Karnataka High Court orders refund of ₹10 crores collected during GST search, payment held involuntary
The Hon’ble High Court of Karnataka in J. Ramesh Chand v. Union of India & Others, W.P. No. 9890 of 2023 (T-RES), decided on 13 October 2025, directed the respondents to refund the amount of ₹10 crores together with interest at 6% per annum from 24 March 2023 till the date of payment, within a period of two months from the date of receipt of a copy of the order. In this case, the petitioner, Sri J. Ramesh Chand, had made payments totalling ₹10 crores to the GST authorities on 24 March 2023 under various debit entries. These payments were treated by the department as “voluntary contributions” towards GST liability. However, the petitioner contended that the said amount had been unlawfully obtained under coercion during a search and inspection conducted by the GST authorities and was not a voluntary payment made under Section 74(5) of the CGST Act, 2017. The petitioner therefore sought refund of the said amount along with interest.
The Hon’ble Court, presided over by Justice S.R. Krishna Kumar, observed that for a payment to be treated as voluntary under Section 74(5), the taxpayer must be in a position to ascertain his liability independently and make the payment without any coercion, pressure, or undue influence. In the present case, no show-cause notice or order determining tax liability was issued prior to the collection of the amount. The payment had been made immediately following a search operation, during which the petitioner’s records and electronic devices were seized, thereby disabling him from computing his tax liability. The Court held that under such circumstances, the payment could not be regarded as voluntary and was, in fact, made under duress.
Accordingly, the High Court held that the collection of ₹10 crores by the department was illegal and arbitrary, and that the petitioner was entitled to a refund of the said amount along with statutory interest. The Court categorically observed that the obtainment, collection, or receipt of the sum of ₹10 crores by the respondents from the petitioner at the time of the search, inspection, and seizure operations could not be regarded as a voluntary payment or a self-ascertained tax under Section 74(5) of the CGST Act. It was held that such collection was wholly illegal, arbitrary, and contrary to law, being made without jurisdiction or authority under the CGST Act. Consequently, the High Court directed that the said amount of ₹10 crores be refunded to the petitioner together with interest at the rate of 6% per annum, within the stipulated timeframe prescribed in the order.
In the present case, the material on record revealed that on 23 March 2023, the respondent conducted a raid at the residence of the petitioner and seized a laptop. The following day, i.e., on 24 March 2023, respondents three and four, along with other officials, undertook search and inspection proceedings at the principal place of business of the petitioner. During the course of these proceedings, a sum of ₹10 crores was obtained, received, or collected from the petitioner. Upon examining the facts, the Court held that the payment of ₹10 crores was involuntary and not a voluntary or self-ascertained payment as contended by the respondents.
The High Court further noted that an examination of the payment made by the petitioner in Form GST DRC-03 revealed that it was recorded under Section 74(5) of the CGST Act, which requires that any voluntary payment of tax must be accompanied by corresponding payments towards interest under Section 50 and penalty. However, on scrutiny of the said form, the Court found that no payment had been made towards interest or penalty, and the relevant columns in the DRC-03 form were specifically marked as ‘Nil’.
The Court observed that this omission clearly demonstrated that the payment could not be treated as a genuine voluntary payment or a valid self-ascertained payment under Section 74(5). The absence of computation or payment of interest and penalty indicated that there had been no proper self-assessment process by the petitioner, as envisaged under the statutory provision. This, the Court held, was yet another strong circumstance establishing that the payment was not made voluntarily, but rather at the instance of the respondents during the course of search and seizure proceedings. Consequently, the respondents’ contention that the payment was voluntary was rejected as untenable.
The High Court also undertook a detailed analysis of Section 74(5) of the CGST Act and observed that a voluntary payment under this provision must strictly follow the prescribed procedure. Firstly, the taxpayer must ascertain the actual tax payable after proper verification and scrutiny of his accounts. Secondly, he must compute the interest payable under Section 50 of the CGST Act, which provides for a discretionary rate of interest up to 18% or 24% per annum, depending on the circumstances. Thirdly, the taxpayer must calculate the penalty at 15% on the tax amount determined to be payable.
The Court emphasized that this entire process of self-ascertainment necessarily involves careful verification of accounts and calculation of variable interest and penalty, all of which demand access to the taxpayer’s records and systems. It was therefore highly improbable, if not physically impossible, for a taxpayer to undertake such a detailed computation during the course of a search, inspection, or seizure, particularly when the officials had already taken possession of the very equipment and records required for the exercise.
In view of this, the Court held that the payment made by the petitioner could by no means be regarded as voluntary, and it was apparent that the amount had been deposited at the behest and instance of the respondents during the ongoing proceedings. The Court thus concluded that even on this ground, the payment was not a valid self-ascertained payment under Section 74(5) of the CGST Act.
The High Court further observed that a perusal of the material on record clearly indicated that the payment of ₹10 crores made by the petitioner during the course of search, inspection, and seizure proceedings was in violation of the directions issued by the respondents themselves under Instruction No. 01/2022-23 dated 25.05.2022. In the said Instruction, departmental officials had been expressly cautioned and warned against taking steps to collect, receive, or obtain any so-called voluntary payments during the course of search or investigation proceedings. The Court also noted that this principle had been reiterated by the Hon’ble Supreme Court in Radhika Agarwal v. Union of India, (2025) 6 SCC 545, wherein it was categorically held that any collection of tax or payment obtained during investigation without proper adjudication or consent would be contrary to law. Relying on these directions and the Supreme Court’s ruling, the High Court held that the respondents’ contention that the payment was voluntary could not be accepted even on this ground.
Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the author whatsoever and the content is to be used strictly for informational and educational purposes. While due care has been taken in preparing this article, certain mistakes and omissions may creep in. the author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.
Author Bio
Karnataka HC happy judge sir tnks