Delhi High Court Issues Directive to GST Authorities to Refund the ITC Reversed by the Petitioner under Coercion during the Search Operation
In a recent Landmark judgement Dt. 5 December 2023, in the case of Santosh Kumar Gupta vs Commissioner of Delhi State GST & Ors [W.P.(C) 17171/2022], the Delhi High Court has directed the Delhi State GST authorities to reverse the Input Tax Credit (ITC) amounting to ₹22,14,226 in the petitioner’s Electronics Credit Ledger (ECL). This amount was paid under coercion during a search operation, sparking a legal battle.
Background of the Case:
The petitioner challenged a search and inspection conducted at his business premises in Tri Nagar, Delhi, on 18.10.2022, under Section 67(1) of the Delhi Goods and Services Tax Act, 2017. Alleging duress, the petitioner claimed he was compelled to reverse ITC due to some alleged inadmissible claims and a shortage of cash. The petitioner argued that the inspection was illegal, citing flaws in the authorization process and lack of specific reasons mentioned in FORM GST INS-01.
Court’s Findings:
The court addressed two crucial questions. Firstly, it examined the legality of the inspection, dismissing the petitioner’s claim by stating that the search was conducted based on the petitioner availing ITC from suppliers with cancelled registrations, fulfilling the conditions under Section 67(1)(a) of the DGST Act.
Secondly, the court assessed the petitioner’s entitlement to a refund of the deposited ITC. The petitioner argued that he was forced to deposit ₹22,14,226 by reversing ITC under duress. The respondents countered, asserting the absence of a retraction of the petitioner’s statement recorded on 18.10.2022. The court referenced previous decisions but emphasized the importance of voluntary payments and the right of the taxpayer to dispute the voluntariness of the deposit.
Key Observations:
The court highlighted discrepancies in the procedural aspects, such as the absence of an acknowledgment in FORM GST DRC-04 and non-following of Rule 142 of Delhi Goods & Services Tax Rules, 2017. The petitioner filed the writ petition seeking to retract the statement about a month after it was recorded.
The court rejected the argument that the petitioner’s case should be dismissed based on a previous decision, noting the absence of an admission of tax liability. It emphasized that the petitioner had agreed to reverse ITC in response to information about cancelled registrations of certain suppliers, without adjudication of the question.
Court’s Directive:
In conclusion, the court directed the respondents to reverse the ITC of ₹22,14,226 in the petitioner’s Electronic Credit Ledger (ECL). However, it clarified that this wouldn’t prevent authorities from safeguarding revenue interests, including issuing orders under Section 83 of the DGST Act or Rule 86A of the DGST Rules, if necessary conditions are met.
This landmark decision underscores the significance of procedural adherence and the taxpayer’s right to challenge the voluntariness of payments made during coercive circumstances.
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