To reduce the incidence of tax officers forcing businesses to pay additional taxes during search operations, the GST investigation wing of the Central Board of Indirect Taxes and Customs (CBIC) has cautioned that strict disciplinary action will be taken against them if such allegations are found to be true.
In a circular dated May 25, the GST investigation wing has clarified that recovery of tax can be made only after following the due legal process of issuance of notice and subsequent confirmation of demand by issuance of the adjudication order.
In case a complaint from a taxpayer is received regarding use of force or coercion ‘recovery’ for getting the amount deposited during search or inspection or investigation, strict disciplinary action is to be taken as per law if any wrongdoing is to be found on part of any tax officer, it said.
“Such strict action is expected to be a strong deterrent against defaulting officers who seek to force such recoveries from assessees during search, inspection or investigation proceedings without giving them adequate time to consult their tax experts/ consultants,” said Tanushree Roy, director- Indirect Tax, Nangia Andersen LLP.
The issue will remain that in most of these cases when coercive recovery happens, the tax authorities ask the taxpayer to pay the amount as a voluntary tax payment, said Abhishek A Rastogi, partner at Khaitan & Co.
There have been a number of cases when GST has been deposited under force by calling in senior office bearers like directors/promoters of the firm. This circular attempts to safeguard against that. However, given that the mechanism of depositing tax under DRC-03 exists, the officers may still continue to indirectly coerce the assessee to pay up. There have also been cases of freezing of bank accounts, which have caused undue harassment for the taxpayer.
“While the circular will reduce the use of coercion by the department to get the tax deposited during the investigation process, given that the officers have powers to summon and freeze bank accounts, any direct instruction may be of little help,” Bipin Sapra, tax partner, EY India, said.