A recent court case where a company (petitioner) in the business of manufacturing and trading ferrous and non-ferrous metals challenged the collection of Integrated GST (IGST) by the government.

Background:

• The petitioner's business was subjected to a search by GST authorities based on suspicion of tax evasion.
• During the search, authorities demanded a deposit of Rs. 40,06,342/-. This amount included:
  • Rs. 15,06,342/- for alleged stock variation.
  • Rs. 25,00,000/- for alleged wrongful input tax credit (ITC).
• The petitioner claims the deposit was made under duress at 3:00 AM during the search and without proper opportunity to explain the transactions.

Petitioner's Arguments:

• The deposit wasn't voluntary as it happened during the ongoing search operation and authorities hadn't issued a demand notice.
• They claim the demand lacked legal basis and violated established procedures.
• The petitioner cited a court case (Vallabh Textiles vs. Senior Intelligence Officer) where involuntary GST deposits were refunded with interest.

Government's Arguments:

• The government argued the deposit was voluntary and made through the prescribed form (GST DRC-03).
• They claimed show-cause notices for tax recovery were already underway under Section 73 of the CGST Act.

Court's Decision:

• The court sided with the petitioner, highlighting the following:
  • The timing and circumstances of the deposit (during search operation) indicated coercion.
  • The authorities failed to follow proper procedure as outlined in CBIC Instruction No. 01/2022-2023, which prohibits tax collection during searches.
• The court ordered the following:
  • Refund of Rs. 15,06,342/- with interest at 6% p.a. from the deposit date.
  • Re-credit of Rs. 25,00,000/- to the petitioner's Electronic Credit Ledger (without interest as it wasn't claimed earlier).
• The court clarified that this decision wouldn't affect the ongoing recovery proceedings initiated by the government.

Case Law-Sushil Kumar Versus Delhi State GST Govt. NCT of Delhi

Citation-2024 TAXONATION 435 (DELHI)

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