TaxTMI 
TaxTMI 
2026 (7) TMI 313
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....tioner, are that the petitioner is a partnership firm having its principal place of business at Sirohi, Rajasthan. On 11.07.2025, two Intelligence Officers of respondent No.1 conducted search and seizure proceedings under the Central Goods and Services Tax Act, 2017 (hereinafter referred to as "the CGST Act") at the business premises of the petitioner-firm as well as at the residential premises of its partners. As per the panchnama, the search at the office premises was conducted from 10:00 AM to 7:55 PM, whereas the search at the residential premises of the partners was conducted from 8:25 AM to 8:55 PM. 2.1. During the course of search, summons under Section 70 of the CGST Act were issued to Mr. Hemendra Singh, partner of the petitioner-firm, requiring him to remain present at the office premises along with the relevant documents and he was compelled to sign a pre-printed statement, and the entire record of the firm was seized. 2.2. During the search proceedings, the respondents compelled the petitioner-firm and its partners to deposit an amount of Rs.2,35,23,506/- without issuance of any demand or show cause notice. The said amount comprised reversal of Input Tax Credit (h....
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....ting search had no authority in law to effect recovery during investigation. The absence of Form GST DRC-04 under Rule 142 of the CGST Rules further demonstrates that the alleged payment was never treated as a voluntary payment by the department. (iii) The petitioner immediately protested against the coercive action. Vide letter dated 17.07.2025, the petitioner specifically stated that the statements tendered by its partner were not made in a sound state of mind and were obtained under pressure. Thereafter, vide letter dated 27.08.2025, it was clarified that the payment made during search proceedings was under protest and due to departmental pressure. Despite this, till date, neither any show cause notice has been issued nor any adjudication proceedings have been completed, and even Form GST DRC-04 acknowledging voluntary payment has not been issued. (iv) The controversy involved in the present writ petition is squarely covered by a catena of judgments wherein the High Courts have deprecated recovery of tax, interest or reversal of ITC during search and investigation proceedings, without issuance of show cause notice or adjudication of liability. Reference was mad....
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....ubstantial amount was compelled to be deposited on the very same day through Form GST DRC-03, without issuance of any show cause notice or determination of liability. The surrounding circumstances, including the timing of deposit, seizure of records and continuation of summons, clearly establish that the payment was not voluntary but was made under coercion. It was further submitted that no adjudication proceedings have been completed and no Form GST DRC-04 or refund order has been issued. In view of the above submissions, learned counsel for the petitioner submitted that the amount collected is without authority of law, and the petitioner is entitled to refund of the same along with applicable interest. 4. Per contra, learned counsel for the respondents, while refuting the stand of the petitioner, made the following submissions:- (i) The writ petition is misconceived and deserves to be dismissed, as the petitioner has suppressed material facts and has attempted to portray a voluntary statutory payment as one made under coercion. The investigation was initiated on specific intelligence that the petitioner-firm had fraudulently availed and utilized ITC in connection w....
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....tage does not render the proceedings illegal, as the investigation is yet to be completed and show cause notice, if required, would be issued upon finalization of the investigation. Further, the Form GST DRC04 is only a procedural acknowledgement of voluntary payment and its non-issuance does not, by itself, render the payment involuntary or illegal. In the present case, issuance of Form GST DRC-04 is premature as the petitioner has not paid interest under Section 50 of the CGST Act and investigation is still pending. Thus, the petitioner's contention based on non-issuance of Form GST DRC-04 is misconceived. (v) The CBIC Instruction No.01/2022-23 does not prohibit voluntary payment during search, inspection or investigation proceedings. Rather, it clarifies that though there may be no circumstance necessitating recovery during such proceedings, there is no bar on a taxpayer voluntarily making payment on the basis of ascertainment of liability. In the present case, the petitioner was merely informed about the statutory option of voluntary payment through Form GST DRC-03, whereafter it consciously chose to deposit the admitted tax and penalty. In view of the above submiss....
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....y payable. (8) Where any person chargeable with tax under sub-section(1) pays the said tax along with interest payable under section 50 and a penalty equivalent to twenty-five per cent. of such tax within thirty days of issue of the notice, all proceedings in respect of the said notice shall be deemed to be concluded. XXX XXX XXX" Rule 142 of the CGST Rules "142. Notice and order for demand of amounts payable under the Act.- (1) The proper officer shall serve, along with the : (a) Notice issued under section 52 or section 73 or section 74 or section 76 or section 122 or section 123 or section 124 or section 125 or section 127 or section 129 or section 130, a summary thereof electronically in FORM GST DRC-01, (b) statement under sub-section (3) of section 73 or subsection (3) of section 74, a summary thereof electronically in FORM GST DRC-02, specifying therein the details of the amount payable. (1A) The proper officer may, before service of Notice to the person chargeable with tax, interest and penalty, under sub section (1) of Section 73 or sub-section (1) of Section 74, as the case may be, communicate the ....
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....on 74(7), where the proper officer forms an opinion that the amount so paid falls short of the amount actually payable, he is not precluded from issuing a notice in respect of the differential amount. 6.3. Rule 142(2) of the CGST Rules prescribes the procedure for implementation of the aforesaid statutory scheme. The Rule provides that where a person makes payment in accordance with Section 74(5), whether on his own ascertainment or pursuant to the liability communicated by the proper officer under Rule 142(1A) through Form GST DRC-01A, he is required to intimate such payment in Form GST DRC-03. Upon receipt of such intimation, the proper officer is required to issue an acknowledgment in Form GST DRC-04. 6.4. The conjoint reading of Section 74(5), Section 74(6) and Rule 142(2) makes it evident that the statutory framework encourages voluntary compliance before initiation of formal adjudication proceedings. Once the taxpayer discharges the tax, interest and penalty liability and intimates the same through Form GST DRC-03, the proper officer is obliged to consider such payment and acknowledge the same through Form GST DRC-04, whereupon no show cause notice under Section 74(1) i....
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....to procurement of OTP for filing Form GST DRC-03, and ultimately directed refund of the amount deposited. 8.3. In Samyak Metals (supra), the Punjab and Haryana High Court, relying upon Vallabh Textiles (supra), held that in the absence of issuance of Form GST DRC-04 and any subsequent proceedings under Section 74(1) of the CGST Act, the payment could not be treated as voluntary and accordingly directed refund of the amount deposited. 8.4. In the case of Neeraj Paper Marketing Ltd. (supra), the Delhi High Court considering its earlier judgment in the case of Vallabh Textiles (supra), also allowed the reversal of amount deposited through Form GST DRC-03 on the count that the same could not be termed to be deposited voluntarily as neither the deposit was acknowledged nor its benefit was granted while issuing show cause notice in terms of Section 74(7) of the CGST Act. 8.5. In the case of Sri J. Ramesh Chand (supra), the learned Single Judge of the Karnataka High Court allowed the writ petition holding that the collection of Rs.10 crores from the petitioner therein during the course of search, inspection and seizure proceedings could not be treated as a voluntary payment or a ....
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....the website of the Hon'ble Supreme Court that the said matter is tagged as an impugned order in Special Leave to Appeal (C) No(s). 13670/2025 and 24821/2023. However, the said proceedings have not been finally decided on merits, nor has any material been placed before this Court to indicate that the judgment in Vallabh Textiles (supra) has been stayed, reversed or set aside. Accordingly, the aforesaid judgments continue to hold the field and are entitled to due persuasive value. 10. At this stage, it would also be apposite to refer to the observations made by the Hon'ble Supreme Court regarding the instructions issued by CBIC so also the instances of filing of DRC03 under threat. In the case of Radhika Agarwal Vs. UOI & Ors.; 2025 INSC 272, the Hon'ble Supreme Court observed as under: "63. One of the assertions and allegations made on behalf of the petitioners is that the parties are compelled and coerced to admit and make payment of tax in view of the threat of arrest. This is in spite of the fact that there is no assessment or adjudication as to the alleged demand. 64. In this regard, we may refer to the circular F.No.GST/INV/Instructions/2022 2023 (Instr....
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....sposed to read "compelled testimony" as evidence procured not merely by physical threats or violence but by psychic torture, atmospheric pressure, environmental coercion, tiring interrogative prolixity, overbearing and intimidatory methods and the like - not legal penalty for violation. (...)"" 10.1. The above observations of the Hon'ble Supreme Court make it clear that a payment made during the course of search, inspection or investigation proceedings cannot automatically be presumed to be involuntary merely because it was made at the pre-notice stage. At the same time, the mere filing of Form GST DRC-03 does not, by itself, foreclose an assessee from contending that the payment was obtained under coercion. The question as to whether a payment was voluntary or otherwise is essentially a question of fact, which is required to be determined on the basis of the attending circumstances and the material available on record. 11. In the present case, admittedly, no notice under Section 74(1) of the CGST Act had been issued when the amount of Rs.2,35,23,506/- came to be deposited. Further, the respondents have not placed on record any material to demonstrate that prior to filing of ....
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....e petitioner had not deposited interest along with the tax amount also does not impress this Court. If the respondents seek to justify the deposit as a voluntary payment under Section 74(5) of the CGST Act, it was incumbent upon them to demonstrate due compliance with the statutory procedure contemplated thereunder. 13.2. If the respondents were of the view that the payment made by the petitioner did not satisfy the requirements of Section 74(5) on account of non-payment of interest, the same would itself indicate that there was no complete and valid self-ascertainment of liability as contemplated under the provision. Such a circumstance weakens, rather than strengthens, the respondents' contention that the petitioner had voluntarily determined and discharged its liability under Section 74(5) of the CGST Act. 13.3. Moreover, even if the contention of respondents is accepted that the acknowledgement in the Form GST DRC-04 was not issued due to interest not having been paid by the petitioner, the other circumstances existing at the time of deposit remain relevant and are required to be considered independently to examine the conduct of the respondents. Further, even if the ....
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....certainment or determination of liability, (iii) the respondents have failed to establish any independent self-ascertainment by the petitioner, (iv) the petitioner subsequently disputed the voluntariness of the payment, and (v) the directions issued in Bhumi Associate (supra) by the Gujarat High Court as well as in CBIC Instruction No.01/2022-23 were not adhered to. 17. Considering the above aspects so also the discussion made hereinabove, this Court is of the considered opinion that the impugned amount deposited by the petitioner was not voluntary in nature and thus, the retention of the amount deposited by the petitioner vide Form GST DRC-03, cannot be sustained. Accordingly, the writ petition is partly allowed. 18. The respondents are directed to refund the amount of Rs.2,35,23,506/- deposited by the petitioner through Form GST DRC-03. 18.1. So far as the prayer for grant of interest on the refunded amount is concerned, this Court takes note of the undisputed fact that the investigation initiated against the petitioner has not yet attained finality and no final determination of tax liability has been made by the competent authority. Although t....