Revenue's reversal of Input Tax Credit without assessment ruled unlawful under GST rules, refund with interest ordered

The HC held that the reversal of Input Tax Credit (ITC) by the revenue without any assessment or demand was unlawful and coercive. The Court found that the revenue authority disregarded interim directions issued in prior cases and related instructions, which mandated informing taxpayers about voluntary tax payments via DRC-03. The officer's failure to comply with these binding directions was viewed seriously. Consequently, the HC directed the respondent-revenue to refund the reversed ITC amounting to Rs. 37,68,300/- along with 6% interest. The petition was disposed of accordingly.

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Issues Involved:
1. Coercive recovery of Input Tax Credit (ITC) by the respondent authorities.
2. Legality of the search and seizure operation conducted by the CGST officials.
3. Compliance with the guidelines issued by the Central Board of Indirect Taxes and Customs (CBIC) and the Gujarat High Court's directions.
4. Voluntariness of the petitioner's reversal of ITC.
5. Request for refund of the reversed ITC amount.

Detailed Analysis:

1. Coercive Recovery of ITC:
The petitioner sought the court's intervention under Article 226 of the Constitution of India, claiming that the respondent authorities coercively and illegally reversed ITC amounting to Rs. 37,68,300/- during a search operation. The petitioner argued that the reversal was done under threat and coercion, without their voluntary consent, and in violation of the court's previous directions.

2. Legality of the Search and Seizure Operation:
The search and seizure operation was conducted on 11th February 2022 by CGST officials. The petitioner alleged that the officers forced them to log in to the GST portal and reverse the ITC using the personal laptop and mobile number of a partner's son. The petitioner claimed no tax evasion and that all records were made available during the search.

3. Compliance with Guidelines and Court Directions:
The petitioner heavily relied on the Gujarat High Court's decision in Special Civil Application No. 3196 of 2021, which directed that no recovery should be made during search/inspection proceedings. The court had issued specific guidelines to prevent coercive recovery, including advising assessees to file Form DRC-03 the day after the search and making provisions for filing complaints if coerced.

4. Voluntariness of ITC Reversal:
The petitioner contended that the reversal of ITC was not voluntary but forced by the CGST officials. The respondent denied these allegations, stating that the petitioner voluntarily reversed the ITC and signed the necessary documents without any coercion. The court examined the petitioner's affidavit, retraction affidavit, and the transcript of a recorded call, which supported the claim of coercion.

5. Request for Refund:
The petitioner sought a writ of mandamus to quash and set aside Form DRC-03 dated 12.02.2022 and restrain the respondent from generating Form DRC-05. They also requested the court to direct the respondent authorities to refund the amount of Rs. 37,68,300/- recovered by reversing the ITC.

Court's Observations and Conclusion:
The court noted that the respondent's actions violated the directions issued in Special Civil Application No. 3196 of 2021, which were binding and had not been challenged. The court found that the petitioner's reversal of ITC lacked voluntariness, as evidenced by the recorded call transcript. The court directed the respondent authorities to reverse the ITC amount of Rs. 37,68,300/- along with 6% interest. The petition was disposed of with these directions.

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