Amount recovered during the investigation is to be treated as amount paid under protest which is liable to refund in case where there are no proceedings initiated.

Case Title: Aditya Energy Holdings v. Directorate General of GST Intelligence, Chennai

Court: High Court of Madras

Petition No.: W.P. No. 9654 of 2021, WMP No. 10223 of 2021

Category of Dispute: Refund of Deposits / Input Tax Credit

Date of Judgment: 10 December 2021

Relevant Sections: Section 73 and 74 of the CGST Act, 2017

Facts of the Case

[Para 1–2, 5]

• The petitioner, Aditya Energy Holdings, sought a writ of mandamus for the refund of ₹17,27,790 and ₹12,60,472 paid during a visit by GST intelligence officers investigating alleged wrongful availment of Input Tax Credit.
• The petitioner claimed the payments were made under coercion during the search and seizure operation conducted in March 2021.
• A representation was also sent by the petitioner on 01.04.2021 regarding the matter.

Questions in Consideration

[Para 1, 2, 6]

• Whether the payments made by the petitioner during investigation are refundable as they were allegedly made under coercion?
• Whether such payments are to be treated as voluntary tax payments or mere deposits pending adjudication under Section 73/74 of the CGST Act?

Observation of Court

[Para 5–7]

• The Court noted that the amounts paid by the petitioner during investigation were only “deposits” and not final payments, pending adjudication under Sections 73 or 74 of the CGST Act.
• It was observed that the seizure and summoning took place on the same date, suggesting that the investigation was ongoing.
• The Court instructed the respondent to treat the payments as made “under protest”.
• The respondent must issue a show cause notice within six months, enclosing all Relied Upon Documents and reasons for demand/appropriation of said amounts.
• Respondents were also directed to return copies and original documents that are not required for investigation.

Judgment of the Court

[Para 6–8]

• The Writ Petition was disposed of with a direction that the amounts paid shall be treated as under protest.
• The investigation must be completed and a show cause notice issued within six months, and final adjudication must occur within twelve months.
• If no demand is established in the show cause proceedings, the amount collected must be refunded.
• The petitioner is obligated to cooperate and file a reply within 30 days of the show cause notice.

Between Fine Lines

• The court emphasized that payments made during an investigation without formal adjudication do not amount to tax payments.
• Such payments are treated as deposits and subject to refund if no liability is determined under Section 73/74.
• Authorities must ensure due process with issuance of proper show cause notices.
• Taxpayers must be given an opportunity to contest the demand before appropriation of deposited amounts.
• Procedural compliance and documentation transparency (Relied Upon Documents) are vital for legal sustainability.

Summary of Referred Cases

Takeaway:

“Not Every Rupee Paid is Tax – Deposits Without Adjudication Are Not Final.”