Karnataka High Court orders refund of ₹27 crore GST amount illegally collected from Swiggy

The Karnataka High Court recently directed the Revenue Department to refund Goods and Service Tax (GST) to the tune of ₹27.4 crore collected from Bundl Technologies Pvt. Ltd, the holding company of food delivery app Swiggy [Union of India and Ors. v. M/s Bundl Technologies Pvt. Ltd. and Ors]..The Division Bench of Justice Alok Aradhe and Justice MGS Kamal dismissed an appeal filed by the Central government against a decision of the single-judge directing them to consider refunding GST tax which had illegally been collected from Swiggy. While dismissing the appeal, the Court modified the order of the single-judge and specifically directed the government to refund the amount."Article 265 of the Constitution mandates that collection of tax has to be by the authority of law. If tax is collected without any authority of law, the same would amount to depriving a person of his property without any authority of law and would infringe his right under Article 300A of the Constitution of India as well. In the instant case, the only provision which permits deposit of an amount during pendency of an investigation is section 74(5) of CGST Act, which is not attracted in the fact situation of the case. Therefore, it is evident that amount has been collected from Company in violation of Article 265 and 300-A of the Constitution.Therefore, the contention of the Department that amount under deposit be made subject to the outcome of the pending investigation can not be accepted. The Department, therefore, is liable to refund the amount to the Company," the judgment said. .Background The respondent, Bundl Technologies, operates an e-commerce platform under the brand name of 'Swiggy', through which customers can place orders for delivery of foods from nearby restaurants. The deliveries are made by delivery partners - 'pick up and delivery partner' (PDP) who are directly engaged by Swiggy and temporary delivery executives (Temp DE) whose services are procured via third party service providers. Usually, deliveries are carried out by PDPs who account for 90% of the total deliveries. When there is a spike in orders during holidays, weekends, etc, the company engages the Temp DEs. .For PDPs, there is no goods and services tax (GST), as they are below the threshold limit for registration. However, the third party service provider charges 5.5-10% of the amount paid to Temp DEs as GST. .In 2017, Swiggy entered into an agreement with a third party service provider, 'Green Finch Team Management Pvt. Ltd.', (Green Finch) who would provide Temp DEs to Swiggy on a cost-plus mark-up basis, along with GST on the entire sale consideration. For the period under the investigation, 2017-20, Green Finch provided 10,31,464 Temp DEs to the Company, who made 2,91,75,667 food deliveries. For this, Green Finch raised tax invoices on Swiggy, charged applicable GST, and Swiggy availed input tax credit in terms of Section 16 (Eligibility and conditions for taking input tax credit) of the GST Act. .An investigation was launched by the Director General of Goods and Services Tax Intelligence, Hyderabad Zonal Unit (referred to as 'the DGGI') with regard to the services provided by Green Finch, on the grounds that Green Finch was a non existent entity, and therefore, the input tax credit availed by Swiggy and the GST paid to Green Finch were fraudulent. On November 28, 2019, the officers of the department entered the premises of Swiggy at 10:30 AM and conducted an investigation until November 30. DGGI Officers issued a spot summons to the Directors and employees, and their statements were recorded. A sum of ₹15 crores was deposited by Swiggy under the GST cash ledger. .Thereafter, the Directors of Swiggy received a summons to appear before the DGGI office. Harsha Majety, Bharat Arora, Director (Finance and Accounts), Mehul Shah, Senior Manager (Taxation) and G Prahalad, Advocate, appeared before the DGGI. It was submitted by the respondent that they were present till late hours, and a 8 PM they were locked in the office, while threats of arrest were made to them. They were not allowed to leave until early the next day. The officers of Swiggy had to deposit more money at about 1 AM in order to secure the release of the three Directors, and in total, a sum of ₹27,51,44,157 was illegally collected from them during the course of investigation under threat and coercion, without following the procedure prescribed under the CGST Act, it was alleged..Thereafter, Swiggy filed an application before the jurisdictional GST office, for which they got no response. They then filed a petition seeking seeking a writ of mandamus directing the Department to refund the amount of ₹27,51,44,157 along with interest at the rate of 12% from the date of deposit till its refund. They also assailed the validity of Section 16(2)(c) (Eligibility and conditions for taking input tax credit) of the CGST Act and the Karnataka Goods and Services Tax Act, 2017 as unconstitutional, on the ground that it is violative of Article 14 (equality before law) 19(1)(g) (freedom to practise any profession, or to carry on any occupation, trade or business) and 300A (Persons not to be deprived of property save by authority of law) of the Constitution..Single-judge Justice S Sunil Dutt Yadav held that payment of the amount made by the company during the course of investigation was involuntary. While the Court does not wish to place any fetter on the power of investigation of the Department, it was held that that the right to seek refund is independent of the process of investigation and the two cannot be linked together. The writ petition was disposed of with directions to consider the refund and pass suitable orders within a period of 4 weeks. The present appeal was filed against this order. .The Court answered the following issues as such:1. Whether the amount was voluntarily paid during the investigation by the company under section 74(5) (option to make payment of tax) of CGST Act?A Division bench of the Gujarat High Court in M/s Bhumi Associate v. Union of India had laid down guidelines to regulate the he powers of officers carrying out search and seizure and to safeguard the interest of the assessee.As the guidelines had not been followed, the Court held that the amount was not voluntarily paid. .2. Whether the amount was recovered from the company during investigation under the coercion and threat of arrest?The court noted that the amounts deposited by Swiggy were during odd hours, (4 AM and 1 AM), and that they had not admitted their liability. There was no material to indicate that the amount was due to the department, so the court held that the amount was paid by Swiggy involuntarily. 3. Whether the DGGI officers conducted in a high handled and arbitrary manner during the course of investigation?As this was a question of fact, the court kept this issue open, while noting that "a statutory power has to be exercised within a system of controls and has to be exercised by relevance and reason. It needs reiteration that a statutory power should not be exercised in a manner, so as to instill fear in the mind of a person.".The Court observed that the issue of whether Green Finch is a legitimate entity and whether Swiggy rightfully availed input tax credit need not to be considered by the High Court, as the investigation is pending. .The Court noted that Article 265 (obligation of the States and Union) of the Constitution mandates that collection of tax has to be by the authority of law. If tax is collected without any authority of law, it would amount to depriving a person of his property, without any authority of law and would infringe his right under Article 300A (persons not to be deprived of property save by authority of law) of the Constitution of India, the Court said..Since the only provision which permits deposit of an amount during pendency of an investigation is 74(5) of the CGST Act, which is not attracted in this case, the amount collected from Swiggy is in violation of the provisions of the Constitution, the Court held. It, therefore, while directing the Department to refund the amount to Swiggy and dismissed the appeal by the government..Additional Solicitor General MB Nargund with Advocate Amit Anand Deshpande represented the appellants, and Advocates Lakshmi Kumaran, Ravi Raghavan, Syed M Peeran and Siddharth Balve represented the respondents. .[Read Judgments]