No Coercive Action if Accused Cooperates in Fake ITC Probe (Harsh Wadhwani & Anr. v. Additional Director General, DGGI)

No Coercive Action if Accused Cooperates in Fake ITC Probe (Harsh Wadhwani & Anr. v. Additional Director General, DGGI)

Issue: Whether GST enforcement authorities can take coercive action (such as blocking the Electronic Credit Ledger (ECrL) or initiating arrest proceedings) against a taxpayer accused of claiming fake Input Tax Credit (ITC) if the accused demonstrates a clear willingness to cooperate fully with the investigation.

Facts:

• The petitioner, M/s. Vijay Laxmi Trade Company, Raipur, faced a notice under Section 70 of the CGST Act from the Directorate General of GST Intelligence (DGGI) for alleged tax evasion by claiming fake ITC, specifically linked to two firms: M/s. Taj Enterprises and M/s. Agastya Enterprises.

• The petitioner filed a writ petition stating they were ready to cooperate in the inquiry, record oral evidence, and satisfy all queries regarding the alleged fake transactions.

• The petitioner specifically prayed for a direction to the DGGI to not take any coercive steps and to withdraw the negative balance/block created in their Electronic Credit Ledger (ECrL).

Decision:

The Chhattisgarh High Court directed the DGGI not to take any coercive steps against the petitioners, or their associated firms, provided the petitioners cooperate fully with the investigation and appear before the investigating officers whenever required.

Key TakeDowns:

• Cooperation is Key to Protection: The ruling establishes a principle of conditional immunity: as long as the accused is fully cooperating, providing evidence, and recording statements, the DGGI must refrain from using drastic measures like arrest or immediate coercive recovery.

• Judicial Precedent: The Court’s decision aligns with similar rulings (e.g., from the Andhra Pradesh High Court) that hold that no coercive steps, including arrest, should be taken against petitioners who appear before the Investigating Officer.

• Section 70 Status: The use of Section 70 (power to summon persons for evidence) places the inquiry in the nature of a “judicial proceeding” (as per Section 70(2)), requiring the investigation to be conducted under the framework of fair procedure. * Balancing Enforcement and Rights: The order balances the authorities’ power to investigate serious fraud with the taxpayer’s right to avoid undue harassment and disruption to business while the matter is sub-judice.