ITC Reversal During Late Night Search Involuntarily: Delhi High Court Directs Dept. To Reverse ITC In Assessee's ECL

The Delhi High Court has directed the department to reverse the input tax credit (ITC) amounting to Rs. 22,14,226 in the petitioner's electronic credit ledger (ECL).

“We do not find it difficult to accept that the petitioner may have found the circumstances intimidating and had, accordingly, agreed to reverse the ITC. We are unable to accept that the reversal of ITC was made voluntarily without any suggestion or encouragement by the officers,” the bench of Justice Vibhu Bakhru and Justice Amit Mahajan has observed.

The petitioner/assessee has filed the petition principally challenging the search or inspection conducted at his business premises under Section 67(1) of the Delhi Goods and Services Tax Act, 2017 (DGST Act). The petitioner claims that during the course of the search and inspection, he was compelled to reverse the input tax credit (ITC) on account of an inadmissible ITC and a shortage of cash.

The petitioner claimed that his statement was recorded at about 11:30 p.m. on October 18, 2022, and he was compelled to agree to reverse the ITC in respect of certain suppliers whose registrations were stated to be cancelled.

The petitioner claimed that the petitioner's statement, as well as the reversal of ITC, was done under duress, while the petitioner was effectively under the control and supervision of officers of the visiting team.

The petitioner submitted that he was under the stress of interrogation as the inspection was continuing from 4:00 p.m. earlier that day. Although the petitioner had filed FORM GST DRC-03, there was no acknowledgement of receipt by the Department by issuing FORM GST DRC-04.

The respondent contended that the petitioner had not retracted the statement recorded on October 18, 2022, immediately after the search, and therefore, he is precluded from disputing that he had voluntarily reversed the ITC amounting to Rs. 22,14,226.

The issue raised was whether the petitioner is entitled to the refund of the ITC deposited during the course of the search conducted on October 18, 2022. According to the petitioner, he was compelled to deposit a sum of Rs. 22,14,226 by reversing the ITC available in his Electronic Credit Ledger (ECL). The petitioner also claims that the statement to that effect, recorded on October 18, 2022, was also recorded under duress and coercion.

The court directed the department to reverse the ITC amounting to Rs. 22,14,226 in the petitioner's ECL. The court clarified that this would not preclude the concerned authorities from safeguarding the interests of the Revenue, including issuing orders under Section 83 of the DGST Act or Rule 86A of the DGST Rules, if the requisite conditions are satisfied.

Counsel For Petitioner: A. K. Babbar

Counsel For Respondent: Rajeev Aggarwal

Case Title: Santosh Kumar Gupta Prop. Mahan Polymers Versus Commissioner, Delhi Goods And Services Tax Act & Ors.

Citation: 2023 LiveLaw (Del) 1269

Case No.: W.P.(C) 17171/2022

Click Here To Read The Order