GST search deposit over GSTR-3B vs 2A ITC mismatch held coerced, not voluntary u/s74(5); refund with interest ordered

The dominant issue was whether amounts collected from a taxpayer during search/inspection constituted voluntary payment under s.74(5) CGST Act or were coerced and refundable. The HC held the show cause notices, founded on ITC mismatch between GSTR-3B and GSTR-2A, ignored the prior deposit and raised a demand without credit, indicating action under s.74(7) without following the stipulated procedure; further, no communication under r.142(1A) CGST Rules evidencing ascertainment of liability was issued. Applying the principle that non-compliance with procedure supports a finding of non-voluntariness, the Court accepted the payment was made under compelling circumstances and directed refund in cash with 6% interest from 13.12.2022 until payment, allowing the writ.

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Issues Involved:
1. Whether the payments made by the petitioner during the search operation were voluntary under Section 74(5) of the CGST Act.
2. Whether the petitioner is entitled to a refund of the amount deposited along with interest.

Summary:

Issue 1: Voluntariness of Payments under Section 74(5) of the CGST Act

The petitioner argued that the amount of Rs. 28,20,000/- deposited during the search operation on 29.07.2022 was coerced and not voluntary under Section 74(5) of the CGST Act. The respondents contended that the payments were voluntary as the petitioner acknowledged the liability during the inspection, and the Director's statement was recorded without retraction. However, the court found that the respondents did not follow the procedure for voluntary deposits as per Rule 142(2) of the CGST Rules. The payments were made under form GST DRC-03, but no acknowledgment in form GST DRC-04 was issued. The court noted that the petitioner's Director acknowledged the mismatch in ITC but did not admit to incorrect availing of ITC. The court concluded that the payments made at 11:49 PM and 12:38 PM during the search operations were not voluntary but under compelling circumstances.

Issue 2: Entitlement to Refund and Interest

The petitioner requested a refund of the deposited amount along with interest. The court referred to its earlier decisions in Vallabh Textiles v. Senior Intelligence Officer & Ors. and Lovelesh Singhal v. Commissioner, Delhi Goods & Service Tax & Ors., which covered similar issues. The court directed the respondents to refund Rs. 23,70,000/- in cash with interest at 6% per annum from 13.12.2022 till the date of payment and to reverse the debit of Rs. 4,50,000/- from the petitioner's Electronic Credit Ledger (ECL).

Conclusion:

The petition was allowed, directing the respondents to refund the amount deposited by the petitioner along with applicable interest and to reverse the debit from the petitioner's ECL.

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