Payment Under Protest Cannot Defeat Statutory Appeal; Rectification treating the demand as NIL was quashed

A payment made through DRC-03 under protest and without prejudice to appellate rights could not be treated as a voluntary payment. The rectification power could not be used to convert the demand into NIL and thereby defeat the statutory remedy of appeal against the original demand order, so the rectification order was quashed. Because that rectification had prevented the assessee from pursuing the appeal, the intervening period was excluded from the computation of limitation for filing the statutory appeal, preserving the right to challenge the underlying demand.

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Issues: (i) Whether the order treating the amount deposited through DRC-03, expressly paid under protest, as a voluntary payment and rectifying the demand to NIL was valid; (ii) whether the period spent after the rectification order was liable to be excluded for computing limitation to file appeal against the original demand order.

Issue (i): Whether the order treating the amount deposited through DRC-03, expressly paid under protest, as a voluntary payment and rectifying the demand to NIL was valid.

Analysis: The amount was deposited after initiation of detention proceedings and the accompanying endorsement specifically stated that the payment was made under protest and without prejudice to the right to appeal. In that situation, the deposit could not be characterised as a voluntary payment. By invoking rectification and showing the demand as NIL, the authorities effectively prevented the assessee from challenging the original demand order in appeal. The rectification power could not be used to defeat the statutory appellate remedy.

Conclusion: The rectification order was invalid and was quashed, in favour of the assessee.

Issue (ii): Whether the period spent after the rectification order was liable to be excluded for computing limitation to file appeal against the original demand order.

Analysis: Since the rectification order had the effect of depriving the assessee of the ability to pursue the appeal against the original demand, fairness required exclusion of the intervening period from the computation of limitation for filing the statutory appeal.

Conclusion: The period from 08.10.2024 until the date of the order was directed to be excluded for limitation purposes, in favour of the assessee.

Final Conclusion: The assessee was restored to the position of being able to challenge the original demand order by statutory appeal, and the intervening period was protected from prejudicing limitation.

Ratio Decidendi: A payment made under protest cannot be treated as a voluntary payment so as to invoke rectification and extinguish the right of appeal against the underlying demand.

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