Order Date – 19 April 2023

Parties: Modern Insecticides Ltd. and another Vs Commissioner, Central Goods and Service Tax and another

Facts – 

• The Appellant, Modern Insecticides Ltd. and another, is manufacturer of pesticides for the last more than 30 years and is purchasing inputs to manufacture finished goods. The petitioner is selling its product in domestic market as well as exporting out of country.
• On an investigation by the Revenue in the petitioner’s premises, the respondents, without counting stock lying in underground tanks, work in progress created artificial shortage of goods involving GST at Rs.34,04,855/-. The same was deposited by the petitioner under pressure from Electronic Credit Ledger and Cash Credit Ledger.
• They detained Director and Chartered Accountant of the petitioner, they were released on the condition of deposit of Rs.2.15 crores, which were deposited through reversal of Input Tax Credit (for short ITC) from electronic credit ledger and surrender of refund already applied. The respondents did not supply copy of Panchnama, copy of resumed record and electronic gadgets, which are necessary to file returns and comply with the requirement of banks. Being aggrieved the present petition has filed.

Issue – 

• Whether the amount paid by the petitioner could be retained by the department without issuing the show cause notice under Section 74 (1) of the CGST Act that too after expiry of two years?

Order – 

• The Divisional Bench of Hon’ble High Court observed that from the date when the search was conducted and amount was deposited, no summons under Section 74 (1) of the CGST Act have been issued till date. Though the respondents can initiate proceedings under Section 74 (1) of the Act by issuing notice within the period of limitation, they cannot retain the amount of Rs.1.54 crore deposited by the petitioner, which as per respondent-department was voluntary.
• The amount was deposited during search and as per judgment passed in Vallabh Textiles’ case, this deposit cannot be taken to be voluntary. Since no proceedings under Section 74 (1) of the CGST Act have been initiated till date, as per Rule 142 (1A) of CGST Rules, 2017, the department cannot even issue Form GST DRC-01A to ask the petitioner to make payment of tax, interest and penalty due.
• The very fact that in two years’ time, no notice has been issued, the deposit of tax during search cannot be retained by the department till the adjudication of notice, which can take more time in future. 
• Hence the respondents are directed to return the amount of Rs.2.54 crores to the petitioner(s) along with simple interest at the rate of 6% per annum from the date of deposit till the payment is made.