Coercive recovery during a search without adhering to CBIC guidance is illegal under the law

Fact and issue of the case

By way of present petition, the petitioner seeks to invoke extra-ordinary jurisdiction of this Court under Article 226 of the Constitution of India seeking the direction to the respondent authorities to immediately refund Rs. 37,68,300/ – of reversal of the Input Tax Credit (for short “ITC”) reversed under threat, coercion and without the Will of the petitioner.

Petitioner – firm is engaged in the business of trading of industrial chemicals, soda ash, silica bicarbonates etc. and its registered from 2012, with Commercial Tax Department, Gujarat and thereafter with GST Department bearing registration No. 24AARFS7953BIZX .

On 11th February, 2022, a search and seizure operation was carried out by the team of the CGST officials. On 12th February, 2022 at about 1.00 a.m. respondent No.1 reversed the ITC in the electronic credit ledge and corrosively and illegally filed Form DRC-03 under Section 74(5), although it was not voluntary. According to the petitioner, there is no tax evasion on the part of the petitioner-firm and there arises no question of admitting any wrong doing.

Retraction affidavit had been filed on 18th February, 2022 by the petitioner and the representations have been made for the refund of amount of ITC. According to the petitioner, he purchased Molasses from sugar factories and received invoices permit an E-way bills and the same is sold to various Dairies after getting permission from the Prohibition Department along with bill and E-way bill generated by the petitioner’s firm. The transportation is being done by M/s. Aarya Transport Company. Petitioner’s firm had provided access to all records during the course of search. The summons was served upon one of the partners under Section 17 which mentioned the time 10.35 pm. The explanation since was not satisfactory as per the officers at around 1’00 O’clock in the night on 12th February, 2022. The officers forced the petitioner to login to GST portal using the personal laptop. The logins was registered with mobile number of son of the partner who was at Mumbai.

It is alleged that respondent No.1 had forcibly reversed the ITC of GST & 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 had needed OTP which are sent to the partner’s son.

Observation of the court

Observations of Gujarat High Court in Special Civil Application No. 3196 of 2021 according to the respondent are not applicable because the facts involved in the instant case are different.

We have heard Mr.H.J.Trivedi, learned advocate for the petitioner who along the line of avements of the petitioner had argued before this Court and emphasized that the reversal of ITC to the tune of Rs.37,68,000/-(round off) was surely by compulsion and in violation of the order of this Court passed in Special Civil Application No. 3196 of 2021. He has also further urged that pursuant to the directions issued by the Delhi High Court in the case of M/s. Vallabh Textiles Vs. Senior Intelligence Officer and Ors. [2022 (12) TMI 1038 Delhi High Court], the department has issued the instruction No.01/2022-23 on 25th May, 2022, for the officers seeks to recover the tax dues during the search, inspection and investigation.

Assuming that the directions contained in the Bhumi Associates at the interim stage, no authority should forget that its own Board had followed it subsequently by issuing the instructions on the basis thereof and same had also received the scrutiny at the end of Delhi High Court.

Resultantly, this Court requires to hold that the respondent-revenue is required to reverse the ITC to the tune of Rs. 37,68,300/-along with 6% interest. Accordingly, this petition stands disposed of.