Swiggy isn't the only company complaining about forced GST payment

Tax consultants allege many others face coercion from field officers

The Karnataka high court's recent observations in a case related to Bundl Technologies, which operates food delivery platform Swiggy, has brought to the fore industry's grievances about goods and services tax (GST) field officers using coercion to get companies to pay the tax.

The court had directed the revenue department to consider a refund of Rs 27.51 crore to the company, which had alleged that money was collected from it using coercion during an investigation by the directorate general of GST (intelligence), about alleged wrongful availment of input tax credit.

Swiggy's owners contended that the firm had deposited Rs 15 crore in first tranche, followed by Rs 12.51 crore in the second tranche in 2019, to secure the release of its directors who were summoned and locked up with threat of arrest. It also said that no show-cause notice was issued by the officers months after the probe was initiated.

The court discarded the revenue department's defence that payment by the assessee was a goodwill gesture and should be construed as tax in furtherance of self-ascertainment.

It said the department's contention that the investigation is pending itself indicates that the contention of self-ascertainment as made by it, was an “after-thought” and was put forward as a defence to the petitioner’s assertion that payment of amount has been made involuntarily.  

Tax consultants say Swiggy was not the only case in this regard.

Abhishek Rastogi, partner at Khaitan & Company, alleged that various cases have been reported about coercive recoveries made by the tax authorities without following the due process of law. In these cases, taxpayers have been asked to pay tax voluntarily under the DRC-03 challan, which is a digital intimation of payment made by the taxpayer voluntarily, or against a show-cause notice issued by the department.

Rastogi said in a few cases, the taxpayers have pragmatically and correctly mentioned that tax has been paid under protest in the footnotes.

In various instances, even summons have not been issued by the proper officer, said Rastogi, who is arguing for petitioners in various courts against such coercive measures. He said in some cases show-cause notices (SCNs) were also not issued.

“The GST legal framework clearly provides that any demand cannot be recovered unless a show-cause notice is issued and appropriate adjudication follows subsequent to issuance of such notice. It is imperative that a proper opportunity is provided to the taxpayer so that the legal submissions are on record,” Rastogi said.

Rajat Mohan, senior partner at AMRG & Associates, said there are over 50 cases lying in various courts where charges of coercion have been made against GST field officers.

He said in 99.9 per cent of search cases, taxes are paid under duress. "A tax officer comes to your office, searches the premises and records facts. You will never deposit the tax on the same day because you will say that you have found certain material. Let us adjudicate, you will say, but adjudication may take months or years. (But) If you have deposited tax on the same day, it would be under coercion," he pointed out.

He recalled a case related to Agarwal Foundries where charges were made against officers beating up the family of the taxpayer. The Telangana High Court in November 2020, ruled that GST officers shall not use any acts of violence or torture against directors, their families or their employees.

Harpreet Singh, Partner, Indirect taxes at KPMG in India, said, “Depositing money during investigation under pressure or otherwise is a common phenomenon, and at times it is done by companies without proper determination of liability. Recent favourable rulings by the High Court may help such firms get refunds, where they believe that tax has been wrongly deposited.”  

He said with increased investigations and search by GST authorities, it is imperative for industry to understand the statutory procedure that authorities need to follow during such raids, and also keep track of favourable rulings, so that they do not get unnecessarily hassled.

Tax consultants said that even in cases where the GST Council is yet to decide on the tax rate, coercive methods are being adopted to get tax payments. One such instance is online gaming.

“There are investigations happening for the online gaming businesses and for the valuation aspects there is little certainty till the group of ministers comes out with a pragmatic solution,” said Rastogi.

He said various online gaming companies are subjected to coercive recoveries made by the tax authorities without following due process of law. In such cases, these players have been asked to make voluntary payment.

Rastogi cited an instance of Punjab and Haryana High Court disposing off a petition by an online gaming company only after the Deputy Attorney General of Haryana, Shruti Jain Goyal, assured the court that no coercive step would be taken against the petitioner till such time the necessary clarification is issued by the empowered group of ministers.

eGoM is looking into the issue of valuation in the online gaming industry in order to ascertain the amount of GST payable. The empowered group, under the chairmanship of the Gujarat finance minister, is looking at it from the point of view of whether the online games are skilled ones or games of chance. Games of chance could attract tax at 28 per cent, while those of skill could be taxed at a lower rate. However, a view is emerging that all online games should be suffer a single GST tax rate.

There is then the issue of valuation on which GST is to be imposed. For instance  if there is a fee of Rs 200 and there are 10 participants in an online game, the money collected would be Rs 2,000. If the online gaming platform charges 10 per cent commission, it would collect Rs 200 and distribute Rs 1,800 as prize money. Now, the issue is whether the GST would be imposed on just Rs 200 or the entire Rs 2,000.

A few months back, industry bodies had represented to the finance ministry that businesses have faced a barrage of recovery notices and summons across sectors.

Industry bodies had claimed harassment by field officers, blocking of input tax credit, cancellation of GST registration, threats of arrest and steep penalties, impacting their working capital and operations. Company executives pointed to at an atmosphere of apprehension and fear due to such notices and summons.

An email query to the Central Board of Indirect Taxes and Customs (CBIC) elicited no response.