In a significant ruling, the Himachal Pradesh High Court has clearly established that a Goods and Services Tax (GST) payment made “under protest” cannot be construed as an admission of liability. This judgment serves as a vital reference point for taxpayers who face undue pressure from tax authorities and make payments to avoid further complications while intending to dispute the matter legally.

The ruling came in the case of Shyama Power India Ltd., where the taxpayer had reversed Input Tax Credit (ITC) under protest but was still slapped with heavy interest and penalties by the GST department under Section 74 of the HP GST Act, 2017.

Background of the Case

  • The petitioner, Shyama Power India Ltd., reversed ITC worth ₹1.11 crore on March 31, 2023, claiming it was done under protest due to pressure from GST officials.

  • Despite the stated protest, the Commissioner of State Taxes and Excise treated this reversal as a voluntary admission of liability.

  • Based on this, additional interest of ₹1.32 crore and a penalty of ₹1.11 crore were imposed under Section 74 of the Himachal Pradesh GST Act.

Court’s Observations

A Division Bench of Justice Tarlok Singh Chauhan and Justice Sushil Kukreja delivered a well-reasoned judgment highlighting the following points:

  1. Payment under protest is not admission: The Bench held that when a taxpayer pays any amount under protest, it shows a denial of liability and reflects the taxpayer’s intent to legally challenge the demand.

  2. Right to contest preserved: Such a payment inherently reserves the taxpayer’s right to challenge the demand in the appellate process.

  3. No fair inquiry conducted: The Court criticized the tax authority for not conducting an impartial investigation and for relying solely on a show cause notice summary (DRC-01) without examining supporting evidence.

  4. Misuse of power: The adjudicating authority wrongly assumed guilt, without verifying whether the reversal was done voluntarily or under coercion.

Legal Clarity: What Does “Under Protest” Mean?

Referring to Black’s Law Dictionary, the Court explained that the term “under protest” explicitly means:

A payment made unwillingly, denying the legality of the demand, and preserving the right to recover it through legal means.

This means a taxpayer can safeguard their rights while complying temporarily to avoid business disruption.

Court’s Decision

  • The impugned order was quashed.

  • The GST department was directed to issue a fresh DRC-07, mentioning only the disputed tax amount of ₹1.11 crore.

  • No interest or penalty shall be imposed based on the payment made under protest.

  • The petitioner now has a clean path to appeal the dispute before the appropriate appellate authority.

Key Takeaways for Taxpayers

Key Points Details
Under Protest Payment Not considered as admission of guilt.
Right to Appeal Remains intact if payment is clearly made under protest.
Proper Inquiry Required Authorities must investigate thoroughly before levying penalties.
Legal Definition Matters Courts give weightage to legal interpretation over departmental assumptions.

FAQs

1. What is Section 74 of the GST Act?

Section 74 deals with determination of tax not paid or short paid due to fraud or willful misstatement. It allows authorities to levy interest and penalties.

2. What does “under protest” mean in GST context?

It means the taxpayer is paying an amount without accepting the liability, intending to challenge it later in court or appellate forums.

3. Can a taxpayer reverse ITC under protest?

Yes. A taxpayer can reverse Input Tax Credit under protest, especially when they feel the department is coercing them, and they wish to dispute the reversal legally.

4. What is DRC-01 and DRC-07?

  • DRC-01: A summary of Show Cause Notice issued