SHREE GANESH MOLASSES TRADING CO. vs SUPERINTENDENT, OFFICE OF THE COMMISSIONER

Reversal of ITC at midnight during search and seizure operation can’t be treated as voluntary payment. Department had violated interim directions made in case of Bhumi Associate vs UOI which had not been challenged and instruction was issued by CBIC pursuant to Bhumi associate case which was binding in nature.

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. According to the petitioner, he had not volunteered that & in fact was forced to reverses after reversing the credit ledger at 1.09 a.m. The From GST DRC-03 on 12th February, 2022 was filled-in. The petitioner has heavily relied upon the group of petitions being Special Civil Application No. 2426, 2515, 2618 and 3196 of 2021 decided on February, 18, 2021 where, the Court came down heavily on the practice of making coercive recovery during the course of search and without making any assessment or adjudication. The Court has directed thus:-

“The Central Board of Indirect Taxes and Customs as well as the Chief Commissioner of Central/ State Tax of the State of Gujarat are hereby directed to issue the following guidelines by way of suitable circular/instructions:

(1) No recovery in any mode by cheque, cash, epayment or adjustment of input tax credit should be made at the time of search/inspection proceedings under Section 67 of the Central/Gujarat Goods and Services Tax Act, 2017 under any circumstances.

(2) Even if the assessee comes forward to make voluntary payment by filing Form DRC03, the assessee should be asked/ advised to file such Form DRC03 on the next day after the end of search proceedings and after the officers of the visiting team have left the premises of the assessee.

(3) Facility of filing complaint/ grievance after the end of search proceedings should be made available to the assessee if the assessee was forced to make payment in any mode during the pendency of the search proceedings.

(4) If complaint/ grievance is filed by assessee and officer is found to have acted in defiance of the aforestated directions, then strict disciplinary action should be initiated against the concerned officer.”

7. It is case of the petitioner that no assessment has been framed so far nor any demand has been raised in absence of any assessment, the quantum of demand cannot be determined hence, the action of coercive recovery to the tune of Rs. 37,68,300/- by reversing the ITC in electronic credit ledger is bad in law. The prayers sought for are as follows:-

“(A) Your Lordships may be pleased to issue a writ of mandamus or writ in the nature of mandamus or any other writ, to quash and set aside Form DRC-03 dated 12.2.2022 (at Annexure E) and further be pleased to restrain the respondent No.1 or any other competent officer to generate Form DRC-05 in respect of the concerned Form DRC-03 dated 12.2.2022 (at Annexure E);

(B) Your Lordships may be pleased to issue a writ of mandamus or writ in the nature of mandamus or any other writ, orders, or directions retraining the respondent-authorities from adopting any coercive measures without issuing any show cause notice as required under the Act to compel the petitioner to pay further tax dues which are disputed by the petitioner-frim and further be pleased to direct the respondent-authorities to refund the amount of Rs.37,68,300/- recovered by reversing the Input Tax Credit on 12.2.2022 through DRC-03 paid under protest and coercion;

(C) Your Lordships may be pleased to grant ex-parte ad interim order in favour of the petitioner herein in terms.

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Shree Ganesh Molasses Trading Co.

For Reference Visit:
Gujarat High Court

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GST Case Law