No Admission of Liability for GST ITC Paid Under Protest: High Court

The petitioner conducts surveys, designs and constructs transmission lines for hydro-electric projects and also builds sub-stations for rural electrification. The Deputy Commissioner of State Taxes and Excise issued a notice to the petitioner to inform him about the initiation of an audit under Section 65 of the HPGST/CGST Acts, 2017, for the years 2017-18 and 2018-19. The audit observation, dated 11.10.2022, informed the petitioner that it had wrongly claimed Input Tax Credit (ITC) worth Rs 1.11 crore for purchases from three suppliers:

• M/s Metrix Industries, Delhi
• M/s Nikunj Enterprises, UP
• M/s Shyama Trading Co., Delhi

The petitioner also submitted a reply with the required documents asked by the tax department, however, the authority still issued a discrepancy notice on 18.01.2023, directing the reversal of ITC and levying a penalty and interest.

Therefore, the petitioner reversed the ITC under protest on 31.03.2023, by depositing Rs 18,76,280 by cash and Rs 92,68,854 by way of Input Tax Credit through DRC-03. However, on 02.12.2023, the Commissioner passed an order under Section 74 of the HP GST Act, charging Rs 1,32,34,923 in interest and an equal penalty of Rs 1,11,45,134, considering the “under protest” payment as admitted liability. Therefore, the petitioner filed an appeal with the High Court of Himachal Pradesh.

Petitioner’s Request

The petitioner filed the writ petition to the court to provide relief for the following:

• The order dated 02.12.2023, to be quashed by the court.
• To direct the authority to pass a fresh DRC-07, having only the disputed amount of tax of Rs 1,11,45,134.
• If the above prayers are not granted, then ITC availed by the petitioner be held as valid and legal, and the petitioner be refunded the ITC amount, reversed/deposited under protest on 31.03.2023.

HP High Court Decision

• The High Court of Himachal Pradesh observed that once a petitioner had paid the amount under “under protest“, it cannot be considered as an admitted liability.

• It also noted that the authority failed to notice that the ITC could not be reversed just on the basis of suspicion. The authority must have conducted an impartial inquiry into the case.

• Therefore, the court ruled in favour of the petitioner and cancelled the order dated 02.12.2023. The court directed the tax officer to issue a fresh DRC-07 showing only the disputed tax amount so that the petitioner can file an appeal before the appellate authority.