Refund money to Swiggy even if investigations are ongoing: Karnataka HC tells indirect tax department

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Mumbai: The Karnataka High Court on Friday ordered the tax department to refund money it had collected from Swiggy, even if an investigation was ongoing against the company, as the processes of refund and investigation are independent and cannot be linked.
Tax experts said this would also mean if a taxpayer has deposited money with the tax department, it cannot be used against the taxpayer as an admission of guilt.

Bundl Technology, an operating ecommerce platform of Swiggy, had approached the court to seek a refund of Rs 27.51 crore from the indirect tax department.

The Directorate General of Goods and Service Tax (Intelligence), the investigation arm of the indirect tax department, is investigating Swiggy for alleged input tax credit fraud.
The court directed the revenue department to refund the money which was “collected from the assessee (Swiggy) by coercion during the investigation”.

An investigation is ongoing into whether the company wrongfully availed of input tax credit without any actual receipt of services.

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Under the GST framework, input tax credit is essentially taxes paid on raw materials (or input services). This can be used to offset future GST liability.
Tax experts said the ruling is set to impact similar tax disputes involving other companies as well.

“During GST investigations, it is common for companies to deposit tax on the behest of authorities without being clear on their tax liability. This high court ruling would definitely provide respite to a lot of companies, where their money was blocked on account of such hasty deposits, as they can now contemplate filing for refunds,” said Harpreet Singh, partner, KPMG India.

The high court also came down heavily on the manner in which the investigation was carried out by the tax department sleuths.

The court said the manner in which Swiggy was asked to deposit the money “demonstrates a nexus between investigation and contemporaneous payment”.

Investigation that is carried out “in late hours of the night and early hours of the morning with physical gates closed reasonably create an apprehension in the mind of any person”, and “the fear of police powers” is such that it will shake a man irrespective of his position in the society, the order said.

As per the details of the case, DGGI had conducted raids in the Bengaluru premises of Swiggy in November 2019.

The food ordering and delivery company was asked to deposit the amount following the raid.

When Swiggy approached the tax department for refund of the money, it was refused, saying that it cannot be refunded as the investigation was ongoing.

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

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