SUMMARY
Swiggy had paid INR 27 Cr to the GST Department after senior management was held in the DGGI office overnight under threats of arrest on Boxing Day, 2019
The Karnataka HC has ordered the GST department to refund the amount
By citing the precedent set by a previous case, the High Court declared the collection illegal
IPO-bound food delivery giant Swiggy will receive INR 27 Cr in refund after the Karnataka High Court ordered the GST Department to do so.
It should be noted that Swiggy deposited the GST amount under pressure from the DGGI office, as senior officials were summoned to the office, where they were threatened arrest, and were only released after the company deposited the GST due in full.
By citing the precedent set by a previous case, the High Court declared the collection illegal.
Also, the Bench of Justice Alok Aradhe and Justice MGS Kamal dismissed the appeal of the Central Government, noting, “Article 265 of the Constitution mandates that the collection of tax has to be by the authority of law.”
The court also added that if the tax is collected without any authority of law, that would infringe upon that person’s right to property under Article 300A of the Constitution of India.
“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 Curious Case of Green Finch
According to the verdict accessed by Inc42, the whole affair started during the abnormal spikes in demand that regularly happens near major festivals, holidays, and weekends.
The papers submitted by Swiggy reflected that it engages with third parties to increase the number of pick-up and delivery executives (DEs) with temp DEs. These third parties charge GST on the entire consideration, along with their own markups.
Here, Green Finch Team Management (P) Ltd, also known as Green Finch, comes into the picture. According to Swiggy, this is one such third party that supplied DEs to the company during spikes in demand. Again, the whole arrangement was cost+markup+GST.
Of course, Green Finch raised tax invoices against the services provided to Swiggy, and those were deemed valid, and the company also charged applicable GST. The food delivery company paid that GST to the company and Green Finch deposited the same with the GST Department by filing a GSTR-3B return.
What’s more, Green Finch also availed an input tax credit in terms of Section 16 of the CGST, 2017.
However, the GST Department alleged that Green Finch does not exist.
A Raid And A Coercion
After alleging the same, the director-general of Goods and Services Tax Intelligence (DGGI) launched an investigation into the matter. Also, the DGGI declared the GST component paid by Swiggy to Green Finch to be fraudulent.
The officers from the DGGI office raided the premises of Swiggy and issued summons to the senior management of the company to appear before the DGGI office on 26th December 2019. Along with that, Swiggy deposited INR 15 Cr under the GST cash ledger.
When the directors of the company, Harsha Majety, Bharat Arora, Mehul Shah, G. Prahalad (advocate), visited the DGGI office, they were held there till late hours and were locked in the office. The officials from Swiggy were threatened with arrest, and they eventually left in the early hours of the next morning.
According to the verdict document, Swiggy paid, in all, a sum exceeding INR 27.5 Cr, which the High Court declared to be illegal. The GST department had collected that sum under threat and coercion, without following any due procedure as per the CGST Act.
What’s Next?
Swiggy maintained in the court that Green Finch is an existing company, as it is registered with the Ministry of Corporate Affairs and has obtained the GST registration from the GST Department itself.
According to the food delivery company, the GST Department could not reach Green Finch regarding the matter, and as such, the department raided the company premises.
Swiggy has declined to comment on the matter.
However, this is not the first time when startups in Bengaluru have had to face the heat from the authorities. Last year, offices of Uber and Ola were raided by the Karnataka Transport Department, on the grounds that both the companies failed to submit a quarterly report.
