Union of India vs. Bundl Technologies Pvt. Ltd. (2022) – Karnataka High Court

⚖️ Union of India vs. Bundl Technologies Pvt. Ltd. (2022) – Karnataka High Court

Refund of Amount Involuntarily Deposited During GST Investigation

📌 Background

The case of Union of India vs. Bundl Technologies Pvt. Ltd. [(2022) 136 Taxmann.com 112 (Karnataka High Court)] is a landmark ruling that deals with refund of amounts deposited during GST investigation under coercion or threat.

• The assessee, Bundl Technologies Pvt. Ltd., operated a popular food delivery e-commerce platform, enabling customers to place food orders from restaurants through delivery executives (DEs).
• Permanent DEs engaged directly by the assessee did not attract GST as they were below the threshold for registration. However, during festive seasons and peak demand, the assessee engaged temporary DEs through third-party service providers, who charged a mark-up along with applicable GST.
• GST authorities launched an investigation, alleging that one of the third-party service providers was a non-existent entity. On this basis, the input tax credit (ITC) availed by the assessee and GST paid were treated as fraudulent.

During the course of the investigation:

• On 30.11.2019 at 4:00 a.m., the assessee deposited ₹15 crores into its electronic cash ledger.
• On the next day, following continued summon proceedings and alleged threats of arrest of its directors, the assessee deposited an additional ₹12.51 crores at 1:00 a.m. to secure their release.
• Thus, a total of ₹27.51 crores was involuntarily deposited by the assessee.

The assessee contended that the entire deposit was collected under coercion and threat, without any formal proceedings under the CGST Act. Accordingly, it filed a writ petition before the Karnataka High Court seeking a refund.

A Single Judge Bench ruled in favor of the assessee, holding that the payments were involuntary and directing the Revenue to consider its refund claim. The Revenue challenged this before the Division Bench of the Karnataka High Court, leading to the present judgment.

❓ Point of Dispute

The central legal question was:

• Can an assessee claim refund of amounts involuntarily deposited during the course of GST investigation, where such deposits were made under coercion and without following due process of law?

📑 Submissions by the Revenue

• The assessee was not entitled to relief as it had approached the Court after 15 months, which, according to the Revenue, indicated absence of coercion.
• The Revenue denied that any threats of arrest were made.
• It argued that the deposit made could be adjudicated during proceedings under Section 74, post issuance of a Show Cause Notice (SCN).
• Further, the Revenue claimed that the refund application was not maintainable since the assessee had allegedly made self-ascertainment of liability under Section 74(5).

📑 Submissions by the Assessee

• The assessee argued that it had received genuine invoices from third-party service providers, with applicable GST duly charged and paid. Hence, the allegation of fraudulent ITC was baseless.
• The payments of ₹27.51 crores were not voluntary, but were made under severe coercion and threat of arrest during odd hours of investigation.
• The assessee contended that recovery of tax without following the due process of law under the CGST Act was illegal, unconstitutional, and violative of Articles 265 and 300A of the Constitution of India.
• The company had also clearly stated in its communication with the department that the deposit was without admission of liability and it reserved the right to seek a refund.

⚖️ Legal Principles and Scope of Decision

The Karnataka High Court laid down the following principles:

🔹 No Evidence of Voluntary Payment

• There was no written communication from the assessee admitting liability or opting for self-ascertainment under Section 74(5).
• Hence, the Revenue could not treat the deposits as voluntary payments.

🔹 Protection Against Coercion

• The Court emphasized that statutory powers must be exercised in good faith and in accordance with law.
• Power cannot be exercised in a manner that instills fear or forces taxpayers into involuntary payments.

🔹 Constitutional Safeguards

• Any recovery of tax must comply with Article 265 (no tax can be levied or collected except by authority of law) and Article 300A (right to property).
• Collection of money without lawful authority amounts to a violation of constitutional guarantees.

🔹 Role of Rule of Law

• The Court reiterated that in a society governed by the rule of law, arbitrary exercise of statutory powers cannot be permitted.
• Broader the powers, greater the responsibility and caution required by authorities.

🏛️ Court’s Conclusion

• The Karnataka High Court dismissed the Revenue’s appeal and upheld the Single Judge’s order.
• It held that the deposit of ₹27.51 crores by the assessee was not voluntary and could not be treated as a self-ascertainment of tax under Section 74(5).
• The deposit was collected in violation of Articles 265 and 300A of the Constitution of India.
• The Revenue was directed to refund the entire amount to the assessee.

✅ Practical Impact

1. Relief for Businesses Under Investigation
   • Businesses can now confidently seek refunds of amounts deposited during investigations if such payments were made under coercion or threat.
2. Curb on Misuse of Authority
   • The ruling sends a strong message that GST authorities cannot use summon powers or threats of arrest to extract deposits.
3. Strengthening Rule of Law
   • Reinforces the constitutional principle that tax cannot be collected without due process of law.
4. Guidance for Future Cases
   • Establishes that mere deposit in the electronic cash ledger cannot be equated to voluntary admission of liability unless supported by written acknowledgment.

🔑 Key Takeaways

• Deposits made under threat or coercion are refundable.
• Section 74(5) applies only when there is written self-ascertainment of liability by the taxpayer.
• Recovery during investigation without due process violates Articles 265 and 300A.
• This case strengthens taxpayers’ rights against arbitrary and high-handed actions by GST authorities.

📢 Why This Case Matters

The ruling in Union of India vs. Bundl Technologies Pvt. Ltd. ensures greater accountability of GST authorities and offers protection to businesses facing aggressive investigation tactics.

It sets a precedent that refund claims of coerced deposits must be honored, ensuring fairness, transparency, and constitutional compliance in GST enforcement.

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