Guidelines for GST Tax Deposit During Official Investigations

The Goods and Services Tax (GST) Investigation Wing has issued specific guidelines, Instruction No. 01/2022-23[GST-INV] dated May 25, 2022, concerning the procedures for tax deposits during searches, inspections, or investigations. This directive was prompted by numerous complaints and allegations that GST officers were coercing taxpayers into making involuntary tax recoveries during such proceedings.

Challenges Taxpayers Encounter During Official Searches

During search, inspection, or investigation proceedings initiated due to defaults or incorrect tax payments, taxpayers are permitted to voluntarily deposit a portion of their estimated tax liability. However, there have been instances where individuals subjected to these processes reported undue pressure or coercion from GST officers. These officers allegedly sought to "recover" taxes by compelling taxpayers to make voluntary payments, leading many taxpayers to seek redress through high courts.

Voluntary Tax Payment Through Form DRC-03

The Central Goods and Services Tax (CGST) Act allows taxpayers to voluntarily settle their tax obligations by submitting Form DRC-03. This mechanism enables taxpayers to discharge liabilities, whether self-assessed or in response to a show-cause notice. Utilizing Form DRC-03 can help taxpayers manage their dues and potentially reduce interest charges for delayed payments or avoid higher penalties.

While the law fully supports voluntary tax payments, this option is exclusively initiated by the taxpayer by logging into their GST portal using their personal credentials. This stipulation means officers cannot force taxpayers to make payments through this channel during an inquiry. Nonetheless, officers are encouraged to inform taxpayers about the option of making voluntary payments via Form DRC-03.

Official Procedure for GST Tax Recovery

The GST Investigation Wing's instruction emphasizes the legally prescribed process for tax recovery. Taxes can only be recovered under Section 79 of the CGST Act after a series of specific steps are completed:

• A proper officer must determine the tax liability.
• A show-cause notice must be issued to the taxpayer.
• The demand must be confirmed through an official order.
• A period of three months must elapse from the order date if the outstanding dues remain unpaid.

The GST department is authorized to commence recovery proceedings only after adhering to these statutory procedures. Taxes cannot be recovered from a taxpayer if these relevant provisions are not followed. Consequently, tax recovery cannot legitimately occur outside these established procedures, including during ongoing search and investigation processes conducted by officers.

Recourse for Taxpayers Against Coerced Tax Recovery

The instruction also provides avenues for taxpayers who have experienced coercion from GST officers to recover taxes during searches and investigations. Any complaints from taxpayers regarding such forceful tax recovery tactics will be promptly investigated. Should misconduct by officers be confirmed, strict disciplinary actions will be imposed by the department.

This directive from the GST department reinforces that tax recovery must strictly follow the procedures outlined in the Act. Form DRC-03 remains a voluntary payment option for taxpayers and must not be exploited as a means for forced tax recovery.