High Court: Even when Tax is Due and Payable, Officers not Allowed to Coerce Taxpayers into Paying it

In a recent ruling, the Delhi High Court ruled that even in cases where it is obvious that taxes are due and payable, tax officers cannot force taxpayers to pay without following due process.

The petitioner in the Delhi High Court case, M/s Shivani Overseas, is registered under the CGST Act and engages in the trade of PVC resin. The petitioner is seeking redress for alleged irregularities during a search that the tax department conducted on October 7 and 8, 2022. The petitioner stated that they were forced to reverse an input tax credit (ITC) of Rs. 18,72,000 for supplies they had purchased from M/s Samridhi Exports by officers who were authorized under Section 67 of the CGST Act. Documents covering the fiscal years 2017–18 through 2021–22 were examined during this time.

The petitioner’s arguments focused on the use of coercive measures during the search operation. They claimed to have been detained in the office from 4 p.m. on October 7, 2022, until 2:30 a.m. on October 8, 2022. Under duress, the petitioner submitted to pressure from the visiting team and transferred the ITC amount. The petitioner challenged the show cause notice (SCN) that followed under Section 74 of the CGST Act because they were unhappy with the proposed interest penalties for the months of April 2022 to February 2023. The main points of contention centered on the petitioner’s allegation that she was forced to file Form DRC-03 and debit ITC without a proper determination of liability, as well as the alleged involuntary deposit of amounts during the search.

In contrast, the tax department argued that the tax deposit was voluntary because it was made by debiting ITC from the Electronic Credit Ledger. They maintained that the petitioner had acknowledged liability in a statement that was not withdrawn. The department argued that the petitioner’s ITC reversal was justified and that the officers behaved within their bounds of authority. In addition, the respondents requested interest penalties in a show-cause notice under Section 74.

Judges Amit Mahajan and Vibhu Bakhru made it clear that the taxpayer’s statement should not be interpreted as an admission of guilt regarding the payment of the input tax credit. It should not be construed as an admission of liability for reversing the ITC associated with purchases made from the aforementioned dealer; rather, it merely documents the details supplied by the visiting team regarding the cancellation of the supplier, M/s Samridhi Exports,’s registration.

Despite the fact that it may be obvious that the tax is due and payable, the Court noted that “it is impermissible for the officers to press the taxpayers to pay tax without following the requisite procedure.”

The respondents were ordered by the court to credit the Rs. 18,72,000 ITC that was deposited on October 8, 2022, in the Electronic Credit Ledger (ECL) and to reverse it. The decision made it clear that the respondents are still free to act in accordance with the law in the future. The Commissioner or authorized officers may issue appropriate orders, including those under Rule 86A of the CGST Rules, to protect the interests of the Revenue in the event that suspicions of fraudulent or ineligible ITC availing arise.

The petitioner deposited Rs. 18,72,000 as ITC on October 8, 2022. The Court directed the respondents to reverse this amount and promptly credit it to the petitioner’s ECL.

Lovelesh Singhal Prop Shivani Overseas vs. Commissioner, Delhi Goods and Services Tax & Ors. (W.P.(C) 16353/2022 )

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