The Dark Side of GST: How Businesses Fight Back Against Coercive Tax Practices in India

Author

Alankar Narula

Date

June 8, 2024

Share Now

The introduction of the Goods and Services Tax (GST) in India was heralded as a game-changer, a beacon of simplification in a labyrinthine tax system. Yet, beneath this veneer of progress lies a murky underworld where tax officers wield their powers with little regard for due process. This case study delves into the darker aspects of GST enforcement, focusing on the coercive practices employed by some officers to reverse Input Tax Credit (ITC) and the legal battles businesses have fought to reclaim their rights.

Power and Abuse Under the GST Act

The Central Goods and Services Tax (CGST) Act, 2017, is designed to create a fair and transparent tax regime. However, sections of this Act have been exploited, transforming tools of compliance into weapons of coercion. Key sections of the CGST Act relevant to our exploration include:

Section 67
While intended to facilitate the detection of tax evasion, this section has often been misused to justify arbitrary searches and seizures. The requirement for credible material is frequently overlooked, allowing tax officers to conduct raids based on flimsy evidence.
Section 16
This section outlines the prerequisites for claiming ITC. Businesses, already struggling to maintain compliance, find themselves ensnared in bureaucratic red tape as tax officers leverage minor discrepancies to revoke ITC claims.
Section 74
Designed to address cases of fraud or willful misstatement, this section has become a tool for aggressive tax recovery, often bypassing the due process and resorting to intimidation tactics.

Case Studies: Battles in the Trenches

In a dramatic showdown, Bhumi Associate was thrust into a nightmare when tax officers stormed their premises, demanding an immediate deposit of Rs.1,80,10,000. The officers claimed the deposit was voluntary, but the circumstances told a different story. The search, which lasted from 3:30 PM to 9:30 AM the next day, left the company reeling. Deposits were made in the dead of night, raising questions about voluntariness. The court ultimately ruled in favor of Bhumi Associate, ordering the refund of the amount with interest, highlighting the coercive environment in which the deposit was made

Bhumi Associate v. Union of India

Vallabh Textiles found itself at the mercy of tax officers who coerced them into making payments during an investigation. The company argued that these payments were made under duress, a claim the court upheld. The ruling emphasized that tax payments must be voluntary and follow the prescribed legal framework, setting a precedent against the misuse of power by tax authorities.

Vallabh Textiles v. Senior Intelligence Officer

In another striking case, Modern Insecticides Ltd. faced the arbitrary retention of ITC despite the absence of a show cause notice within the stipulated period. The Punjab and Haryana High Court ordered the refund of the ITC with interest, underscoring the importance of procedural compliance and timely action by tax authorities. This case highlighted the judiciary’s role in curbing the excesses of tax enforcement officers.

Modern Insecticides Ltd. v. Commissioner, Central Goods and Services Tax

The GST regime, while revolutionary in its intent, has unveiled a darker side of tax enforcement in India. Businesses continue to grapple with the misuse of power by tax officers, who exploit legal provisions to enforce arbitrary tax recoveries. However, the judiciary’s proactive stance offers a silver lining, ensuring that businesses have a recourse against such coercion. Understanding the legal landscape and staying vigilant against the misuse of power is crucial for businesses in India. By highlighting these cases and the relevant sections of the GST Act, this study aims to empower businesses with the knowledge to navigate the complex GST environment and stand firm against coercive practices. In the face of adversity, legal recourse remains a powerful tool for businesses to reclaim their rights and ensure a fair playing field.

If your business is navigating the complexities of GST enforcement and needs expert guidance, you should seek expert guidance and seek justice before the concerned Hon’ble High Court.