Taxpayer entitled to refund of amount deposited due to coercion during search proceedings

The Delhi High Court has ruled that a taxpayer is entitled to a refund of an amount deposited under coercion during GST search proceedings. The court found that the taxpayer was compelled to deposit the Input Tax Credit (ITC) amount after being detained by officials. As the proper procedure was not followed and the deposit was not voluntary, the court ordered the revenue department to reverse the ITC.

The Hon'ble Delhi High Court in the case of Lovelesh Singhal Prop. Shivani Overseas v. Commissioner, Delhi Goods and Services Tax & Ors. [W.P.(C) 16353/2022 dated December 05, 2023] disposed of the writ petition, thereby holding that, the taxpayer is entitled to refund of the amount deposited due to coercion during the search proceedings. 

Facts

Lovelesh Singhal ("the Petitioner") is an individual, engaged in the business of trading of PVC Resin under the name and style of M/s Shivani Overseas. Search operation was conducted at the Petitioner business premises by the Revenue Department ("the Respondent").During the course of inspection, it was alleged that the Respondent officials forced the Petitioner to reverse the Input Tax Credit ("ITC") with respect to the purchase made from one of the suppliers as the aforementioned supplier GST registration was canceled retrospectively. Also, it was alleged that the Petitioner was detained in the office from 4 pm on October 07, 2022, to 2:30 am on October 8, 2022, due to which the Petitioner succumbed to the intimation of the Respondent officials and was compelled to transfer the amount of ITC in dispute. 

Thereafter, the statement of the Petitioner was recorded wherein the Petitioner denied the mismatch of GSTR-1 and GSTR-3B, GSTR-2A and GSTR 3B. However, the Respondent issued Show Cause Notice dated March 29, 2023 ("the Impugned SCN") to the Petitioner under Section 74 of the Central Goods and Services Tax Act, 2017 ("the CGST Act") raised demand along with interest and penalty. 

Aggrieved by the Impugned SCN and failure to refund the amount of ITC, the Petitioner filed a writ petition before the Hon'ble Delhi High Court, contending that, the amount of ITC was deposited involuntarily and under duress, during the course of search. 

Issue

Whether the Petitioner is entitled to refund of the amount deposited due to coercion during the search proceedings?

Held

The Hon'ble Delhi High Court in W.P. (C) 16353 of 2022 held as under:

• Noted that, in case where the tax is collected by the Respondent under coercion, the same is required to be returned. Also, the Petitioner is required to acknowledge the liability on account of which tax is paid, which is to be acknowledged by the Respondent as well. 
• Relying upon the judgment of the Gujarat High Court in the case of Vallabh Textile v. Senior Intelligence Officer [R/Special Civil Application No. 3196 of 2021 dated February 16, 2021], and concurring judgment of the Hon'ble Delhi High Court in the case of Vallabh Textiles v. Senior Intelligence Officer and Ors. [W.P.(C) 9834/2022 dated December 20, 2022] along with the Instructions dated May 25, 2022, it was further noted that, it is impermissible for the Respondent officials to pay the tax without following the required procedure unless it is apparent that, such tax is due and payable. Also, as per the directions issued in the aforementioned judgments, the Respondent officials are required to advise the taxpayer who has come forward to deposit the tax during the search proceedings, should do so on the next day after the proceedings have been concluded. As per the aforementioned judgments, if the procedure stated is not complied with, it would be concluded that the deposit made by the taxpayer is not voluntary.  
• Opined that, the Petitioner has disputed that he is liable to pay any tax. Also, neither the procedure laid out under Rule 142 of the Central Goods and Services Tax Rules, 2017 ("the CGST Rules"), is complied with nor the Respondent has issued any acknowledgment accepting the payment made by the Petitioner under Form GST DRC-04 as required under the CGST Rules. Therefore, the tax deposited by the Petitioner cannot be considered voluntary and within the purview of Section 73(5) of the CGST Act. 
• Held that, the writ petition is allowed.
• Directed that, the Respondent should reverse the ITC deposited by the Petitioner by crediting the said amount in Electronic Credit Ledger.
• Clarified that, the Respondent is not precluded from taking any steps if the Respondent officials have reason to believe that ITC has been fraudulently availed or ineligible.