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Coercion Claims in Tax Proceedings: Bombay HC differentiates between Coercive Tax Deposit & Strategic Compliance

Introduction

The recent judgment by the Hon’ble Bombay High Court (‘BHC’) in the case of Innovators Façade Systems Ltd. v. Assistant Additional Director General of GST Investigation, Zonal Unit, Mumbai & Ors.[i], sheds light on the intricate balance between voluntary tax deposits and allegations of coercion by tax authorities. In this case, the BHC navigated through the complexities of tax jurisprudence, addressing the fundamental question of whether a taxpayer’s deposit can be considered coerced under certain circumstances. Delving into the heart of the matter, the BHC examined the factual matrix and legal principles to arrive at a definitive conclusion.

Brief facts

  • The Petitioner, a registered company, was subjected to a search and seizure operation by tax authorities on 12.10.2022. The operation commenced at 12:50 p.m. and extended until 3:30 a.m. the following day, during which time the Petitioner’s premises were scrutinized.

  • Alleging coercion, the Petitioner contended that at 3:30 a.m., it was compelled to deposit an amount of Rs. 2,50,00,000/-, which was asserted to have been unlawfully recovered by the Respondents. The Petitioner maintained that this amount was extracted without legal authority, constituting an unauthorized retention of funds by the tax authorities. Accordingly, the Petitioner moved the BHC by way of a petition under a. 226 of the Constitution of India 1949 (‘Constitution’). 1 seeking a refund of the amount deposited along with interest.

  • However, the Respondents refuted the claims of the Petitioner, asserting that the deposit was voluntary and made in acknowledgement of outstanding tax liabilities. Supporting their stance, the Respondents drew attention to a letter dated 13.10.2022 issued by the Petitioner, voluntarily submitting the aforementioned amount, and expressing intent to settle the remaining tax dues within 10 days. The Respondents argued that this voluntary action by the Petitioner undermined allegations of coercion and demonstrated its awareness of outstanding tax liabilities of over Rs. 5 crores.

Held

  • The BHC rejected the petition as being thoroughly misconceived while scrutinizing the Petitioner’s status as a legal entity incapable of physical coercion in the absence of the names of specific representatives who were coerced. The BHC further found inconsistencies in the Petitioner’s own actions, including the letter agreeing to make the voluntary deposit and acknowledging its outstanding tax liabilities.

  • It noted the absence of formal complaints or representations by the Petitioner against alleged coercion, casting doubt on the veracity of the claim. Referring to legal precedents, the BHC rejected the applicability of similar cases where coercion was substantiated by concrete evidence. The possibility of voluntary deposits by taxpayers in order to mitigate circumstances or avoid legal proceedings was also noted.

  • The BHC concluded that determining coercion in the present case was a disputed question of fact, unsuitable for adjudication under a. 226 of the Constitution. It was held that refunding the deposited amount through a writ petition (‘WP’) would entail a detailed examination of evidence, akin to a civil suit, which was beyond the scope of summary proceedings under a. 226 of the Constitution.

Our Analysis

The judgment underscores the significance of factual evidence in allegations of coercion during tax proceedings. By upholding the principle of voluntary compliance and due process, the BHC reaffirms the sanctity of legal proceedings while maintaining a delicate balance between taxpayer rights and regulatory enforcement. This judgement serves as a guiding precedent for future cases involving claims of coercion in tax matters, emphasizing the need for concrete evidence to substantiate such allegations. This ruling further affirms that a. 226 of the Constitution proceedings cannot be considered a substitute for civil suits and should not involve extensive evidence appraisal. By providing clarity on the limitations of seeking tax refunds through WPs, the BHC reinforced the role of courts in upholding procedural integrity while respecting legal boundaries.



End Note

[i] 2024 SCC OnLine Bom 919



Authored by Jitin Bharadwaj, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.

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