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of <h1>Quashing of DRC-07 notices denying ITC for alleged non-receipt and duplicate demand; challenges allowed, petitions disposed</h1> <h3>Devi Industrial Engineers & Ors. Versus Commissioner Of CGST & Anr.</h3> HC quashed DRC-07 notices bearing reference ZD070225002084Z (FY 2017-2018) and ZD070225002088R (FY 2019-2020), both dated 1 Feb 2025, which denied ITC on ... Passing on ITC to several parties - duplicity of demand (DRC-07) - denial of ITC purchased on the ground that the invoices were received without any receipt of goods - HELD THAT:- It is directed that the DRC-07 with the reference No. ZD070225002084Z for Financial Year 2017-2018 and DRC-07 reference No. ZD070225002088R for Financial Year 2019-2020, both dated 01st February, 2025 are quashed. Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether multiple DRC-07 demands issued for the same input tax credit transaction across different financial years constitute duplicate demands capable of being quashed. 2. Whether a DRC-07 demand corresponding to the financial year in which the transaction actually occurred can be sustained while other demands for the same transaction (in other financial years) must be quashed. 3. Whether deposit of the challenged amount affects the entitlement to relief and whether such deposit operates as a bar to further remedies. 4. Whether penalty imposed on directors in respect of the sustained DRC-07 can be adjudicated in the present proceedings or must be left open for appropriate remedies. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Duplicate demands: legal framework Legal framework: The Court considered the administrative scheme under which DRC-07 notices are issued to recover denied ITC and the principle that recovery proceedings should not give rise to multiple, duplicative demands in respect of a single taxable event. Precedent Treatment: No prior judicial authority was cited or relied upon in the reasoning; therefore the Court decided the issue on the facts and principles applicable to demand and recovery procedures under the GST framework. Interpretation and reasoning: The Court examined the documentation and found that the passing on/receipt of ITC between the supplier and the recipient comprised a single transaction relevant to one financial year for the petitioner. The issuance of separate DRC-07s for three different financial years in respect of the same transaction produced identical and duplicative demands. The Court held that identical recovery notices for the same transaction across different financial years are impermissibly multiplicative and liable to be quashed where they operate as duplicate demands. Ratio vs. Obiter: Ratio - duplicate demands issued in respect of the same single transaction across different financial years are liable to be quashed. Obiter - none stated on broader or differently-factored scenarios beyond the present facts. Conclusion: The Court quashed the two DRC-07 notices that constituted duplicate demands (i.e., those not corresponding to the financial year in which the single transaction occurred). Issue 2 - Sustenance of demand for correct financial year Legal framework: Recovery can be validly sustained for the relevant tax period/financial year in which the transaction (receipt of goods/invoice) appropriately falls, subject to statutory and procedural compliance. Precedent Treatment: No precedents were invoked; the Court relied on contemporaneous factual determination as to the period to which the transaction relates. Interpretation and reasoning: The Court accepted the Respondent's admission that one of the DRC-07 notices corresponded to the appropriate financial year for the transaction. On the facts, the petitioner's transaction fell within the financial year 2018-2019; hence the DRC-07 issued for that year was not duplicative and could be sustained. The Court emphasized fact-specific determination of the correct tax period for each transaction. Ratio vs. Obiter: Ratio - a demand corresponding to the correct financial year of the transaction can be upheld while duplicate notices for other years should be quashed; Obiter - the determination is limited to fact-specific application. Conclusion: The Court upheld the DRC-07 notice relating to the financial year in which the transaction actually took place (2018-2019) and quashed the other two DRC-07 notices. Issue 3 - Effect of deposit on relief Legal framework: Deposits made during the pendency of challenge to tax demands do not automatically preclude judicial relief and are often treated as without prejudice to and distinct from adjudication on merits. Precedent Treatment: No authorities were cited; the Court applied the standard administrative practice that deposits do not foreclose contesting the demand. Interpretation and reasoning: Although the petitioner had deposited the amount corresponding to the sustained demand, the Court expressly treated the deposit as 'without prejudice.' Consequently, the petitioner (and its directors) retained their statutory remedies to challenge the sustained DRC-07. Ratio vs. Obiter: Ratio - a deposit in respect of a demand will be treated as without prejudice and does not bar the availment of legal remedies; Obiter - illustration that deposit status does not affect quashing of duplicate notices. Conclusion: The deposit does not prevent further legal challenge; the petitioner and its directors remain at liberty to pursue remedies against the upheld DRC-07. Issue 4 - Penalty on directors Legal framework: Penalty imposition on directors arises from statutory provisions and requires separate consideration; challenges to penalty may be pursued through appropriate remedies. Precedent Treatment: Not addressed; Court refrained from adjudicating on the substantive validity of penalties in these proceedings. Interpretation and reasoning: The Court noted that penalties have been imposed on the directors in respect of the sustained DRC-07 but did not decide on the correctness of such penalties. Instead, the Court allowed the petitioner and its directors liberty to seek appropriate remedies in accordance with law against the DRC-07 and associated penalties. Ratio vs. Obiter: Obiter/Administrative direction - the Court avoided substantive adjudication on the penalty and left the matter open for contestation through statutory channels; this is not a binding ratio on penalty validity. Conclusion: The Court did not disturb the imposition of penalty within this order but permitted the directors to challenge the penalty by availing remedies as per law. Additional Observations/Limitations The Court expressly confined its decision to the unique facts of the present matter and clarified that the order would not operate as precedent for other noticees under the impugned departmental order. Cross-reference: Issues 1 and 2 are fact-sensitive and interlinked - duplicate demands were quashed only because the transaction was found to relate solely to one financial year, while the demand for that year was sustained (see Issue 2).
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