Karnataka High Court orders refund to Swiggy

Karnataka High Court orders refund to Swiggy

The revenue department had used coercive methods to collect a sizable amount from the food delivery platform

The Karnataka High Court recently directed the Revenue Department to refund Goods and Service Tax (GST) amounting to Rs.27.4 crores collected from Swiggy's holding company Bundl Technologies Pvt. Ltd.

The division bench of Justice Alok Aradhe and Justice MGS Kamal dismissed an appeal filed by the Central government against a decision of the single-judge. It directed them to consider refunding the GST tax collected illegally from the food delivery platform.

Dismissing the appeal, the court said, "Article 265 of the Constitution of India mandates that collection of tax has to be by the authority of law. If tax is collected without any authority of law, the same would amount to depriving a person of his property and infringe his right."

The bench further stated, "The only provision that permits deposit of an amount during the pendency of an investigation is Section 74(5) of the Central Goods and Services Tax (CGST) Act, which is not attracted in the fact situation of the case. Therefore, it is evident that an amount has been collected from the Company in violation of Article 265 and 300-A."

The judgment said, "The contention of the Department that the amount under deposit be made subject to the outcome of the pending investigation cannot be accepted. The Department, therefore, is liable to refund the amount to the Company."

The respondent, Bundl Technologies, operates an e-commerce platform under the brand name Swiggy. Through this platform, the customers place orders for the delivery of foods from nearby restaurants. The deliveries are made by 'pick up and delivery partners' (PDPs). While they are engaged directly by Swiggy, the services of temporary delivery executives (Temp DE) are procured via third-party service providers.

While 90 percent of the total deliveries are carried out by PDPs, during a spike of orders on weekends/holidays, Swiggy engages Temp DEs.

As PDPs are below the threshold limit for registration, they do not pay GST. However, the third-party service provider charges 5.5-10 percent of the amount paid to Temp DEs as GST.

In 2017, Swiggy entered into an agreement with a third-party service provider, Green Finch Team Management who provided Temp DEs to Swiggy on a cost-plus mark-up basis, along with GST on the entire sale. Between 2017-2020, Green Finch provided 10,31,464 Temp DEs to Swiggy, which made 2,91,75,667 food deliveries.

On raising the tax invoices, Green Finch charged an applicable GST and Swiggy availed Input Tax Credit (ITC) under the GST Act.

Thereafter, the Director-General of Goods and Services Tax Intelligence, Hyderabad Zonal Unit launched an investigation regarding the services provided by Green Finch. It said that since Green Finch was a non-existent entity, the ITC availed by Swiggy and the GST paid to Green Finch was fraudulent.

In 2019, the officers of the department entered the premises of Swiggy and conducted an investigation that continued for days. Under the GST cash ledger, Swiggy had paid a sum of Rs.15 crores.

The officers issued a spot summons to the directors and employees and recorded their statements. The directors of the food delivery platform were asked to appear before the Director-General's office. It was submitted by Swiggy that the company's directors were present at the DG's office till late hours. Thereafter, they were locked in the office and received threats of arrest. Till the next day, they remained in custody.

Swiggy alleged that it was forced to deposit more amounts in order to secure the release of the three directors. A sum of Rs.27,51,44,157 was illegally collected from them under threat and coercion during the course of the investigation. It then filed an application before the jurisdictional GST office, but did not elicit any response.

The company then filed a petition seeking a writ of mandamus directing the Revenue Department to refund the amount collected illegally along with interest at the rate of 12 percent from the date of deposit. It also assailed the validity of the CGST Act and the Karnataka Goods and Services Tax Act, 2017 as unconstitutional.

The single-judge bench of Justice S Sunil Dutt Yadav held that the payment made by the company during the course of the investigation was involuntary. It held that the right to seek a refund was independent of the process of investigation. The court disposed of the writ petition with directions to the department to consider the refund and pass suitable orders within four weeks.

The present appeal was filed against this order.

The Karnataka High Court thus observed that whether Green Finch was a legitimate entity and Swiggy rightfully availed ITC was not being considered because of the pending investigation.

The court ruled that the tax collected without any authority of the law amounted to depriving a person of his property. Thus, the amount collected from Swiggy was in violation of the provisions of the Constitution. It directed the Revenue Department to refund the amount to Swiggy.

While Additional Solicitor General MB Nargund and advocate Amit Anand Deshpande represented the appellants, the respondents were counseled by advocates Lakshmi Kumaran, Ravi Raghavan, Syed M Peeran and Siddharth Balve.