The Karnataka High Court has ordered the Goods and Service Tax (GST) department to refund Rs. 27 crore, which was illegally collected from Swiggy.

The division bench of Justice Alok Aradhe and Justice M. G. S. Kamal, while dismissing the appeal of the Central Government, observed, "Article 265 of the Constitution mandates that the collection of tax has to be by the authority of law."

The court added that if a 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 upon his right under Article 300A of the Constitution of India as well.

"The only provision which permits deposit of an amount during the pendency of an investigation is section 74(5) of the CGST Act, which is not attracted by the factual situation of the case." Therefore, it is evident that the amount has been collected from the company in violation of Article 265 and 300-A of the Constitution, "the court observed.

The respondent/assessee operates an e-commerce platform under the brand name "Swiggy". Consumers can place orders for delivery of food from nearby restaurants through delivery partners, which includes pick-up and delivery partners (PDPs) who are directly engaged by the company as well as temporary delivery executives (Temp DEs) whose services are procured by the company through third party service providers. 

During normal operations, the deliveries are carried out by the PDPs, which account for 90% of the total food deliveries. However, on account of sudden spike in food orders during holidays, festive season and weekends, the company engages Temp DEs from third party service providers to cater to sudden spike in food orders.

Third party service providers charge the company the consideration paid to temp DEs along with a markup of 5.5–10% plus GST on the entire consideration. The company entered into an agreement with a third party service provider, namely Green Finch Team Management (P) Ltd. (Green Finch). 

Under the agreement, Green Finch provided temporary DEs to the company on a cost-plus mark-up basis and also charged GST on the entire sale consideration. 

Green Finch raised valid tax invoices on the company and charged applicable GST, which was paid to Green Finch, which was deposited with the Department by filing a GSTR-3B return. The company availed an input tax credit in terms of Section 16 of the Central Goods and Services Tax, 2017.

An investigation was initiated by the department with regard to services provided to the company by third party service providers, namely Green Finch, by the Director General of Goods and Services Tax Intelligence (DGGI) on the ground that Green Finch was a non-existent entity and, accordingly, the input tax credit availed by the company and the GST component paid by it to Green Finch against the invoices raised by Green Finch were fraudulent. 

The officers of the department entered the premises of the company. During the course of the investigation, DGGI Officers issued summons to the directors and employees of the company, and their statements were recorded by the DGGI Officers. A sum of Rs. 15 crore was deposited by the company under the GST cash ledger. 

The directors of Swiggy received a summons to appear before the DGGI office. The Directors of the Company, namely Mr.Harsha Majety, Mr.Bharat Arora, Director (Finance and Accounts), Mr.Mehul Shah, Senior Manager (Taxation), and Mr.G. Prahalad, Advocate, visited the office of the DGGI.

It was submitted by the respondent that they were present till late hours, and 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 the company paid a further sum of Rs. 12,51,44,157 at about 1 a.m. in order to secure the release of three directors of the company. In all, a sum of Rs. 27,51,44,157 was illegally collected from the company during the course of investigation under threat and coercion without following the procedure prescribed under the CGST Act.

The Single Judge Bench of Justice S. Sunil Dutt Yadav held that payment of the amount made by the company during the course of investigation was involuntary. It was held that the Court does not desire to place any sort of fetter on the power of investigation of the officers of the Department. However, it was held that consideration of the right to seek a refund of the amount deposited by the company was independent of the process of investigation and the two could not be linked together. Accordingly, the writ petition was disposed of with the direction to consider and pass suitable orders on the applications for refund filed by the company within a period of four weeks from the date of the release of the order. The Department was directed to consider the applications for refund in the light of the observations made in the order. 

Counsel for the appellants/department submitted that input was received by the Department that Green Finch is a non-existing company and huge input tax credit is being credited to the company. The respondent did not receive any services from Green Finch or its inward suppliers and is therefore not entitled to claim input tax credit on the same.

On the other hand, Senior Counsel for the respondent submitted that Greenfinch is a company in existence, which is evident from the official website of the ministry of corporate affairs portal and has obtained GST registration from the Department. 

The division bench relied on the decision of the Gujarat High Court in the case of M/s Bhumi Associate v. Union of India, on which guidelines were laid out to regulate the powers of officers carrying out search and seizure and to safeguard the interests of the assessee. 

The court held that the amount was not voluntarily paid as the guidelines were not followed by the department.