Karnataka HC: Swiggy's payment made during investigation is not considered as ascertained tax, refund of same allowed

The Honorable Karnataka High Court ("Karnataka HC") in the matter of M/S. Bundl Technologies Private Limited v. Union of India [WP 4467/2021 (T-RES) dated September 14, 2021], held that Swiggy’s payment made as goodwill gesture during investigation cannot be taken as self-ascertained tax. Furthermore, the Honorable Karnataka HC directed the Department to refund money deposited during the investigation.

M/S. Bundl Technologies Pvt. Ltd. ("the Petitioner") filed a Writ Petition, for the issuance of the writ of Mandamus, under Article 226 of the Constitution seeking to direct the Respondents to forthwith the amount of Rupees 27,51,44,157/- illegally collected by the Department from the Petitioner.

The Petitioner operates an e-commerce platform under the name 'Swiggy' and is registered under the Central Goods and Services Tax Act, 2017 ("the CGST Act"). It was submitted, by the Petitioner, that the delivery of food is done through delivery partners that include electronic pick-up by those who are engaged by the Petitioner. It was further stated that during the festivities owing to spike in food orders, the third-party service providers are engaged. As per the submissions of the Petitioner, it appears that the third-party service providers charge consideration for delivery and supply of food along-with Goods and Services Tax ("GST") and the GST paid by the Petitioner to the third party service providers is availed as Input Tax Credit ("ITC") by the Petitioner.

The case of the Petitioner was taken for investigation by the Directorate General of Goods and Services Tax Intelligence, Hyderabad Zonal Unit ("DGGI") on the ground that third party service provider of the Petitioner i.e. "Greenfinch" was a non-existence entity and accordingly the ITC availed by the Petitioner were fraudulent.

The Petitioner asserted that on November 29, 2019, during the investigation, the Petitioner was forced to make payment of Rupees 15 Crore under the threat of arrest. The Petitioner further submitted that on December 27, 2019, the Petitioner was forced to make further payment of tax of Rupees 12,51,44,157/-. All in all, the Petitioner alleged that a sum of Rupees 27, 51, 44,157/- was illegally collected under threat and coercion. Furthermore, the Petitioner asserted that no Show Cause Notice ("SCN") was issued by the DGGI.

As opposed to the contentions made by the Petitioner, the Respondents asserted that the question of exercise of Coercion and Threat was not made out by them. The Payments even as per the communication of the Petitioner was made as a goodwill gesture and that the payments made are to be construed as payment of tax in furtherance of self-ascertainment as given under Section 74(5) of the CGST Act.

After taking perusal of all the facts and evidences, the Honorable Karnataka HC adjudged that "right of refund …would be independent of the process of investigation and two cannot be linked together…" and allowed the writ petition of the Petitioner. The Karnataka HC directed the department to consider refund application of the Petitioner which was collected under coercion during investigation by the DGGI relating to alleged wrongful availment of ITC on the invoices without actual receipt of services.