2023 (12) TMI 291 - HC - GST

Validity of reversal of Input Tax Credit (ITC) during investigation / search proceedings - Validity of search / inspection conducted at business premises - Allegation of availment of inadmissible ITC and shortage of cash - whether the inspection conducted by the Delhi GST Authorities was illegal for want of proper authorization? - HELD THAT - If the tax is not paid on self-ascertainment basis, the assessee cannot be extended the benefit of Section 73(6) of the DGST Act or Section 74(6) of the DGST Act. In the present case, the petitioner has stoutly disputed that the reversal of ITC was voluntary. In cases where the payment made during search is not voluntary, the taxpayer is required to be refunded the said deposit while reserving the right of the GST authorities to proceed against the said taxpayer to the full extent in accordance with law - It is also material to note that the respondents have not issued an acknowledgment in FORM GST DRC-04. Thus, the procedure under Rule 142 of Delhi Goods Services Tax Rules, 2017 (the DGST Rules) has not been followed. In the present case, the petitioner has stoutly disputed that the reversal of ITC was voluntary. Undisputedly, the same has been made while the petitioner s premises were being searched and he was being subjected to questioning / enquiries - it is not difficult to accept that the petitioner may have found the circumstances intimidating and had, accordingly, agreed to reverse the ITC. The respondents are directed to reverse the ITC amounting to ₹22,14,226/- in the petitioner s ECL - petition disposed off.

Summary

Issues Involved:
1. Legality of the inspection conducted by the Delhi GST Authorities.
2. Entitlement of the petitioner to the refund of ITC deposited during the inspection.

Summary:

Issue 1: Legality of the inspection conducted by the Delhi GST Authorities

The first and foremost question to be examined is whether the inspection conducted by the Delhi GST Authorities was illegal for want of proper authorization. The petitioner contends that the authorization for conducting the search (in FORM GST INS-01) mentioned all the reasons as stated in Section 67(1)(a) of the DGST Act, arguing that the authorization was issued mechanically and without application of mind. However, Rule 139(1) of the CGST Rules requires that the authorization for conducting a search be issued in FORM GST INS-01, which was duly followed. The court found that the authorization was issued with specific reasons noted in the relevant files, and the detailed reasons are not required to be shared with the taxpayer prior to the search/inspection. The respondents affirmed that the inspection/search was conducted because the petitioner had availed of ITC from suppliers whose registrations were cancelled. The court found no merit in the contention that the search was illegal and without any reasons to believe that the conditions under Section 67(1)(a) of the DGST Act were satisfied.

Issue 2: Entitlement of the petitioner to the refund of ITC deposited during the inspection

The second question to be examined is whether the petitioner is entitled to the refund of ITC deposited during the course of the search conducted on 18.10.2022. The petitioner claims that he was compelled to deposit a sum of Rs. 22,14,226/- by reversing the ITC available in his Electronic Credit Ledger (ECL) and that the statement recorded on 18.10.2022 was under duress and coercion. The respondents countered that the petitioner had not retracted the statement immediately after the search and that there was a balance of Rs. 84,19,466/- in the ECL of the petitioner, suggesting that the petitioner was not under coercion. The court noted that the petitioner had agreed to reverse the ITC in respect of purchases from five firms aggregating Rs. 22,14,226/-, but this was done late at night during the search proceedings, indicating potential coercion.

The court emphasized that an opportunity to pay tax prior to the issuance of any notice under Sections 73 or 74 of the DGST Act is for the benefit of the taxpayer. If the tax is not paid on a self-ascertainment basis, the taxpayer is required to be refunded the deposit while reserving the right of the GST authorities to proceed against the taxpayer. The court also noted that the respondents had not issued an acknowledgment in FORM GST DRC-04, thus not following the procedure under Rule 142 of the DGST Rules. The court found that the petitioner's case of involuntary deposit was credible and directed the respondents to reverse the ITC amounting to Rs. 22,14,226/- in the petitioner's ECL, while clarifying that the authorities could still safeguard the interest of the Revenue.

Conclusion:

The court directed the respondents to reverse the ITC amounting to Rs. 22,14,226/- in the petitioner's ECL, while allowing the authorities to take necessary measures to safeguard the interest of the Revenue. The petition was disposed of with these terms.