Instances have been noticed where some of the taxpayers after voluntarily depositing GST liability have alleged use of force and coercion by the officers for making recovery during the search or inspection, the GST investigation wing said in a circular.

Some of the taxpayers have approached high courts in this regard.

Under CGST Act, a taxpayer has an option to deposit the tax voluntarily by way of submitting DRC-03 on GST portal. Such voluntary payments are initiated only by the taxpayer by logging into the GST portal using its login id and password.

Voluntary payment of tax before issuance of show cause notice is permissible in terms of provisions of Section 73(5) and Section 74 (5) of the CGST Act, the circular said, adding that, this helps the taxpayers in discharging their admitted liability, self-ascertained or as ascertained by the tax officer, without having to bear the burden of interest for delayed payment of tax and may also save him from higher penalty imposable on him subsequent to issuance of show cause notice.

"It is further observed that recovery of taxes not paid or short paid, can be made under the provisions of Section 79 of CGST Act, 2017 only after following due legal process of issuance of notice and subsequent confirmation of demand by issuance of adjudication order. No recovery can be made unless the amount becomes payable in pursuance of an order passed by the adjudicating authority or otherwise becomes payable under the provisions of CGST Act and rules made therein," it said.

"Therefore, there may not arise any situation where "recovery" of the tax dues has to be made by the tax officer from the taxpayer during the course of search, inspection or investigation, on account of any issue detected during such proceedings. However, the law does not bar the taxpayer from voluntarily making payment of any tax liability ascertained by him or the tax officer in respect of such issues, either during the course of such proceedings or subsequently, the circular added.

The GST investigation wing clarified that there may not be any circumstance necessitating 'recovery' of tax dues during the course of search or inspection or investigation proceedings.

However, there is also no bar on the taxpayers for voluntarily making the payments on the basis of ascertainment of their liability on non-payment/ short payment of taxes before or at any stage of such proceedings. The tax officer should however, inform the taxpayers regarding the provisions of voluntary tax payments through DRC-03, the investigation wing said.

MRG & Associates Senior Partner Rajat Mohan said this instruction would improve the ease of doing business if followed in letter and spirit.

"However, like most departmental clarifications, these instructions also have limited practical application and thereby taxpayers being searched are still dependent on the whims and mercies of the search team," Mohan said.

EY India tax Partner Bipin Sapra said, "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."