, the learned counsel for respondent further
submits that the statement has also been obtained from one Joseph Selvaraj,
who is the partner of M/s Coral Steel having business in Chennai, wherein, he
has admitted that he prepared fake GSTN Bills and Invoices to facilitate the
writ petitioner to avail input tax credit wrongly based on fictitious entries
which was used by the petitioner to discharge the GST liability under the
provisions of the CGST Act, 2017.
11. The learned counsel for the respondent submits that the department
has unearth fraud of approximately Rs.11.80 Crores fraud committed by the
petitioner on the strength of fictitious invoices to discharge the tax liability
and the amount which is lying in the GSTN account for a sum of Rs.
88,17,754/- is a mere 7% of the estimated tax liability, which is pegged at
Rs.11.80 Crores.
12. The learned counsel for respondent further submits that pursuant to
the letter dated 01.09.2021 of the proprietor of the petitioner, a notice was
also issued to the petitioner's aforesaid customer, namely, Nobal Tech
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Industries Pvt. Ltd., on 2.09.2021, asking the said Nobal Tech Industries Pvt.
Ltd., to remit the amount directly to the aforesaid GSTN account of the
petitioner. He further submits that a proper notice in GST DRC - 13 was
issued to the said Nobal Tech Industries Pvt. Ltd., under Section 79 (1) (c)
read with Rule 145 (1) of GST Rules, 2017. It is further submitted that on the
date when the aforesaid letter was given by the proprietor of the petitioner
reportedly an amount of Rs.75 lakhs was lying in the account of the
petitioner's bank account which has been separately attached. The learned
counsel for the respondent submits that there are 7 more vendors apart from
the aforesaid Nobal Tech Industries Pvt. Ltd. and approximately, a sum of
Rs.2 Crores is due from these 7 vendors and that the proprietor of the
petitioner in his statement dated 01.09.2021 had requested the Department to
take appropriate action as deemed fit to recover the GST liability in respect of
the petitioner and the petitioner's Sister Concern, namely, M/s.Noordeen
Enterprises.
13. The learned counsel for the respondent further submits that the
investigation will take some more time and therefore, there should not be any
concession given to the petitioner as the petitioner has admittedly indulged in
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large scale fraudulent availing of credit on the strength of fake and fictitious
invoices. The learned counsel for the respondent has relied on the following
decisions:
i. S.S.Industrie Vs. Union of India
MANU/GJ/1609/2020
ii. Radha Krishnan Industries Vs. State of Himachal
Pradesh and Ors. MANU/SC/0293/2021
iii. Sri Marg Human Resources Pvt. Ltd. Vs. The
Principal Additional Director General and Ors.
Order in W.P. No.11284 of 2021 dated 26.05.2021.
iv. The Principal Additional Director General and
Anr. Vs. Sri Marg Human Resources Pvt. Ltd.
v. P.V. Ramana Reddy and Ors. Vs. Union of India
MANU/TL/OO64/2019”
14. The learned counsel for the respondent submits that since under
Section 79 of the of the CGST Act, 2017 there is a special dispensation for
the Department to initiate such recovery proceedings even before there is a
proper determination of tax liability, the writ petition filed for the relief is
devoid of merits.
15. By way of rejoinder, the learned counsel for the petitioner submits
that power under Section 79 of CGST Act has to be exercised only after there
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is a proper determination of tax liabilities under Chapter XV of the CGST
Act. If the Department wants to resort provisional attachment, the only
method prescribed is under Section 83 of the aforesaid Act.
16. The learned counsel for the respondent submits that the writ
petitioner has admitted that the petitioner's brother is only a name sake
person and the entire business is carried out by the petitioner.
17. The learned counsel for the petitioner submits that as far as the writ
petitioner is concerned atbest the total liability that the writ petitioner can be
subjected to based on the projections of the respondent is about Rs.5.6 Crores
and that a sum of Rs. 5.6 Crores in the name of the writ petitioner's Sister
concern, namely, M/s.Noordeen Enterprises.
18. Heard the learned counsel for the petitioner and the learned counsel
for the respondent. I have considered the arguments advanced by the learned
counsel for the petitioner and the learned counsel for the respondent and
perused the documents and the judgments referred to on behalf of the
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petitioner and the respondent and the provisions of the CGST Act, 2017 and
CGST Rules, 2017.
19. As per Section 49(7) of the Act, all liabilities of a taxable person
under this Act shall be recorded and maintained in an electronic liability
register in such manner as may be prescribed.
20. Chapter IX of CGST Rules 2017 deals with payment of tax. As per
Rule 85(1) of the CGST Rules, 2017 a person liable to pay tax, interest,
penalty, late fee or any other amount on the common portal and all amounts
payable by him shall debit from the electronic Liability Register specified
under subsection (7) of section 49 maintained in FORM GST PMT-01.
21. As per Rule 85 (2), the electronic liability register of the person can
be debited by-
“ (a) the amount payable towards tax, interest, late fee
or any other amount payable as per the return
furnished by the said person;
(b) the amount of tax, interest, penalty or any other
amount payable as determined by a proper officer
in pursuance of any proceedings under the Act or as
ascertained by the said person;
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W.P..No. 20067 of 2021
(c) the amount of tax and interest payable as a result of
mismatch under section 42 or section 43 or section
50; or (d) any amount of interest that may accrue
from time to time.”
22. The petitioner here indeed asking for refund of the amount which
has been credited into the petitioner's GSTN account. Whether the amounts
was directed to be paid by the petitioner's aforesaid customer namely Nobal
Tech was under coercion or it was a voluntarily paid at the behest of the
petitioner is a disputed question of fact which cannot be decided in a
summary proceedings under Article 226 of the Constitution of India. For
claiming refund of any amount lying in excess the petitioner has to work out
the remedy under Section 54 of the CGST Act, 2017. Section 54 of the
CGST Act, 2017 reads as under:
Section 54. Refunds;
"Any Person claiming refund of any tax and
interest, if any, paid on such tax or any other amount
paid by him, may make an application before the
expiry of two years from the relevant date in such
form and manner as may be prescribed:
Provided that a registered person, claiming
refund of any balance in the electronic cash ledger
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in accordance with the provisions of sub-Section (6)
of Section 49, may claim such refund in the return
furnished under Section 39 in such manner as may
be prescribed."
23. To implement the aforesaid scheme, under Chapter X has been
framed under CGST Rules, 2017. The Hon'ble Supreme Court in the case of
Radhakrishnan Industries Vs. State of Himachal Pradesh and Ors., (2021)
6 SCC 771 while dealing with the provisions of the Himachal Pradesh Goods
and Service Tax Act, 2017 and Rule 159 dealing with provisional attachment
of property of the Himachal Pradesh Rules, 2017 framed and certain
guidelines and observed as under:
“(i) The Joint Commissioner while ordering a
provisional attachment Under Section 83 was acting
as a delegate of the Commissioner in pursuance of the
delegation effected under Section 5 (3) and an appeal
against the order of provisional attachment was not
available under Section 107 (1);
(ii) The writ petition before the High Court
under Article 226 of the Constitution challenging the
order of provisional attachment was maintainable;
(iii) The High Court has erred in dismissing the
writ petition on the ground that it was not
maintainable;
(iv) The power to order a provisional
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attachment of the property of the taxable person
including a bank account is draconian in nature and
the conditions which are prescribed by the statute for
a valid exercise of the power must be strictly
fulfilled;
(v) The exercise of the power for ordering a
provisional attachment must be preceded by the
formation of an opinion by the Commissioner that it
is necessary so to do for the purpose of protecting
the interest of the Government Revenue. Before
ordering a provisional attachment the Commissioner
must from an opinion on the basis of tangible
material that the assessee is likely to defeat the
demand, if any, and that therefore, it is necessary so
to do for the purpose of protecting the interest of the
Government Revenue.
(vi) The expression "necessary so to do for
protecting the Government revenue" implicates that
the interests of the Government Revenue cannot be
protected without ordering a provisional attachment;
(vii) The formation of an opinion by the
Commissioner under Section 83 (1) must be based on
tangible material bearing on the necessity of ordering
a provisional attachment for the purpose of protecting
the interest of the Government Revenue;
(viii) In the facts of the present case, there was
a clear non-application of mind by the Joint
Commissioner to the provisions of Section 23,
rendering the provisional attachment illegal;
(a) An entitlement to submit objections on the
ground that the property was or is not liable to
attachment; and
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W.P..No. 20067 of 2021
(b) An opportunity of being heard;
(ix) There has been a breach of the mandatory
requirement of Rule 159 (5) and the Commissioner
was clearly misconceived in law in coming into
conclusion that he had a discretion on whether or not
to grant an opportunity of being heard;
(x) The Commissioner is duty bound to deal
with the objections to the attachment by passing a
reasoned order which must be communicated to the
taxable person whose property is attached;
(xi) A final order having been passed under
Section 74 (9), the proceedings under Section 74 are
no longer pending as a result of which the provisional
attachment must come to an end; and
(xii) The appellant having filed an appeal
against the order Under Section 74 (9), the
provisions of Sub-Section 6 and 7 of Section 107 will
come into operation in regard to the payment of the
tax and stay on the recovery of the balance as
stipulated in those provisions, pending the disposal of
the appeal.”
24. As per Rule 86(1) Electronic Credit Ledger shall be maintained in
FORM GST PMT-02 for each registered person eligible for input tax credit
under the Acton the common portal and every claim of input tax credit under
the Act shall be credited to the said ledger. As per Rule 86 (2) The electronic
credit ledger shall be debited to the extent of discharge of any liability in
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accordance with the provisions of Section 49. (3) Where a registered person
has claimed refund of any unutilized amount from the electronic credit ledger
in accordance with the provisions of section 54, the amount to the extent of
the claim shall be debited in the said ledger. (4) If the refund so filed is
rejected, either fully or partly, the amount debited under sub-rule (3), to the
extent of rejection, shall be re-credited to the electronic credit ledger by the
proper officer by an order made in FORM GST PMT-03.
25. The Hon’ble Supreme Court in State Of Uttar Pradesh Vs.
Singhara Singh And Others, 1963 AIR 358 : 1964 SCR (4) 485, has held a
when law mandates a particular thing to be done in a particular manner, then
it has to be done in the aforesaid manner. Therefore, the amount which has
been deposited into the Electronic Liability Register of the petitioner by the
petitioner’s customer / client cannot be ordered to be refunded directly. The
deposit into the electronic cash ledger of the petitioner can be made not only
by the petitioner, but also by any other person on behalf of the petitioner. This
is evident from a reading of Section 49 of the CGST Act, 2017 read with Rule
86 of the CGST Rules, 2017.
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W.P..No. 20067 of 2021
26. As mentioned above, as far as refund of any amount lying
unutilised in the Electronic Liability Register is concerned, such refund is
governed by Section 54 of the CGST Act, 2017 read with provisions of
Chapter X of the CGST Rules, 2017. This is not a case where the amount has
been attached in terms of Section 83 of the CGST Act, 2017 read with Rule
159 in Chapter XVIII of the CGST Rules, 2017.
27. If the payment was coerced to be paid into the Electronic Liability
Register of the petitioner by obtaining a letter from the petitioner, it may be
ingenious way of creating liquidity crunch to ensure such amount is not
frittered away. As mentioned above, whether the payment was under
compulsion or otherwise, cannot be decided in this summary proceeding. It is
for the petitioner to work out the remedy under law for refund of the amount
under Section 54 of the CGST Act, 2017 read with provisions of Chapter X of
the CGST Rules, 2017.
28. Even otherwise, considering the fact that there are serious
allegations against the petitioner of having an availed fraudulent input tax
credit in the Electronic Credit Ledger on the strength of bogus and fictious
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input tax invoice for discharging GST liability, with no supply, no refund can
be ordered straight away in this proceedings.
29. At the same time, the invocation of Section 79(1)(c) at the moment
is pre-mature. Recovery under Section 79 of the Act has to be in accordance
with Chapter XVIII of CGST Rules, 2017. Recovery under Section 79(1)(c)
of the Act has to be in consonance with Rule 145 of the CGST Rules, 2017.
For an easy refer, both the provisions are re-produced below:-
Section 79(1)(c) of the Act Rule 145 of the Rules
79. (1) Where any amount payable 145. Recovery from a third
by a person to the Government under person.- (1) The proper officer
any of the provisions of this Act or may serve upon a person
the rules made thereunder is not referred to in clause (c) of sub-
paid, the proper officer shall proceed section (1) of section 79
to recover the amount by one or (hereafter referred to in this rule
more of the following modes, as -the third person?), a notice in
namely:–– FORM GST DRC-13 directing
(a) .......... him to deposit the amount
specified in the notice.
(b) .........
(2) Where the third person makes
(c) (i) the proper officer may, by a the payment of the amount
notice in writing, require any other specified in the notice issued
person from whom money is due or under sub-rule (1), the proper
may become due to such person or officer shall issue a certificate in
who holds or may subsequently hold FORM GST DRC14 to the third
money for or on account of such person clearly indicating the
person, to pay to the Government details of the liability so
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Section 79(1)(c) of the Act Rule 145 of the Rules
either forthwith upon the money discharged.
becoming due or being held, or
within the time specified in the notice
not being before the money becomes
due or is held, so much of the money
as is sufficient to pay the amount due
from such person or the whole of the
money when it is equal to or less
than that amount;
(ii) every person to whom the notice
is issued under sub-clause (i) shall
be bound to comply with such notice,
and in particular, where any such
notice is issued to a post office,
banking company or an insurer, it
shall not be necessary to produce
any pass book, deposit receipt,
policy or any other document for the
purpose of any entry, endorsement
or the like being made before
payment is made, notwithstanding
any rule, practice or requirement to
the contrary;
(iii) in case the person to whom a
notice under sub-clause (i) has been
issued, fails to make the payment in
pursuance thereof to the
Government, he shall be deemed to
be a defaulter in respect of the
amount specified in the notice and
all the consequences of this Act or
the rules made thereunder shall
follow;
(iv) the officer issuing a notice under
sub-clause (i) may, at any time,
amend or revoke such notice or
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Section 79(1)(c) of the Act Rule 145 of the Rules
extend the time for making any
payment in pursuance of the notice;
(v) any person making any payment
in compliance with a notice issued
under sub-clause (i) shall be deemed
to have made the payment under the
authority of the person in default and
such payment being credited to the
Government shall be deemed to
constitute a good and sufficient
discharge of the liability of such
person to the person in default to the
extent of the amount specified in the
receipt;
(vi) any person discharging any
liability to the person in default after
service on him of the notice issued
under sub-clause (i) shall be
personally liable to the Government
to the extent of the liability
discharged or to the extent of the
liability of the person in default for
tax, interest and penalty, whichever
is less;
(vii) where a person on whom a
notice is served under sub-clause (i)
proves to the satisfaction of the
officer issuing the notice that the
money demanded or any part thereof
was not due to the person in default
or that he did not hold any money for
or on account of the person in
default, at the time the notice was
served on him, nor is the money
demanded or any part thereof, likely
to become due to the said person or
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Section 79(1)(c) of the Act Rule 145 of the Rules
be held for or on account of such
person, nothing contained in this
section shall be deemed to require
the person on whom the notice has
been served to pay to the
Government any such money or part
thereof;
30. The figures given in the counter affidavit regarding the alleged
evasion of tax liability on the strength of bogus invoice is mind-boggling and
shows inherent weakness in the system and how the system is capable of
being manipulated and systematically abused by unscrupulous person. The
respondent has to strengthen Rules and plug the loop holes so that, such
evasion and leakage of tax do not take place in future. The case laws cited by
the learned counsel for the petitioner are irrelevant.
31. Even if the respondent has forced the petitioner's client to pay the
tax directly into the petitioner's Electronic Liability Register, the amount has
not been appropriated or debited towards tax, interest, penalty, late fee or any
other amount. The amount is to be debited at a future date towards tax
liability of the petitioner. Even, if the petitioner's client was asked to pay the
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amount into the aforesaid Electronic Liability Register, the amount has not
been debited towards any tax liability or penalty under the Act. If the amount
has to be refunded, it has to be refunded in accordance with provisions of the
Act.
32. Considering the fact that the respondent is investigating, the case,
which commenced during the month of August-September, 2021, respondent
is directed to complete investigation within a period within a period of 3
months from today and issue appropriate Show Cause Notice under Section
73 or 74 of CGST Act, 2017.
33. The amount lying in the Electronic Liability Register of the
petitioner can be refunded only the manner in the law. It cannot be ordered to
be refunded. It can however be utilised by the petitioner for discharging tax
liability against future supplies to be made/effected by the petitioner provided
of course prior to such supply, the tax to be paid by the petitioner is
adjudicated and determined and appropriated in the proposed proceedings
under Section 73/74 of the CGST Act, 2017, in which case, Section 79 of the
CGST Act, 2017 can be pressed into service.
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34. Though, it is quite possible for the petitioner to establish that the
letter was obtained from the petitioner under coercion to ensure that the
petitioner's client to pay the amount into the aforesaid Electronic Liability
Register, it is to be decided elsewhere and not here. As the amount has not
been debited and since it has not been appropriated so far, there is no scope
for granting any relief to the petitioner in this writ petition. I therefore do not
find any merits in the present Writ Petition. Therefore, the present Writ
Petition is liable to be dismissed. I however, give liberty to the petitioner to
work out an appropriate remedy under Section 54 of the CGST Act read with
Chapter X of the CGST Rules.
35. In fine, the respondent is directed to issue proper Show Cause
Notice to the petitioner preferably within a period of three months from the
date of receipt of a copy of this order considering the fact that the present
Writ Petition was filed during September, 2021.
36. The petitioner shall thereafter reply to the Show Cause Notice
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within a period of three months days from the date receipt of the Show Cause
Notice. This is without prejudice to the rights of the petitioner to seek for
refund in accordance with law.
37. Refund of amount will be subject to the final outcome of the
show cause proceedings and in accordance with Section 54 of the CGST Act
read with Chapter X of the CGST Rules.
38. This Writ Petition stands dismissed with the above observations.
No cost. Consequently, connected Miscellaneous Petition is closed.
4.03.2022
Index : Yes/No
Internet : Yes/No
kkd / jen
To
The Additional Director General
Directorate of GST Intelligence,
Tower-II, BSNL Building,
Greams Road, Chennai 600 006.
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C.SARAVANAN,J.
kkd
Pre-delivery Order in
W.P.No.20067 of 2021
and WMP.No.21321 of 2021
4.03.2022
https://www.mhc.tn.gov.in/judis
