2023 (12) TMI 238 - HC - GST

Taxpayer wins partial relief as search authorization upheld but voluntary payment provisions clarified under CGST Act

Lovelesh Singhal Prop Shivani Overseas Versus Commissioner, Delhi Goods And Services Tax & Ors.

Delhi HC disposed of petition challenging search authorization under Section 67 CGST Act. Court found authorization form contained all statutory reasons ... Refund of amount deposited by the petitioner during the course of inspection/search conducted at his premises - seeking that the order authorizing the search/inspection under Section 67 the Central Goods and Services Tax, 2017 read with Rule 139 (1) of the Central Goods and Services Tax Rules, 2017 be set aside - legality of search of business premises and seizure. The petitioner impugns the proceedings initiated under Section 67 of the CGST Act, inter alia, on the ground that the authorization for search is vague and imprecise. Whether the search conducted in the premises of the petitioner under Section 67 of the CGST Act was illegal? - HELD THAT:- In the present case, the proper officer has issued the authorization in Form INS-01 setting out all the reasons as stated in Section 67(1)(a) of the CGST Act and all the reasons (except the taxpayer claiming refund in excess of his entitlement) as set out in Clause A for issuing such authorization. Thus, there may be some merit in the grievance of the taxpayer that the proper officer has not set out any specific reason but has merely reproduced all reasons on the basis of which an authorization under Section 67(1)(a) of the CGST Act could be issued. However, it is seen that the reasons as set out are connected - The respondents have not referred to any specific reason for initiating the proceedings under Section 67 of the CGST Act, in their counter affidavit, except to state that the reasons to believe were duly recorded on the file prior to conducting the search and the inspection. Thus, it cannot be accepted that the authorization for conducting search or inspection under Section 67 of the CGST Act is illegal for want of reasons to believe that the grounds for conducting the said search as set out in Section 67(1)(a) of the CGST Act, exist. Whether the petitioner is entitled to reversal of the ITC that was debited from his ECL? - HELD THAT:- Undisputedly, a taxpayer has an option to voluntarily pay tax on a self-ascertainment basis prior to issuance of a show cause notice. In terms of Section 73(5) of the CGST Act, a person chargeable to tax may before service of a notice under Section 73(1) of the CGST Act or prior to the statement under Section 73(3) of the CGST Act, pay an amount of tax along with interest payable thereon under Section 50 of the CGST Act and inform the proper officer of such payment in writing - the provisions of Sub-sections (5) and (6) of Section 73 of the CGST Act are for the benefit of a taxpayer who voluntarily pays tax on his own ascertainment prior to issuance of any show cause notice and thus, absolves himself of liability to pay penalty in respect of the tax paid. Sub-section (5) of Section 74 of the CGST Act is in somewhat similar terms except that the taxpayer is also required to pay penalty equivalent to 15% along with tax deposited on the basis of his own ascertainment. The provisions of Sub-sections 73(5) and 74(5) of the CGST Act are not provisions under which the Department can compel a taxpayer to deposit tax - The respondents are directed to reverse the ITC of ₹18,72,000/- deposited by the petitioner on 08.10.2022 and forthwith credit the same in his ECL. Petition disposed off. Issues Involved:1. Legality of the search conducted under Section 67 of the CGST Act.2. Entitlement to the reversal of Input Tax Credit (ITC) debited from the petitioner's Electronic Credit Ledger (ECL).Summary:Issue 1: Legality of the Search Conducted Under Section 67 of the CGST ActThe petitioner challenged the search conducted at his premises on 07.10.2022, arguing that the authorization for the search was vague and imprecise. Section 67(1) of the CGST Act allows a proper officer to authorize an inspection if there is reason to believe that the taxable person has suppressed transactions, stock, or claimed excess ITC, among other reasons. The Court examined the authorization form GST INS-01 and noted that the proper officer had listed all possible reasons for the search without specifying any particular one. However, it was observed that the reasons were connected and the cancellation of the suppliers' registration with retrospective effect provided a rational basis for the search. The Court concluded that the authorization was not illegal as it was based on a rational belief that grounds for conducting the search existed.Issue 2: Entitlement to Reversal of ITC Debited from the Petitioner's ECLThe petitioner claimed that he was coerced into making a deposit of Rs. 18,72,000/- by debiting his ECL during the search operations. The Court noted that the petitioner was subjected to search operations beyond normal business hours, and the deposit was made at 2:06 am on 08.10.2022. The Court accepted the petitioner's claim that the deposit was made under duress and not voluntarily. It was emphasized that voluntary payment of tax under Section 73(5) of the CGST Act requires the taxpayer to acknowledge the underlying liability, which the petitioner disputed. The Court also observed that the requisite procedure under Rule 142 of the CGST Rules was not followed, as no acknowledgment in Form GST DRC-04 was issued by the respondents. The Court referred to previous judgments and guidelines that prohibit the collection of tax during search operations and require any voluntary payment to be made after the conclusion of such operations.In conclusion, the Court directed the respondents to reverse the ITC of Rs. 18,72,000/- deposited by the petitioner and credit the same in his ECL. The Court clarified that this would not preclude the respondents from taking any lawful steps to protect the interest of the Revenue, including actions under Rule 86A of the CGST Rules if conditions are satisfied.