Reversal of ITC At Midnight During Search And Seizure Operation Can't Be Treated As Voluntary Payment: Gujarat High Court Directs Refund

The Gujarat High Court has held that the reversal of input tax credit (ITC) at midnight during search and seizure operations can't be treated as a voluntary payment.

The division bench of Justice Sonia Gokani and Justice Sandeep S. Bhatt has directed the department to reverse the ITC to the tune of Rs. 37,68,300 along with 6% interest.

The petitioner is in the business of trading industrial chemicals such as soda ash, silica bicarbonates, etc. On February 11, 2022, a search and seizure operation was carried out by a team of CGST officials. On February 12, 2022, at about 1.00 a.m., the department reversed the ITC in the electronic credit ledger and corrosively and illegally filed Form DRC-03 under Section 74(5), although it was not voluntary.

The petitioner contended that there was no tax evasion on the part of the petitioner's firm, and there arises no question of admitting any wrongdoing.

It was alleged that the department had forcibly reversed the ITC of GST and CGST lying in the electronic credit ledger to the tune of Rs. 18,84,150 and Rs. 18,84,150 after reversing the credit of ITC. It proceeded to file Form DRC-03, for which it needed an OTP, which was sent to the partner’s son.

The petitioner relied on CBIC notification No. 01/2022-23, in which it was stated that under any circumstances, a recovery under Section 67 of the CGST Act, 2017, should not be made at the time of a search or inspection, whether it be by check, cash, e-payment, or adjustment of an input tax credit.

The petitioner stated that no assessment has been made so far, and no demand has been raised. In the absence of any assessment, the quantum of demand cannot be determined. Hence, the action of coercive recovery to the tune of Rs. 37,68,300 by reversing the ITC in the electronic credit ledger is bad in law.

The court noted that the conduct of the department was contrary to the instructions issued by the board, and therefore, the action of the petitioner, which is termed to be voluntary, did not have any element of voluntariness.

Case Title: Shree Ganesh Molasses Trading Company Versus Superintendent [R/Special Civil Application No. 4026 of 2022]

Case Citation: 2023 Livelaw (Guj) 49

Date: 18/01/2023

Counsel For Petitioner: Hiren Ji Trivedi

Counsel For Respondent: Utkarsh R. Sharma

Click Here To Read The Order