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GST deposit during search, inspection or investigation

Updated on :  

08 min read.

The GST Investigation Wing has provided instruction No. 01/2022-23[GST-INV] dated 25th May 2022 on the tax deposit during search, inspection or investigation. This has been issued in light of complaints and allegations of coercion by GST officers during the search to recover taxes.

Taxpayers who are subject to search, inspection or investigation proceedings due to defaults or incorrect tax payments can voluntarily deposit a portion of their liability. But there have been cases where such taxpayers have complained about the use of force or coercion by the GST officers. This was aimed at the taxpayers to ‘recover’ taxes by asking them to pay these dues voluntarily. Taxpayers have approached the high courts regarding this issue. 

Option for voluntary deposit of tax in Form DRC-03

Under the CGST Act, taxpayers are given the option to pay taxes by furnishing form DRC-03 voluntarily. This allows taxpayers to pay taxes by voluntarily raising their liability or responding to any show-cause notice. The use of DRC-03 helps the taxpayers discharge their liabilities and mitigate the burden of interest due to late payment of taxes or higher penalties imposed. 

The law does not prevent any taxpayer from making voluntary payment of taxes. Since this option involves taxpayers making payments voluntarily, this option can only be initiated by the taxpayer themselves by logging into the GST portal with their login ID and password. This implies that taxpayers cannot be forced to make payments through this mechanism during search inquiries. However, officers should inform taxpayers about making voluntary payments through DRC-03.

How can the GST department recover taxes from taxpayers?

The GST Investigation Wing has stressed the process to be followed to recover taxes in its instruction. Recovery of taxes can be made as per Section 79 only after:

  • Determination of tax by the proper officer.
  • Issuance of show-cause notice to the taxpayer.
  • Confirmation of demand by the issuance of the order.
  • Elapse of 3 months from the order date in case the dues remain unpaid.

The GST department can start recovery proceedings only after following the above procedures as per the Act. One cannot recover taxes from the taxpayer in any case where the relevant provisions are not followed. Hence, the question of recovery of taxes cannot arise outside the above procedures in any other situation, including during search and investigation processes by officers.

Remedy provided to taxpayers from whom taxes were recovered forcefully

The instruction also specifies remedies for taxpayers who have faced such coercion from GST officers to recover taxes during search and investigation. Any complaints received from taxpayers regarding such use of coercion to recover taxes will be subject to enquiries at the earliest. Any misconduct by the officers will attract strict disciplinary action by the department against them.

This instruction from the GST department enforces the fact that the department can make the recovery of taxes only after following the procedures of the Act and not by any other means. Form DRC-03 is a voluntary option available to taxpayers and cannot be used as a tool for the recovery of taxes.

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