2023 (12) TMI 238 - DELHI HIGH COURT
Background
In a notable case, the petitioner, challenged the actions of the Delhi Goods and Services Tax (GST) authorities. The petitioner filed a case against the Commissioner of Delhi Goods and Services Tax and others, seeking a refund of ₹18,72,000, alleging it was coercively deposited during an inspection. The case also questioned the legality of the search and seizure conducted at the petitioner's premises.
Business Profile
The appellant, is engaged in the trading of PVC Resin and is registered under the Central Goods and Services Tax (CGST) Act with a GST Identification Number (GSTIN).
Sequence of Events
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Search and Inspection: On October 7, 2022, GST authorities conducted a search at the petitioner's business premises under Section 67 of the CGST Act. During this operation, documents from FY 2017-18 to 2021-22 were inspected. The petitioner alleged that officers coerced him into reversing Input Tax Credit (ITC) amounting to ₹18,72,000 for supplies purchased from M/s Samridhi Exports, whose GST registration had been retrospectively cancelled.
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Show Cause Notice: A show cause notice, proposing a demand of ₹178.33 crore including tax, interest, and penalty, was issued to the petitioner for the period of April 2022 to February 2023 under Section 74 of the CGST Act.
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Petitioner's Allegations: The petitioner contested the proceedings under Section 67 of the CGST Act, arguing that the authorization for the search was vague and imprecise, and that the officers had no concrete reason to believe any wrongdoing. He also contended that the collection of ₹18,72,000 by compelling the transfer from his Electronic Credit Ledger (ECL) was done under duress, without any adjudication or legal demand.
Legal Assessment
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Legality of Search and Seizure: The court addressed whether the search under Section 67 of the CGST Act was illegal. The petitioner argued that the authorization for the search was vague and lacked specificity.
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Coercion Claims: The court acknowledged the petitioner's claim that the deposit was made under duress, noting that the search extended beyond normal business hours, and that the petitioner was compelled to provide various business documents.
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Voluntary Tax Payment Provisions: The court referred to Sections 73 and 74 of the CGST Act, which allow taxpayers to voluntarily pay tax before the issuance of a show cause notice to avoid penalties. These provisions, however, do not empower the Department to compel tax payments.
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Guidelines Against Coercive Tax Collection: Citing the Gujarat High Court's directives in Bhumi Associate v. Union of India, the court emphasized guidelines that prohibit recovery of tax during search/inspection proceedings and the importance of voluntary payments without coercion.
Court's Decision
The Delhi High Court directed the respondents (GST authorities) to reverse the ITC of ₹18,72,000 deposited by the petitioner and credit the same back into his Electronic Credit Ledger (ECL). The court clarified that this order does not prevent the respondents from taking lawful actions. If the Commissioner or authorized officers believe the ITC in the petitioner's ECL was fraudulently availed or ineligible, they are entitled to pass an appropriate order, including actions under Rule 86A of the CGST Rules, to protect revenue interests.
Implications of the Judgment
This case highlights several important aspects of GST law enforcement:
- Legality and Specificity in Search Operations: The requirement for clear and specific reasons in authorizing search and inspection under GST law.
- Coercion and Voluntary Tax Payments: The judgment underscores the illegality of coercive tax collection during search operations and reaffirms the voluntary nature of tax payments before the issuance of show cause notices.
- Protection of Taxpayer Rights: The decision emphasizes the protection of taxpayer rights against coercive actions by tax authorities, ensuring fairness in tax administration.
Conclusion
This case serves as a precedent in safeguarding taxpayer rights against coercive actions by authorities. It reiterates the importance of clear legal grounds for search operations and the voluntary nature of tax payments, thereby maintaining a balance between effective tax enforcement and protection of taxpayer rights.
Full Text:
2023 (12) TMI 238 - DELHI HIGH COURT
