Under the Goods and Services Tax (GST) Act in India, the tax authorities have the power to conduct searches, inspections, and investigations to detect tax evasion and non-compliance by taxpayers. During such actions, if any unpaid tax liability is discovered, the authorities have the power to recover the same. However, there have been instances where the tax authorities have forced taxpayers to make payments during such actions under the guise of "voluntary payment".
This practice has been criticized by some tax experts as it is seen as an abuse of power and contrary to the principles of natural justice. It is argued that a payment made under duress during a search or investigation cannot be considered voluntary and should not be treated as such. The taxpayer may feel compelled to make the payment to avoid further harassment or penalty, even if they believe that they do not owe any tax liability.
In order to address this issue, the GST Council has introduced several provisions to protect the interests of taxpayers. These include:
Issue of show cause notice: The tax authorities are required to issue a show cause notice to the taxpayer before taking any action for recovery of unpaid tax liability. This gives the taxpayer an opportunity to explain their position and dispute any tax demand.
Provisional attachment of property: The tax authorities are required to obtain the permission of a higher authority before attaching any property of the taxpayer during a search, inspection, or investigation.
Opportunity for hearing: The taxpayer has the right to a hearing before the tax authorities take any final action for recovery of unpaid tax liability.
Refund of wrongly recovered tax: If it is found that the tax authorities have recovered tax from the taxpayer wrongly, the taxpayer has the right to claim a refund of the same.
In conclusion, while the tax authorities have the power to recover unpaid tax liability during a search, inspection, or investigation, they must follow the due process of law and respect the rights of the taxpayer. The taxpayer has the right to dispute any tax demand and to a fair and transparent hearing before any final action is taken. The provisions introduced by the GST Council are intended to ensure that the interests of taxpayers are protected and that any recovery of unpaid tax is done in a just and fair manner.
There have been several recent developments in India regarding the issue of forceful recovery during search, inspection, and investigation under the guise of "voluntary payment" under the Goods and Services Tax (GST) Act. Some of these are:
Introduction of Section 83A: In November 2021, the GST Council introduced Section 83A in the GST Act to curb the practice of forceful recovery during search, inspection, and investigation. This section prohibits the tax authorities from coercing a taxpayer to pay any amount or penalty under the guise of "voluntary payment". It also provides for penalties and imprisonment for any contravention of this section.
Issuance of Circulars: The Central Board of Indirect Taxes and Customs (CBIC) has issued several circulars to clarify the provisions relating to search, inspection, and investigation under the GST Act. These circulars provide guidance to taxpayers on their rights and obligations during such actions and emphasize the need for transparency and fairness in the recovery process.
Court Judgments: Several courts in India have ruled in favor of taxpayers in cases where forceful recovery has been alleged. For example, in a recent judgment, the Karnataka High Court held that the tax authorities cannot recover any amount under the guise of "voluntary payment" during a search and seizure operation without following the due process of law.
Increased awareness: The issue of forceful recovery has gained increased public attention in India, with many taxpayers and tax experts raising their concerns. This has led to greater awareness and scrutiny of the actions of the tax authorities during search, inspection, and investigation.
In conclusion, the issue of forceful recovery during search, inspection, and investigation under the GST Act is being addressed through various measures such as the introduction of Section 83A, issuance of circulars, court judgments, and increased awareness. These developments are expected to ensure that the interests of taxpayers are protected and that any recovery of unpaid tax is done in a fair and transparent manner.
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