Delhi HC: Impermissible for Authorities to Force Taxpayers to Pay GST Without Following the Procedures

The officers are only permitted to force the assessee to pay the tax if they do not comply with the requisite process, notwithstanding that the same might be apparent that these taxes are left and liable to get paid, Delhi High Court ruled.

Justice Vibhu Bakhru and Justice Amit Mahajan highlighted that the statement of the assessee shouldn’t be construed as an admission of liability to pay the Input Tax Credit (ITC). It simply notes that the visiting team informed the petitioner about the cancellation of the registration of the supplier, M/s Samridhi Exports. This statement shouldn’t be interpreted as the petitioner accepting responsibility to reverse the ITC regarding purchases from said dealer.

The petitioner, operating under the name M/s Shivani Overseas, engages in the trade of PVC resin. Registered under the CGST Act, they have been allocated a Goods and Services Tax Identification Number (GSTIN).

Between October 7th and the early hours of October 8th, 2022, the respondent or department searched the petitioner’s business premises under Section 67 of the CGST Act. This action was authorized via GST INS-01 by the respondent, as per Rule 139(1) of the CGST Rules.

Throughout the search operation, documents spanning from FY 2017–18 to FY 2021–22 underwent scrutiny. The petitioner claimed that during this inspection, the visiting team of officers compelled them to reverse an input tax credit (ITC) valued at Rs. 18,72,000 for supplies procured from M/s Samridhi Exports. The petitioner was informed about the retrospective cancellation of the supplier’s GST registration.

The petitioner reported being held in the office from 4 pm on October 7, 2022, until 2:30 am on October 8, 2022. Under the pressure of the visiting team, the petitioner yielded and was forced to transfer the ITC amount.

Under Section 74 of the CGST Act, the respondents have been issued a show cause notice asking for the demand of interest penalty for the period of April 2022 to February 2023.

The petitioner has challenged the Show Cause Notice (SCN) and lodged a petition, expressing dissatisfaction with the respondents’ failure to refund the amounts that, according to him, were deposited involuntarily and under pressure during the search proceedings.

The taxpayer argued that he was coerced into filing Form DRC-03 and debiting the ITC available under pressure without the adjudication of any obligation which was not rejected. As per the court, the respondents or the council are to reverse the ITC of Rs 18,72,000 which the applicant deposited dated 8th October 2022, and instantly credit it in his ECL.

The respondents are not prohibited from pursuing further actions as per the law. If the Commissioner or an authorized officer reasonably suspects fraudulent or ineligible availing of Input Tax Credit (ITC) in the petitioner’s Electronic Credit Ledger (ECL), they retain the authority to issue suitable orders, including those under Rule 86A of the CGST Rules, provided the conditions stipulated therein are met.

The court also clarified that the respondents are empowered to take measures to safeguard the Revenue’s interests within the bounds of the law.