CASE SUMMARY
Case Title, Court, Petition No., Category, Date
Lovelesh Singhal Prop. Shivani Overseas v. Commissioner, Delhi GST & Ors.,
Delhi High Court, W.P.(C) 16353/2022
Category: Search & Seizure / Forced Recovery / Input Tax Credit
Judgment Date: 05.12.2023
Relevant Provisions: Sections 67, 73, 74, 50 of CGST Act; Rule 139 & Rule 142 of CGST Rules
Facts (with para references)
(Paras 2–7)
The petitioner, a registered dealer trading in PVC resin under the name Shivani Overseas, was subjected to a search on 07.10.2022–08.10.2022 at two premises under Section 67 based on Form GST INS-01. During the search, officers verified books for FY 2017–18 to 2021–22 and allegedly coerced the petitioner to file DRC-03 at 2:06 AM, debiting ₹18,72,000 from ITC, on the ground that ITC from supplier Samridhi Exports was ineligible due to retrospective GST registration cancellation. The petitioner denied any mismatch in returns and asserted that the deposit was forcibly extracted. A later Section 74 SCN dated 29.03.2023 proposed a demand of ₹17.83 crore for an unrelated period.
Questions Before the Court
(Paras 8–13)
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Whether the search under Section 67 was invalid for want of specific “reason to believe” in Form INS-01?
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Whether the ITC payment of ₹18.72 lakh made during the search was voluntary or coerced?
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Whether forced recovery during a search violates Section 73/74 read with Rule 142 and CBIC Instructions?
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Whether the petitioner is entitled to re-credit of the ITC reversed under DRC-03?
Observations of the Court
(Paras 14–42)
On Validity of Search
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Form INS-01 contained all check-boxes instead of specifying precise grounds.
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However, Court held that retrospective cancellation of suppliers’ registration has a rational nexus to enable “reason to believe” (Paras 17–20).
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Thus, search was not invalid, though the form was poorly drafted.
On Forced Recovery
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Payment was at 2:06 AM while officers were still present, which by itself shows coercive circumstances (Paras 21–24).
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The statement recorded did not admit liability or wrongful ITC (Paras 25–26).
On Statutory Framework
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Section 73(5)/(6) and Section 74(5) permit voluntary deposits but cannot be used by officers to demand money during search (Paras 27–29).
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Absence of DRC-04 acknowledgment under Rule 142 indicated the payment was not voluntary (Para 32).
On Judicial & Administrative Safeguards
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The Court referred to:
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Bhumi Associate (Gujarat HC) – No recovery during search; DRC-03 only next day (Paras 33–35).
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CBIC Instruction 25.05.2022 – No “recovery” during search; voluntary payment alone permissible (Para 36).
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Court noted that such safeguards were not followed.
On Respondents’ Defence
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No admission of liability was found; reliance on Suresh Kumar P.P. misplaced (Paras 38–41).
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No contemporaneous retraction was necessary since no admission was made in the first place.
Judgment / Holding (Paras 43–45)
Held:
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ITC of ₹18,72,000 debited during search was coerced and must be immediately re-credited to petitioner’s Electronic Credit Ledger.
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This order does not preclude the Department from proceeding against the petitioner lawfully, including action under Rule 86A, issuance of SCN, or protective steps.
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The search itself was not quashed, but the forced recovery was held illegal.
Cases Referred – Summary Table
| Case | Court / Citation | Issue | Verdict |
|---|---|---|---|
| Dayamay Enterprise v. State of Tripura | Tripura HC | Vagueness in SCN | SCN quashed for being vague. |
| Shri Nandhi Dhall Mills v. SIO, DGGI | Madras HC | Coerced payment during search | Refund of ₹2 crore ordered; payment held involuntary. |
| Bhumi Associate v. UOI | Gujarat HC | Coercive recovery during search | Guidelines issued prohibiting tax recovery during search. |
| Vallabh Textiles v. SIO | Delhi HC | Forced ITC reversal | Refund with interest; followed Bhumi Associate. |
| Suresh Kumar P.P. v. DGGI | Kerala HC | Alleged coerced cheque | Held voluntary (distinguished by Delhi HC). |
| RCI Industries v. DGST Delhi | Delhi HC | Statement under coercion | Statement upheld due to no retraction; not applicable here. |
| S.S. Industries v. UOI | Gujarat HC | Coerced deposit | Relief denied due to unrefuted allegations; distinguished. |
Between Fine Lines – Practical Takeaways for Industry
This judgment reinforces that no GST officer can demand, pressurise, or extract any payment—cash, cheque, ITC, or DRC-03—during an ongoing search or inspection. Payments must be voluntary, informed, and strictly post-search. Taxpayers subjected to late-night proceedings, prolonged detention, or on-spot demands can seek immediate refund/credit. Departments must follow Rule 142 and CBIC instructions, failing which the recovery becomes legally unsustainable.
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