2026-VIL-633-RAJ
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SGST High Court Cases

GST – Payment of tax during search and seizure proceedings, Voluntary payment or payment under coercion - Refund claim of amount deposited under coercion - Search and seizure proceedings on allegations of wrongful availment of input tax credit in connection with transactions with another entity. During the search proceedings, the petitioner deposited a substantial amount through Form GST DRC-03 without any prior Show Cause Notice, demand notice or determination of liability, and no acknowledgement in Form GST DRC-04 was subsequently issued by the department - Whether the amount deposited through Form GST DRC-03 during the course of search proceedings constitutes a voluntary payment under Section 74(5) of the CGST Act, 2017 or whether it was extracted under coercion without authority of law and hence liable to be refunded – HELD – While Section 74(5) permits voluntary payment before issuance of notice, such payment must be genuinely voluntary and not obtained through coercion. 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 - A payment made through Form GST DRC-03 during search proceedings cannot be presumed to be voluntary merely by reason of such deposit. The surrounding circumstances, including the stage at which payment was made, compliance with statutory safeguards, issuance of Form GST DRC-04, subsequent conduct of the department, and existence of material demonstrating self-ascertainment of liability, are all relevant factors for determining whether payment was genuinely voluntary or made under coercion - In the present case, the payment was obtained during ongoing search proceedings when records and electronic devices were under departmental control, no material demonstrates prior and independent self-ascertainment by the petitioner. 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 – Further, the safeguards envisaged in prior judicial directions and CBIC Instruction No.01/2022-23 were not adhered to, all of which establish that the payment was not genuinely voluntary but obtained under coercion. The respondents are directed to refund the deposited amount within eight weeks, though the question of interest on refund is deferred pending final determination of actual tax liability - The writ petition is partly allowed - Grant of interest on the refunded amount – HELD - 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.
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