In a major relief for businesses facing legacy VAT disputes, the Punjab and Haryana High Court has barred the Punjab tax department from taking any coercive recovery action against a proprietorship firm after the State admitted that the VAT assessment record was destroyed in a fire.
The case highlights serious concerns regarding recovery proceedings being initiated without service of assessment orders and missing departmental records.
High Court Stops Coercive Recovery Proceedings
A Division Bench of Justice Lisa Gill and Justice Ramesh Chander Dimri restrained the Punjab tax authorities from enforcing recovery of a VAT demand against Swastika Insulation.
The Court noted the State’s submission that the assessment file was “stated to have been burnt”, and the assessment order was not available with the department.
The Bench directed that:
No coercive steps shall be taken against the petitioner until the next date of hearing.
Background of the VAT Demand Case
The dispute relates to a VAT demand of around Rs. 41 lakh for the year 2012–13, when the firm was registered under the Punjab VAT Act.
The tax department claimed that an assessment order was passed in November 2019, raising the liability.
However, the firm argued that:
- The assessment order was never served
- It had no knowledge of the demand for several years
Firm Learnt About Demand Only in 2024
According to the petition, the firm came to know about the alleged VAT liability only in March 2024, after receiving a phone call from the department.
It subsequently requested a copy of the assessment order in writing, but the department failed to provide any response.
GST DRC-07A Recovery Notice Issued Without Assessment Order
Despite not supplying the assessment order, the department reportedly proceeded with recovery by uploading Form GST DRC-07A on the GST portal in December 2024.
The firm alleged that authorities recovered amounts by:
- Directly debiting the electronic cash ledger
- Adjusting funds from the input tax credit ledger
This was done even though the foundational assessment order was unavailable.
Errors Found in Recovery Annexure
The petitioner also pointed out discrepancies in the annexure attached to the recovery notice.
It claimed the annexure itself reflected:
- Adjustment of assessed tax against available ITC
- Excess credit balance
Yet, it still imposed further tax demand and penalty, indicating serious procedural irregularities.
RTI Reply Confirms Records Destroyed in Fire
A key argument raised by the firm was based on information obtained under the Right to Information Act (RTI).
The department admitted through RTI that the entire assessment record had been destroyed in a fire.
The firm contended that it was left without any effective remedy since:
- No assessment order was served
- No record was available
- Recovery proceedings were still initiated
Court Grants Interim Protection
Considering these circumstances, the Punjab and Haryana High Court granted interim relief and directed that no coercive recovery action be taken until further hearing.
The State has been granted time to file its reply.
Case Details
- Case Title: Swastika Insulation through its Proprietor, Sh. Kunal Gupta vs. State of Punjab and Others
- Case Number: CWP 23675 of 2025
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Citation: 2026 LLBiz HC (PNH) 7