Coerced filing Form DRC-03 on account of ITC reversal: HC orders Re-Credit in ECL

The Delhi High Court, in the matter of LOVELESH SINGHAL PROP SHIVANI OVERSEAS Vs. COMMISSIONER, DELHI GOODS AND SERVICES TAX, has directed the Department to Re-Credit in the Electronic Credit Ledger (ECL) the Amount of Input Tax Credit Reversed (ITC) by the Taxpayer forcefully by Filing DRC-03, due to coercive measures taken by the department.

Relevant Text of the Judgment:

The petitioner has filed the present petition, inter alia, praying that directions be issued to the respondents to refund the amount of Rs. 18,72,000 which was deposited by the petitioner during the course of inspection/search conducted at his premises. The petitioner also prays that the order dated 07.10.2022 (in form INS-01) authorizing the search/inspection under Section 67 the Central Goods and Services Tax, 2017 (hereafter ‘the CGST Act’) read with Rule 139 (1) of the Central Goods and Services Tax Rules, 2017 (hereafter ‘the CGST Rules’), be set aside. In addition, the petitioner prays that the search of his business premises and seizure effected, be declared illegal.

The petitioner is an individual and is engaged in the business of trading of PVC Resin under the name of M/s Shivani Overseas. The petitioner is registered under the CGST Act and has been assigned the Goods and Services Tax Identification Number (GSTIN): 07AAYPS1178H1Z0.

On 07.10.2022 continuing till early hours of 08.10.2022, a search was conducted by respondent no.3 at the petitioner’s business premises being Property No. 66, 3rd floor, Pocket-13, Sector-24, Rohini, Delhi and 3411/249, 2nd floor, Hansa Puri, Tri Nagar, Delhi, under Section 67 of the CGST Act. This was on the basis of authorization dated 07.10.2022 (in form GST INS-01), issued by respondent no.1 in terms of Rule 139(1) of the CGST Rules.

During the course of the search operation, documents pertaining to the period FY 2017-18 to 2021-22 were inspected. The petitioner alleges that during the course of the inspection, the visiting team of officers forced him to reverse the Input Tax Credit (ITC) amounting to Rs. 18,72,000 in respect of supplies purchased from one M/s Samridhi Exports. The petitioner was informed that the GST registration of the said supplier was cancelled retrospectively. The petitioner states that he was detained in the office from 4 pm of 07.10.2022 to 2.30 am of 08.10.2022. It is contended on behalf of the petitioner that during this time, the petitioner succumbed to the intimidation of the visiting team and was compelled to transfer the aforementioned amount of the ITC.

The petitioner is contesting the SCN and has filed the present petition being aggrieved by the failure on the part of the respondents to refund the amounts, which he claims was deposited involuntarily and under duress, during the course of search.

The petitioner impugns the proceedings initiated under Section 67 of the CGST Act, inter alia, on the ground that the authorization for search is vague and imprecise. It is contended that the proper officer issuing the authorization (in Form INS 01) had no reason to believe that the petitioner had suppressed any transactions relating to supply of goods/services and/or had suppressed transactions relating to the stock of goods in hand or had claimed ITC in excess of its entitlement under the CGST Act.

The petitioner also impugns the proceedings for collection of Rs. 18,72,000 by compelling the transfer of the said amount from the petitioner’s Electronic Credit Ledger (ECL). As noticed above, it is the petitioner’s case that he was coerced into filing Form DRC-03 and debiting the available ITC under duress and coercion without adjudication of any liability or any demand, in accordance with law.

In the given facts, accepted the petitioner’s claim that the deposit was made under duress and in compelling circumstances. The petitioner had been subjected to the search/inspection operations way beyond the normal business hours. Admittedly, the petitioner was called upon to provide copies of various books of accounts. The statement recorded on the said date – which is also relied upon by the respondents – clearly indicates that the petitioner had provided several documents to the concerned officers including the Trading Account for the period 01.04.2022 to 07.10.2022; Cash Book for the period 01.10.2022 to 07.10.2022; Stock group summary as on 07.10.2022; copies of the last purchase and sale bills; profit and loss account for the period 01.04.2021 to 31.03.2022; and parties ledger.

Directed the respondents to reverse the ITC of Rs. 18,72,000 deposited by the petitioner on 08.10.2022 and forthwith credit the same in his ECL.

It is clarified that this would not preclude the respondents from taking any other steps in accordance with law. In the event the Commissioner or a duly authorized officer has reason to believe that the ITC available in the ECL of the petitioner has been fraudulently availed or is ineligible, the concerned officer is not precluded from passing an appropriate order including any order under Rule 86A of the CGST Rules, if the conditions as set out therein are satisfied. The respondents are also not precluded from taking steps to protect the interest of the Revenue in accordance with law.

The petition is disposed of in the aforesaid terms.

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