The Delhi High Court, in a recent ruling, has held that tax officers are not permitted to coerce taxpayers into paying taxes without following due process, even if it is evident that the taxes are due and payable.
Brief Facts of the Case:
In the case before the Delhi High Court, the petitioner, M/s Shivani Overseas, involved in the trade of PVC resin and registered under the CGST Act, sought redress for alleged improprieties during a search conducted by the tax department on October 7th and 8th, 2022. The petitioner claimed that officers, authorized under Section 67 of the CGST Act, compelled them to reverse an input tax credit (ITC) of Rs. 18,72,000 for supplies procured from M/s Samridhi Exports. During this period, documents spanning fiscal years 2017–18 to 2021–22 underwent scrutiny.
Contentions of the Parties:
The contentions of the petitioner centred on the coercive tactics employed during the search operation, asserting that they were held in the office from 4 pm on October 7, 2022, until 2:30 am on October 8, 2022. The petitioner, operating under duress, yielded to the visiting team's pressure and transferred the ITC amount. Dissatisfied with the subsequent show cause notice (SCN) under Section 74 of the CGST Act, which proposed interest penalties for the period from April 2022 to February 2023, the petitioner challenged the SCN. The key contention revolved around the alleged involuntary deposit of amounts during the search and the petitioner's claim of being coerced into filing Form DRC-03 and debiting ITC without proper adjudication of liability.
Contrastingly, the tax department contended that the deposit of tax, by debiting ITC from the Electronic Credit Ledger, was not involuntary. They argued that the petitioner had made a statement admitting liability, which, according to them, was not retracted. The department maintained that the officers acted within their authority and that the petitioner's ITC reversal was warranted. Furthermore, the respondents issued a show cause notice under Section 74, seeking interest penalties.
Observations by the Court:
Justices Vibhu Bakhru and Amit Mahajan clarified that the taxpayer's statement should not be misconstrued as an admission of liability to pay ITC. It merely records the information provided by the visiting team about the cancellation of the registration of the supplier, M/s Samridhi Exports, and should not be interpreted as an acceptance of responsibility for reversing the ITC related to purchases from the said dealer.
The Court observed that “it is impermissible for the officers to pressurize the taxpayers to pay tax without following the requisite procedure, notwithstanding that it may be apparent that such tax is due and payable.”
The court directed the respondents to reverse the ITC of Rs. 18,72,000 deposited on October 8, 2022, and credit it in the Electronic Credit Ledger (ECL). However, the ruling clarified that this does not prevent the respondents from taking further actions within the bounds of the law. If suspicions of fraudulent or ineligible ITC availing arise, the Commissioner or authorised officers can issue appropriate orders, including those under Rule 86A of the CGST Rules, ensuring the Revenue's interests are safeguarded.
The Decision of the Court:
The Court instructed the respondents to overturn the ITC of Rs. 18,72,000 that the petitioner deposited on October 8, 2022, and immediately credit this amount to his ECL.
Case Title: Lovelesh Singhal Prop Shivani Overseas vs. Commissioner, Delhi Goods and Services Tax & Ors.
Coram: Hon'ble Mr. Justice Vibhu Bakhru and Hon'ble Mr. Justice Amit Mahajan
Case No.: W.P.(C) 16353/2022
Advocates of the Petitioner: Mr A. K. Babbar & Mr Surender Kumar
Advocates of the Respondents: Mr. Rajeev Aggarwal, ASC with Ms. Shilpa Singh, Adv. for R1, 2 & 3
Read Judgment @LatestLaws.com
Picture Source : https://www.needpix.com/photo/download/316642/taxes-tax-office-tax-return-form-income-tax-return-income-tax-wealth-finance-tax-evasion
