Baba Contractors and Engineers Vs Union of India (Rajasthan High Court)
Summary: The Rajasthan High Court, Jodhpur Bench, comprising Justice Arun Monga and Justice Sunil Beniwal, partly allowed the writ petition filed by M/s. Baba Contractors and Engineers, a registered partnership firm, challenging the collection of ₹2,35,23,506 through Form GST DRC-03 during search and seizure proceedings conducted by the Directorate General of GST Intelligence (DGGI). In its order dated 22 June 2026, the Court examined whether the payment represented a genuine voluntary discharge of liability under Section 74(5) of the CGST Act, 2017, or was made under departmental pressure. The Court ultimately held that the payment was not voluntary and directed its refund.
The dispute arose from searches conducted on 11 July 2025 at the firm’s business premises and the residences of its partners. According to the petitioner, the officers compelled its partners to deposit ₹2.35 crore without issuing a show cause notice or determining liability. The payment comprised ₹1,08,39,276 through reversal of input tax credit and ₹1,26,84,240 through cash and other available payment channels. The petitioner asserted that statements were obtained under pressure, records were seized and Form GST DRC-03 was filed while the search was still continuing. It subsequently protested through letters dated 17 July 2025 and 27 August 2025, alleging coercion and seeking refund with 12% annual interest.
The petitioner relied on Vallabh Textiles Vs Senior Intelligence Officer, Shree Ganesh Molasses Trading Co. Vs Superintendent, and other High Court decisions disapproving coercive recovery during search and investigation. It emphasised that the department had not issued Form GST DRC-04 acknowledging voluntary payment under Rule 142(2) of the CGST Rules. The petitioner also invoked CBIC Instruction No. 01/2022-23 dated 25 May 2022, which addresses allegations of forced tax deposits during search, inspection and investigation.
The Revenue denied coercion and asserted that the investigation concerned fraudulent input tax credit allegedly availed through transactions with M/s Keshav Cement Agency without actual supply of goods. According to the department, the petitioner’s partner admitted wrongful availment of ITC amounting to ₹2,04,55,222 and voluntarily deposited ₹2,04,55,222 as tax and ₹30,68,284 as penalty. The Revenue pointed to the declaration in Form GST DRC-03, the use of the taxpayer’s own GST credentials and bank accounts, and the statutory option of paying tax and a reduced 15% penalty before issuance of a notice. It also argued that the absence of DRC-04 did not, by itself, establish involuntariness, particularly because interest remained unpaid.
Examining Sections 74(5), 74(6) and 74(7) of the CGST Act together with Rule 142(2), the High Court recognised that taxpayers may voluntarily discharge tax, interest and penalty even before a show cause notice is issued. However, the Court stressed that the mere filing of Form GST DRC-03 does not conclusively establish voluntary payment. The nature of the payment must be determined from surrounding circumstances, evidence of independent self-ascertainment, statutory compliance and the conduct of both the taxpayer and the department. The Court also considered Radhika Agarwal Vs Union of India, 2025 INSC 272, concerning the impermissibility of using coercion or threats of arrest to secure tax payments.
On the facts, the Court found that no prior independent ascertainment of liability had been demonstrated. The deposit occurred during the search itself, relevant records and electronic devices were under departmental control, and no material established that the petitioner had independently calculated the liability. Moreover, Form GST DRC-04 was not issued, no corresponding defect or shortfall was communicated to the petitioner and the taxpayer disputed the alleged voluntariness within a reasonable period. The Court considered these circumstances collectively and found that they supported the allegation that the payment had not been made through a genuinely voluntary statutory process.
The High Court therefore partly allowed the writ petition and directed refund of ₹2,35,23,506 within eight weeks from receipt of a certified copy of the order. However, it declined to grant interest because the investigation had not concluded and the petitioner’s final tax liability remained undetermined. The Court clarified that the Revenue remained free to undertake lawful assessment or adjudication proceedings and that no opinion had been expressed on the merits of the alleged wrongful ITC availment. Thus, the judgment distinguishes an involuntary payment collected during investigation from a properly established tax liability recoverable through statutory proceedings.
Cases Discussed
1. Sri J. Ramesh Chand Vs Union of India & Ors. — Writ Petition No. 9890/2023; 13/10/2025; Karnataka High Court. Considered regarding a ₹10 crore GST deposit collected during search without supporting evidence of voluntary self-ascertainment.
2. Neeraj Paper Marketing Ltd. Vs Special Commissioner, Department of Trade and Taxes, GNCTD & Ors. — 2023 SCC OnLine Del 7692; Delhi High Court. Discussed concerning tax deposits through DRC-03 without acknowledgement or appropriate treatment in subsequent proceedings.
3. Vallabh Textiles Vs Senior Intelligence Officer & Ors. — 2022 SCC OnLine Del 4508; Delhi High Court. Relied upon regarding involuntary GST deposits during search, non-issuance of DRC-04 and the safeguards governing recovery.
4. Samyak Metals Vs Union of India — 2023 SCC OnLine P&H 7168; Punjab and Haryana High Court. Considered regarding recovery of ₹71.46 lakh through GST DRC-03 during search and the direction for refund.
5. Shree Ganesh Molasses Trading Co. Vs Superintendent, Office of the Commissioner — 2023 SCC OnLine Guj 4758; Gujarat High Court. Considered concerning ITC reversal during search and non-compliance with safeguards against coercive recovery.
6. Bhumi Associate Vs Union of India — R/Special Civil Application No. 3196 of 2021; Gujarat High Court. Relied upon regarding the need to avoid coercive tax payments during search and the direction that voluntary DRC-03 payments should ordinarily be made after search operations have concluded.
7. Radhika Agarwal Vs Union of India & Ors. — 2025 INSC 272; 27/02/2025; Supreme Court. Relied upon for the distinction between genuinely voluntary pre-notice GST payment and payment extracted through coercion or threats of arrest.
8. Nandini Satpati Vs P.L. Dani and Another — (1978) 2 SCC 424; Supreme Court. Quoted within Radhika Agarwal regarding psychological pressure, environmental coercion and compelled testimony.
FULL TEXT OF THE ORDER OF RAJASTHAN HIGH COURT
1. The present writ petition has been filed seeking a direction to the respondents to refund an amount of Rs.2,35,23,506/- along with interest, on the allegation that the said amount was involuntarily paid through Form GST DRC-03 towards reversal of Input Tax Credit during the course of search and seizure proceedings conducted at the business premises of the petitioner-firm as well as at the residential premises of its partners.
2. The facts, as pleaded by the petitioner, 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 (hereinafter referred to as “ITC”) to the extent of Rs.1,08,39,276/- and cash payment of Rs.1,26,84,240/-, which included utilisation of TDS, payment through the cash balance available on the GST portal and payment through bank transfer. Further, the petitioner was compelled to file Form GST DRC-03 during the search proceedings itself.
2.3. Thereafter, by way of letter dated 17.07.2025, the petitioner informed the respondents that the statement of its partner had been recorded under pressure and when he was not in a sound state of mind. By another letter dated 27.08.2025, the petitioner clarified that the amount deposited during the search was paid under protest on account of departmental pressure. Moreover, neither Form GST DRC-04 acknowledging voluntary payment under Rule 142 of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as “the CGST Rules”) has been issued nor any show cause notice has been served till date.
2.4. Hence, the present writ petition has been filed seeking refund of the amount of Rs.2,35,23,506/- along with interest at the rate of 12% per annum, on the allegation that the same was recovered under threat and coercion, without authority of law and contrary to Instruction No.1/2022-23 dated 25.02.2022.
3. Learned counsel for the petitioner made the following submissions:-
(i) The search was conducted without providing Form GST INS-01 as mandated under Rule 139 of the CGST Rules. During the course of search and seizure proceedings, the respondents illegally threatened and coerced the petitioner-firm and its partners to deposit a huge amount towards alleged tax liability, without issuance of any show cause notice, demand or adjudication order. Succumbing to such pressure, the petitioner was compelled to deposit a total amount of Rs.2,35,23,506/-.
(ii) The sequence and timing of events clearly establish coercion. Immediately after deposit through banking channels at 6:34 PM, the search at the office premises was brought to a close at 7:55 PM. Thereafter, Form GST DRC-03 was got filed at 8:24 PM by reversal of ITC and utilization of TDS/cash balance, and the search at the residence of the partners was concluded almost immediately thereafter at 8:55 PM. It was, therefore, contended that the search proceedings were used as a tool to extract payment from the petitioner-firm, though the officers conducting 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 made to Sri J. Ramesh Chand v. Union of India & Ors.; Writ Petition No.9890/2023, decided on 13.10.2025, by the Karnataka High Court, wherein during search proceedings conducted on 24.03.2023, the petitioner was allegedly coerced to deposit Rs.10 crores through Form GST DRC-03, without issuance of show cause notice and without issuance of Form GST DRC-04 acknowledgement. The Court took note of the allegation that the payment was extracted under threat and coercion, contrary to Instruction No.01/2022-23 dated 25.02.2022.
(v) Similar view has been taken by the Delhi High Court in Neeraj Paper Marketing Ltd. v. Special Commissioner, Department of Trade and Taxes, GNCTD & Ors.; 2023 SCC OnLine Del 7692, where payments of Rs.25.20 lakhs and Rs.3 lakhs were made through Form GST DRC-03 during and immediately after search proceedings, without issuance of Form GST DRC-04. Likewise, in Vallabh Textiles v. Senior Intelligence Officer & Ors.; 2022 SCC OnLine Del 4508, the amount of Rs.1.08 crores deposited in four tranches during search was held to be lacking voluntariness, particularly when no Form GST DRC-04 acknowledgement had been issued. In both these cases, the Courts held that recovery during search cannot be countenanced unless the deposit is demonstrably voluntary.
(vi) In the case of Samyak Metals v. Union of India; 2023 SCC OnLine P&H 7168, during search conducted on 25.02.2021, the petitioner was coerced to reverse ITC and deposit a total amount of Rs.71.46 lakhs through Form GST DRC-03, without issuance of Form GST DRC-04 and the same was directed to be refunded by the Punjab and Haryana High Court. Reliance was also placed upon Shree Ganesh Molasses Trading Co. v. Superintendent, Office of the Commissioner; 2023 SCC OnLine Guj 4758, wherein ITC amounting to Rs.18.84 lakhs was reversed during search and Form GST DRC-03 was filed subsequently, without any assessment order. The consistent view emerging from these judgments is that the power of search and investigation does not include the power of recovery, and any amount collected during such proceedings, in the absence of adjudication, lacks authority of law unless it is proved to be voluntary.
(vii) The facts of the present case stand on the same footing as in the judgments cited. The petitioner-firm was subjected to search and seizure proceedings; statements were recorded; and a substantial 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 with transactions with M/s Keshav Cement Agency. Pursuant thereto, search proceedings were conducted on 11.07.2025 at the principal place of business of the petitioner-firm as well as at the residential premises of its partners, under due authorization of the competent authority under Section 67(2) of the CGST Act. The search proceedings were conducted in the presence of independent witnesses, panchnamas were prepared, and the proceedings, including recording of statement, were video-graphed.
(ii) During investigation against M/s Keshav Cement Agency, its partner had stated that fraudulent ITC had been passed on to the petitioner-firm without actual supply of goods. When these facts were confronted to the petitioner during search proceedings, the partner of the petitioner-firm admitted that only invoices had been received from M/s Keshav Cement Agency without underlying supply of goods and further admitted wrongful availment and utilization of ITC amounting to Rs.2,04,55,222/-. It was submitted that the petitioner thereafter voluntarily deposited a total amount of Rs.2,35,23,506/-, comprising tax of Rs.2,04,55,222/- and penalty of Rs.30,68,284/-, by filing Form GST DRC-03 dated 11.07.2025 under Section 74(5) of the CGST Act read with Rule 142(2) of the CGST Rules. The petitioner’s own remarks in Column 8 of Form GST DRC-03 recorded that the payment was a “voluntary payment for wrongful availment of ITC from M/s Keshav Cement Agency without underlying goods along with penalty upon initiation of enquiry by DGGI.”
(iii) Section 74(5) of the CGST Act expressly enables a taxpayer to voluntarily pay tax, interest and penalty even before issuance of show cause notice, either on the basis of his own ascertainment or on the basis of ascertainment by the proper officer. By filing Form GST DRC-03 through its own GST portal credentials and by making payments through its own banking channels, cash ledger and available credits, the petitioner consciously availed the statutory benefit of early payment, thereby limiting the penalty exposure to 15% instead of the higher penalty which may follow upon issuance of show cause notice and adjudication. The respondents had no access to the petitioner’s GST portal credentials or bank accounts and, therefore, the allegation of forced payment is wholly baseless.
(iv) The absence of show cause notice at this stage 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 DRC-04 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 submissions, learned counsel for the respondents submitted that the allegation of coercion, raised subsequently by way of retraction, is an afterthought intended to derail the ongoing investigation, and the writ petition being premature, misconceived and devoid of merit deserves to be dismissed.
5. Heard learned counsel for the parties and perused the material available on record.
6. Before delving into the merits of the case, it would be appropriate to refer to the relevant provisions of the CGST Act and CGST Rules which are applicable in the present case.
Section 74 of the CGST Act
“74. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful- misstatement or suppression of facts.
(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice.
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(5) The person chargeable with tax may, before service of notice under sub-section (1), pay the amount of tax along with interest payable under section 50 and a penalty equivalent to fifteen per cent. of such tax on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.
(6) The proper officer, on receipt of such information, shall not serve any notice under sub-section (1), in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder.
(7) Where the proper officer is of the opinion that the amount paid under sub-section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-section (1) in respect of such amount which falls short of the amount actually 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.
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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 sub-section (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 details of any tax, interest and penalty as ascertained by the said officer, in Part A of FORM GST DRC-01A.;
(2) Where, before the service of Notice or statement, the person chargeable with tax makes payment of the tax and interest in accordance with the provisions of sub-section (5) of section 73 or, as the case may be, tax, interest and penalty in accordance with the provisions of subsection (5) of section 74 , or where any person makes payment of tax, interest, penalty or any other amount due in accordance with the provisions of the Act whether on his own ascertainment or, as communicated by the proper officer under sub-rule (1A), he shall inform the proper officer of such payment in FORM GST DRC-03 and the proper officer shall issue an acknowledgement, accepting the payment made by the said person in FORM GST DRC-04.
(2A) Where the person referred to in sub-rule (1A) has made partial payment of the amount communicated to him or desires to file any submissions against the proposed liability, he may make such submission in Part B of FORM GST DRC-01A.
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6.1. A plain reading of Section 74(5) of the CGST Act reveals that the legislature has carved out a mechanism enabling a taxable person to voluntarily discharge his liability even before issuance of a show cause notice under Section 74(1). The provision applies to cases involving allegations of fraud, wilful misstatement or suppression of facts. It permits the person chargeable with tax to pay, prior to service of notice, the amount of tax along with interest payable under Section 50 and a penalty equivalent to 15% of the tax amount, either on the basis of his own ascertainment or on the basis of the liability ascertained by the proper officer. Upon making such payment, the taxable person is required to inform the proper officer in writing.
6.2. The consequence of such payment is provided under Section 74(6), which mandates that upon receipt of the information regarding payment, the proper officer shall not serve a notice under Section 74(1) in respect of the tax so paid or the penalty payable thereon. Thus, the statutory scheme contemplates a pre-notice resolution of the dispute and grants an opportunity to the taxpayer to avoid adjudicatory proceedings by voluntarily discharging the liability together with the prescribed interest and reduced penalty. However, under Section 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) is required to be issued for the amount so paid. The entire scheme thus manifests the legislative intent to facilitate early resolution of tax disputes and obviate unnecessary adjudication where the taxpayer voluntarily accepts and discharges the liability at the pre-notice stage.
7. Considering the submissions and the statutory scheme, the sole issue which arises for consideration is whether the petitioner voluntarily deposited a sum of Rs.2,35,23,506/- and furnished Form GST DRC-03 under Section 74(5) of the CGST Act of its own free will or whether such payment was made under coercion during the course of search and seizure proceedings.
8. Before examining the rival contentions, it would be apposite to notice the principles emerging from the judgments relied upon by learned counsel for the petitioner.
8.1. In the case of Vallabh Textiles (supra), the Delhi High allowed the refund of reversal of the ITC claimed on the count that firstly, the petitioner therein was not issued the acknowledgement receipt in the Form GST DRC-04 after filing the Form GST DRC-03 which reflected that payment was made involuntarily, secondly, the deposit was made in four instalments before the search and seizure proceedings were concluded, and thirdly, the CBIC Instruction No.01/2022-23 which was issued following the directions of the Gujarat High Court in the case of Bhumi Associate Vs. Union of India; R/Special Civil Application Nos. 3196 of 2021 failed to include the direction that the assessee would be advised to fill the Form GST DRC-03 for voluntary payment on the next day after the search and seizure proceedings have concluded and officers have left the premises and even otherwise, such direction been issued vide a judicial order was required to be adhered to by the authorities which they failed to do and lastly, the delay of the petitioner in objecting the amount deposited would not obliterate the process prescribed under statue or by law, that is, via dicta contained in a judgment.
8.2. In Shree Ganesh Molasses Trading Co. (supra), the Gujarat High Court reiterated the principles enunciated in Vallabh Textiles (supra) and examined the incomplete incorporation of the directions issued in Bhumi Associate (supra) while publishing CBIC Instruction No.01/2022-23. The Court also considered the material placed on record, including the telephonic conversation relating 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 payment made on self-ascertainment under Section 74(5) of the CGST Act. The Court found that prior to the payment, neither any notice had been issued nor had any proceedings been initiated for ascertainment, quantification or determination of tax liability. The absence of any contemporaneous material demonstrating self-ascertainment by the petitioner, coupled with the failure of the department to issue an acknowledgment in Form GST DRC-04 as contemplated under Rule 142(2), led the Court to conclude that the payment was not voluntary in nature. The Court further held that the circumstances surrounding the search and seizure proceedings clearly negated the plea of voluntary compliance. The records and electronic devices necessary for undertaking self-ascertainment had already been seized by the authorities, making it highly improbable for the petitioner to independently determine the alleged liability. The Court further noticed that the payment reflected in Form GST DRC-03 did not include any component towards interest or penalty, which ordinarily forms part of a payment contemplated under Section 74(5) of the CGST Act. Significantly, the department itself quantified the alleged liability only subsequently through issuance of Form GST DRC-01A, thereby demonstrating that no ascertainment of liability existed at the time the amount was collected.
9. This Court finds itself in agreement with the observations made in the aforesaid decisions. A common thread running through all the judgments is that a payment made through Form GST DRC-03 during the course of search proceedings cannot, merely by reason of such deposit, be presumed to be voluntary. The surrounding circumstances, including the stage at which the payment was made, compliance with the statutory safeguards under the Act and Rules, issuance of Form GST DRC-04, subsequent conduct of the department, and the existence of any material demonstrating self-ascertainment of liability, are all relevant factors for determining whether the payment was genuinely voluntary or was made under coercion.
9.1. It is noted that the judgments rendered in Samyak Metals (supra), Shree Ganesh Molasses Trading Co. (supra), Neeraj Paper Marketing Ltd. (supra) and Sri J. Ramesh Chand (supra) have not been challenged further. As regards the judgment in Vallabh Textiles (supra), it is evident from the information available on 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 DRC-03 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 (Instruction No. 01/2022-23) dated 25.05.2022 issued by the Central Board of Indirect Taxes and Customs referring to the taxpayers depositing partial or full GST liability during the course of search, inspection or investigation. The relevant extracts of the circular reads:
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65. The circular notes that instances have been noticed where allegations of force and coercion were made by the officers for making recovery during the course of search, inspection and investigation. Some of the taxpayers had accordingly approached the High Courts. Reference is made to Section 79 of the GST Acts to state that recovery can be made only after following the due process of issuance of notice and subsequent confirmation of demand by issuance of an adjudicating order. On the last aspect, reference is made to Sections 73(5) and 74(5) of the GST Acts, which help the taxpayers in discharging their admitted liability, self-ascertained or as ascertained by the tax officer, without having to bear the burden of interest under Section 50 of the GST Acts. The statement in the circular that an assessee may voluntarily deposit tax as noticed was a cause of discussion before us. In this regard, our attention was drawn to Section 74(5) of the GST Acts, which states that a person chargeable with tax may, before service of notice under sub-section (1), pay the amount of tax along with interest payable under Section 50 and a penalty equivalent to 15% of such tax on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer, and inform the proper officer in writing of such payment. Sub section (5) to Section 74 relates to voluntary payment, and does not postulate payment under force, coercion or threat of arrest. The aforesaid circulars are binding and should be adhered to in letter and spirit. The authorities must exercise due care and caution as coercion and threat to arrest would amount to a violation of fundamental rights and the law of the land. It is desirable that the Central Board of Indirect Taxes and Customs promptly formulate clear guidelines to ensure that no taxpayer is threatened with the power of arrest for recovery of tax in the garb of self-payment. Way back in the year 1978, a three Judges Bench of this Court in Nandini Satpati v. P.L. Dani and Another : (1978) 2 SCC 424 had observed as under:
“57. (…) We are disposed 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 Form GST DRC-03, there existed any quantification, determination or ascertainment of liability undertaken by the petitioner. Apart from relying upon the declaration contained in Form GST DRC-03, no contemporaneous material has been produced to establish that the petitioner independently evaluated the alleged wrongful availment of ITC and voluntarily arrived at the figure ultimately deposited.
12. It is also pertinent to note that the amount came to be deposited during the course of search and seizure proceedings itself. The petitioner has specifically pleaded that the deposit was made under pressure exerted by the officers conducting the search. Though the respondents have denied such allegation, the surrounding circumstances assume significance. The search proceedings were continuing, the records and electronic devices of the petitioner were under the control of the authorities and no material has been placed on record to indicate that the petitioner was afforded any reasonable opportunity to undertake an independent exercise of self-ascertainment as contemplated under Section 74(5) of the Act.
12.1. Further, much emphasis has been laid by the respondents on Column 8 of Form GST DRC-03 to contend that the payment was voluntarily made by the petitioner. However, a perusal of the said column itself reveals that the payment was made pursuant to initiation of enquiry by the department. The said declaration, therefore, does not establish that the liability had been independently self-ascertained by the petitioner prior to commencement of departmental action. Rather, it fortifies the position that the deposit came to be made only after the investigative machinery had been set in motion. In the absence of any material demonstrating a prior and independent determination of liability by the petitioner, the payment cannot be conclusively construed as voluntary payment within the meaning of Section 74(5) of the CGST Act.
13. This Court further notes that admittedly no acknowledgment in Form GST DRC-04 was issued by the respondents. Though non-issuance of Form GST DRC-04 may not by itself be determinative, the same assumes relevance while examining the conduct of the department when the voluntary deposit was made during the search and seizure proceedings.
13.1. The contention advanced on behalf of the respondents that Form GST DRC-04 was not issued since the 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 Form GST DRC-03 was incomplete as per the respondents, then they may have communicated the same to the petitioner after carrying out the necessary calculations, whereas, admittedly, no such information was supplied nor any show cause notice has been issued as the process is still pending. Hence, this reflects an additional circumstance which casts doubt on the respondents’ assertion that the amount deposited through Form GST DRC-03 represented a voluntary payment under Section 74(5) of the CGST Act.
14. The subsequent conduct of the petitioner is also relevant. The petitioner did not acquiesce in the payment and raised objections regarding voluntariness of the deposit within a reasonable period. Such conduct is inconsistent with the theory of conscious and voluntary acceptance of liability sought to be projected by the respondents.
15. It is also pertinent to note that, as also observed by the Delhi High Court in the case of Vallabh Textiles (supra), the CBIC Instruction No.01/2022-23 dated 25.05.2022 came to be issued pursuant to the observations and directions of the Gujarat High Court in Bhumi Associate (supra) with the object of ensuring that taxpayers are not subjected to recovery proceedings during the course of search, inspection or investigation. The Gujarat High Court had, inter alia, emphasized that if an assessee desires to make a voluntary payment, such payment should ordinarily be made after conclusion of the search proceedings and after the officers have left the premises so as to eliminate any apprehension of pressure or coercion. Although the aforesaid safeguards were intended to ensure genuine voluntariness of payment, the material available on record does not indicate adherence thereto in the present case. On the contrary, the amount came to be deposited during the course of search proceedings itself. The failure of the respondents to adhere to the safeguards envisaged in Bhumi Associate (supra), which formed the basis of the aforesaid CBIC Instruction, constitutes an additional circumstance supporting the petitioner’s contention that the payment cannot be treated as a truly voluntary payment under Section 74(5) of the CGST Act.
16. On the basis of the discussion made above, the following aspects emerge in the present case:-
(i) the payment was obtained during search proceedings,
(ii) there was no prior ascertainment 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 this Court has come to the conclusion that the amount deposited through Form GST DRC-03 cannot be treated as a voluntary payment under Section 74(5) of the CGST Act and is therefore liable to be refunded, the question as to whether any tax, interest or penalty is ultimately payable by the petitioner is yet to be adjudicated. In the absence of a final determination of liability, it would not be appropriate for this Court to adjudicate the petitioner’s claim for interest on the refunded amount. It is possible that upon conclusion of the investigation and subsequent proceedings, the respondents may determine a tax liability against the petitioner. Conversely, it may also transpire that the amount deposited by the petitioner exceeds the liability, if any, ultimately determined. The entitlement of either party to claim interest would necessarily depend upon the outcome of such determination. Therefore, this Court, at this stage, is not inclined to grant interest on the amount to be refunded.
19. The aforesaid amount shall be refunded within a period of eight weeks from the date of receipt of a certified copy of this order.
20. It is made clear that this order shall not preclude the respondents from proceeding further in accordance with law and undertaking assessment, adjudication or any other proceedings permissible under the provisions of the CGST Act.
21. It is further clarified that this Court has not expressed any opinion on the merits of the allegations relating to wrongful availment of ITC and all rights and contentions of the parties in that regard are kept open.
22. All pending applications stand disposed of.
