Forced GST deposit during search via electronic cash ledger held illegal; refund ordered for pre-SCN payment under duress.

During a GST search, the tax authority coerced a taxpayer to deposit a substantial amount through the electronic cash ledger without admission of liability and before any adjudication or issuance of an SCN. The HC held that Sections 73(5)-73(6) CGST Act permit only voluntary pre-SCN payment and do not authorize compelled recovery during investigation; any collection without authority of law violates Article 300A. Non-compliance with Rule 142 CGST Rules, including failure to issue Form GST DRC-04 acknowledging voluntariness after DRC-03, reinforced that the deposit was under duress. Refund was allowed and the authority was directed to process it forthwith.

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Issues Involved:

1. Refund of coercively recovered amount.
2. Validity of deficiency memos.
3. Requirement of adjudication of SCN for processing refund claims.
4. Compliance with procedural rules under CGST.

Summary:

1. Refund of Coercively Recovered Amount:
The petitioner sought a refund of Rs. 2,30,00,000/- allegedly coercively recovered during a search operation by the GST Anti-Evasion department. The court noted that the petitioner was coerced to make the deposit during the search and inspection proceedings, which extended beyond normal business hours. The court emphasized that any amount collected without authority of law infringes the petitioner's rights under Article 300A of the Constitution of India. The court concluded that the deposit was made under duress and not voluntarily, thus directing the respondents to process the refund claim forthwith.

2. Validity of Deficiency Memos:
The petitioner contended that the second set of deficiency memos issued by the respondents were in contravention of the guidelines provided in the Circular dated 18.11.2019, which stipulates that no second deficiency memo should be issued unless the earlier deficiencies remain unrectified or any other substantive deficiency is noted subsequently. The court did not find it necessary to adjudicate this issue separately since the refund was directed to be processed.

3. Requirement of Adjudication of SCN for Processing Refund Claims:
The petitioner argued that the adjudication of the Show Cause Notice (SCN) dated 23.06.2022 is not a pre-requisite for processing the refund claims. The court held that since the deposit was involuntary, the respondents should process the refund claim without waiting for the adjudication of the SCN. The court clarified that it has not decided anything on the merits of the SCN or the petitioner's liability to pay GST.

4. Compliance with Procedural Rules under CGST:
The court noted that the requisite procedure under Rule 142 of the CGST Rules was not complied with by the respondents, as no acknowledgment in Form GST DRC-04 was issued following the deposit made by the petitioner. This non-compliance further supported the conclusion that the deposit was not voluntary.

Conclusion:
The court allowed the writ petition, directing the respondents to process the refund claim of Rs. 2,30,00,000/- and clarified that the respondents are not precluded from taking necessary steps in accordance with the law to protect the interest of the Revenue. The court did not adjudicate other issues raised by the petitioner, as the primary relief was granted.

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