Lovelesh Singhal Prop Shivani Overseas Vs Commissioner (Delhi High Court)
Introduction: In a recent judgment, the Delhi High Court addressed a petition filed by Lovelesh Singhal, proprietor of M/s Shivani Overseas, challenging the tax recovery proceedings initiated by the authorities. The petitioner sought directions to refund an amount of ₹18,72,000/-, deposited during a search operation, and set aside the authorization order for inspection under the Central Goods and Services Tax Act, 2017 (CGST Act). This article provides an overview of the case, the factual context, key submissions, and the court’s reasoning.
Factual Background: Lovelesh Singhal, engaged in the trading of PVC Resin through his business Shivani Overseas, underwent a search operation on 07.10.2022, conducted by respondent no.3 under Section 67 of the CGST Act. The petitioner alleged coercion during the inspection, resulting in the reversal of Input Tax Credit (ITC) amounting to ₹18,72,000/- related to supplies from M/s Samridhi Exports. The authorities subsequently issued a show cause notice proposing a substantial demand, leading the petitioner to file the present petition.
Petitioner’s Submissions: The petitioner challenged the search proceedings, arguing that the authorization lacked specificity and that the officers had no valid reason to believe there was any suppression or contravention. Additionally, the petitioner contested the coercive collection of ₹18,72,000/- through the debiting of the Electronic Credit Ledger (ECL) without proper adjudication of liability. The petitioner’s counsel referred to precedents, including decisions by the Tripura High Court and the Madras High Court, emphasizing the importance of clear authorization and proper procedure in such cases.
Respondent’s Counter: The respondents, represented by Mr. Rajeev Aggarwal, defended the proceedings, claiming that the taxpayer had the option to make voluntary payments to avoid penalties and interest. They argued that the petitioner’s statement, recorded during the search, admitted liability, and emphasized the non-retraction of the same. The respondent’s counsel also cited decisions from the Kerala High Court and a coordinate bench of the Delhi High Court, asserting the voluntary nature of the payments.
Court’s Analysis and Conclusion: The court examined the legality of the search authorization and the voluntariness of the tax deposit. On the issue of authorization, the court held that while there might be some merit in the petitioner’s grievance, the authorization was not illegal, as it was connected to the grounds for conducting the search under Section 67(1)(a) of the CGST Act.
Regarding the tax deposit, the court noted the petitioner’s claim of coercion and emphasized the importance of adhering to due process. Referring to statutory provisions, the court held that voluntary payments should be made without coercion and that failure to follow the prescribed procedure rendered such payments non-voluntary.
The court directed the respondents to reverse the ITC of ₹18,72,000/- deposited by the petitioner and credited to his ECL, emphasizing that this does not preclude further legal action if there is a valid reason to believe ineligibility or fraud.
Conclusion: The judgment in Lovelesh Singhal Prop Shivani Overseas vs. Commissioner sets a significant precedent on tax recovery procedures, highlighting the importance of clear authorization and adherence to due process. It reinforces the principle that tax recovery should not be coercive and emphasizes the need for proper procedures, offering guidance on voluntary payments and protecting taxpayer rights.
This case underscores the broader issue of balancing the powers of tax authorities with the rights of taxpayers, ensuring fair and transparent tax administration. It serves as a reminder of the judiciary’s role in safeguarding the procedural integrity of tax proceedings and upholding the principles of natural justice.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
The petitioner has filed the present petition, inter alia, praying that directions be issued to the respondents to refund the amount of ₹18,72,000/-, which was deposited by the petitioner during the course of inspection/search conducted at his premises. The petitioner also prays that the order dated 07.10.2022 (in form INS-01) authorizing the search/inspection under Section 67 the Central Goods and Services Tax, 2017 (hereafter ‘the CGST Act’) read with Rule 139 (1) of the Central Goods and Services Tax Rules, 2017 (hereafter ‘the CGST Rules’), be set aside. In addition, the petitioner prays that the search of his business premises and seizure effected, be declared illegal.
FACTUAL CONTEXT
2. The petitioner is an individual and is engaged in the business of trading of PVC Resin under the name of M/s Shivani Overseas. The petitioner is registered under the CGST Act and has been assigned the Goods and Services Tax Identification Number (GSTIN): 07AAYPS1178H1Z0.
3. On 07.10.2022 continuing till early hours of 08.10.2022, a search was conducted by respondent no.3 at the petitioner’s business premises being Property No. 66, 3rd floor, Pocket-13, Sector-24, Rohini, Delhi and 3411/249, 2nd floor, Hansa Puri, Tri Nagar, Delhi, under Section 67 of the CGST Act. This was on the basis of authorization dated 07.10.2022 (in form GST INS-01), issued by respondent no.1 in terms of Rule 139(1) of the CGST Rules.
4. During the course of the search operation, documents pertaining to the period FY 2017-18 to 2021-22 were inspected. The petitioner alleges that during the course of the inspection, the visiting team of officers forced him to reverse the Input Tax Credit (ITC) amounting to ₹18,72,000/- in respect of supplies purchased from one M/s Samridhi Exports. The petitioner was informed that the GST registration of the said supplier was cancelled retrospectively. The petitioner states that he was detained in the office from 4 pm of 07.10.2022 to 2.30 am of 08.10.2022. It is contended on behalf of the petitioner that during this time, the petitioner succumbed to the intimidation of the visiting team and was compelled to transfer the aforementioned amount of the ITC.
5. The statement of the petitioner (Mr. Lovelesh Singhal, Proprietor of M/s Shivani Overseas) was recorded on 07.10.2022. He denied mismatch of GSTR1 & GSTR3B, GSTR 2A & GSTR3B for the period 2017-2018 to 2022-2023 and undertook to furnish the reconciliation, in case there was any mismatch attributable to ITC availed by the petitioner.
6. The respondents issued a show cause notice dated 29.03.2023 (hereafter ‘the SCN’) to the petitioner under Section 74 of the CGST Act bearing reference no. ZD070323012878C, proposing a demand of ₹17,83,28,150/- (i.e., CGST and SGST of ₹3,22,91,278/- each) including interest of ₹4,91,63,038 and penalty for a sum of ₹6,45,82,556/- for the period of April 2022 to February 2023.
7. The petitioner is contesting the SCN and has filed the present petition being aggrieved by the failure on the part of the respondents to refund the amounts, which he claims was deposited involuntarily and under duress, during the course of search.
SUBMISSIONS
8. The petitioner impugns the proceedings initiated under Section 67 of the CGST Act, inter alia, on the ground that the authorization for search is vague and imprecise. It is contended that the proper officer issuing the authorization (in Form INS 01) had no reason to believe that the petitioner had suppressed any transactions relating to supply of goods/services and/or had suppressed transactions relating to the stock of goods in hand or had claimed ITC in excess of its entitlement under the CGST Act.
9. The petitioner also impugns the proceedings for collection of ₹18,72,000/- by compelling the transfer of the said amount from the petitioner’s Electronic Credit Ledger (ECL). As noticed above, it is the petitioner’s case that he was coerced into filing Form DRC-03 and debiting the available ITC under duress and coercion without adjudication of any liability or any demand, in accordance with law.
10. The learned counsel for the petitioner also relied on the decision of the Tripura High Court in Dayamay Enterprise v. State of Tripura and 3 Ors.: WP(C) No. 89/2021, decided on 22.02.2021, whereby the Court had set aside a show cause notice on the ground that it was vague and imprecise. He also referred to the decision of the Madras High Court in M/s Shri NandhiDhall Mills India Private Limited v. Senior Intelligence Officer and Ors.: W.P.No.5192/2020, decided on 07.04.2021, whereby in similar facts, the Madras High Court had directed the concerned authorities to refund an amount of ₹2,00,00,000/-, which was allegedly paid under coercion.
11. The petitioner also referred to the decision of the Gujarat High Court in M/s Bhumi Associate v. Union of India: Manu/GJ/0174/2022, decided on 16.02.2021, whereby the Court had issued directions to be followed for collecting tax in proximity to the search and seizure operations. The learned counsel also relied on the decision of the Coordinate Bench of this Court in M/s Vallabh Textiles v. Senior Intelligence Officer and Ors.: 2022 SCC OnLine Del 4508, whereby this Court had respectfully concurred with the directions issued by the Gujarat High Court in M/s Bhumi Associate v. Union of India (supra) and had found that the required procedure had not been followed in that case. Accordingly, the Court had directed the refund of the tax deposited by the taxpayer involuntarily along with interest at the rate of 6%.
12. Mr. Rajeev Aggarwal, learned counsel appearing for the respondents countered the aforesaid contentions. He submitted that it was well recognised that the taxpayer was entitled to make voluntary payment of tax to avoid penalty and interest. He stoutly contested the claim that the deposit of tax by debiting ITC from the ECL was involuntary. He further submitted that the petitioner had made a statement admitting to the liability, which was not retracted. He also referred to the decision of the Kerala High Court in Suresh Kumar P.P. and Ors. v. The Deputy Director, Directorate General of GST Intelligence (DGGI) and Ors.: MANU/KE/2191/2020, whereby the court had rejected a similar prayer on the ground that the tax deposited was voluntary. He submitted that the Special Leave Petition preferred by the taxpayer against the said order was also rejected by the Supreme Court1.
13. He also referred to the decision of the Coordinate Bench of this Court in M/s RCI Industries and Technologies Ltd. Through its Director Rajeev Gupta v. Commissioner DGST Delhi & Ors.: 2021 SCC OnLine Del 3450. In that case, the Court had rejected the contention that the statement was recorded under coercion as the same had not been retracted. Lastly, he referred to the decision of the Gujrat High Court in S. Industries v. Union of India: Manu/GJ/1609/2020, whereby the High Court had denied the relief claimed on similar grounds for the reason that the controversy raised involved disputed questions of fact.
REASONS AND CONCLUSION
14. The first and foremost question to be addressed is whether the search conducted in the premises of the petitioner under Section 67 of the CGST Act was illegal. As noted above, the petitioner claims that the search was illegal as the authorization for search dated 07.10.2022 was imprecise and vague.
15. Section 67(1) of the CGST Act enables the proper officer to authorize any officer of the central tax to inspect any place of business of a taxable person or persons engaged in the business of transporting goods where he has reason to believe that; (a) the taxable person has suppressed any transaction relating to supply of goods or service or both; (b) suppressed the stock of goods in hand; (c) claimed ITC in excess of his entitlement; or (d) has indulged in contravention of any of the provisions of the CGST Act or the CGST Rules made thereunder, to evade tax.
16. In terms of Rule 139(1) of the CGST Rules authorization under Section 67(1) of the CGST Act is required to be issued in Form GST INS-01. The said Form is reproduced below:
“FORM GST INS-1
AUTHORISATION FOR INSPECTION OR SEARCH
[See rule 139(1)]
To
