Gujarat High Court Directed Refund: Reversal Of ITC At Midnight During Search And Seizure Operation Can’t Be Treated As Voluntary Payment

The Gujarat High Court in the case Shree Ganesh Molasses Trading Company Versus Superintendent observed that the reversal of input tax credit (ITC) at midnight during search and seizure operations cannot be treated as a voluntary payment.
The Division bench headed by Justice Sonia Gokani and Justice Sandeep S. Bhatt in the case observed and it has been directed by the department to reverse the ITC to the tune for an amount of Rs. 37,68,300 along with an interest imposed of 6%.
In the present case, the petitioner being in the business of trading industrial chemicals such as soda ash, silica bicarbonates, etc. Therefore, the search and seizure operation were being carried out by the teams of CGST officials on 11.02.2022. The department received the ITC on 12.02.2022 in the electronic credit ledger and has illegally and corrosively filed Form DRC-03 under Section 74(5), although the same was not being made voluntary.
It has also been contended by the petitioner that there being no tax evasion on the part of the petitioner’s firm and no question has been arose of admitting any wrongdoing.
It has also been alleged before the court that it has forcibly been reserved by the department the ITC of GST and CGST being lying in the electronic credit ledger to the tune of an amount of Rs. 18,84,150 and Rs. 18,84,150 after reversing the credit of ITC. It has also been proceeded for filing Form DRC-03, for which an OTP is needed, which was being sent to the partner’s son.
Therefore, the petitioner in the plea also relied on CBIC notification No. 01/2022-2023, wherein the court has stated that under any such kind of circumstances, a recovery under Section 67 of the Central Goods and Services Act, 2017, which should not be made at the time of a search or at the time of inspection, whether it is to be done by cash, check, through e-payment, or by adjustment of an input tax credit.
It has also been stated by the petitioner in the plea that no assessment has been made so far, and no demand has been raised, wherein in the absence of any assessment and the quantum of demand cannot be determined. Thus, the action of the coercive recovery for the tune to an amount of Rs. 37,68,300 by reversing of the ITC in the electronic credit ledger as the same being bad in law.
Accordingly, the court also noted the conduct of the department which being contrary to the instructions which is issued by the board, and therefore, the action of the petitioner, which is to be termed to be voluntary and it did not have any element of voluntariness.

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