GST Amount Collected During Search Held Coercive — Refund Directed by Delhi High Court
Date of Judgment
26 February 2024
The Delhi High Court held that GST payments collected during search operations, particularly during late-night hours and before completion of search, cannot be treated as voluntary payments and are liable to be refunded.
Case Citation
Sushil Kumar v. Delhi State GST & Ors.W.P.(C) 15519 of 2023
Mahavirsingh v Assistant Commissioner Anti Evasion Cell-I & ORS
Neeraj Paper Marketing Ltd. Versus Special Commissioner, Department Of Trade And Taxes, GNCTD & Ors.
W. P. (C) 158/2023 dated 05/12/2023
Delhi High Court
Santosh Kumar Gupta Prop. Mahan Polymers Versus Commissioner, Delhi Goods And Services Tax Act & Ors.
W. P. (C) 17171/2022 dated 05/12/2023
Delhi High Court
Lovelesh Singhal Prop Shivani Overseas Versus Commissioner, Delhi Goods And Services Tax & Ors.
W. P. (C) 16353/2022 dated 05/12/2023
Delhi High Court
1. Main Issue Involved
Whether GST payment made during the course of a search operation through Form GST DRC-03, particularly when made late at night during the search proceedings, can be treated as voluntary payment or constitutes coercive recovery without authority of law.
The case addresses the increasingly common practice of collecting GST during search operations without adjudication proceedings.
2. Relevant Statutory Provisions
Section 73 – Determination of tax not paid or short paid
Section 74 – Determination involving fraud or suppression
Section 79 – Recovery of tax
Section 67 – Search and inspection
Rule 142 – Procedure for voluntary payment and demand
The Court examined the statutory framework governing voluntary payments and recovery procedures.
3. Facts of the Case
The petitioner was engaged in the manufacturing and trading of ferrous and non-ferrous metals.
GST authorities conducted a search on 16.11.2023 at 5:30 PM, which continued until 5:00 AM on 17.11.2023.
During the search:
Allegations were made regarding stock variation and wrongful ITC.
The petitioner was made to deposit ₹40,06,342 through Form GST DRC-03.
The deposit was made at 3:10 AM and 3:18 AM during the search proceedings.
No statutory demand had been issued at the time of deposit.
The petitioner contended that the payment was made under coercion.
The timing and circumstances of the payment were central to determining whether the payment was voluntary.
4. Petitioner’s Submissions
The petitioner argued:
Payment was made under coercion during search proceedings.
Deposit at 3 AM during search clearly indicates lack of voluntariness.
No statutory notice or adjudication existed at the time of payment.
Therefore the amount collected lacked authority of law and must be refunded.
The petitioner relied on the Delhi High Court decision in:
Vallabh Textiles v. Senior Intelligence Officer
which held that coerced deposits during investigation must be refunded.
5. Department’s Submissions
The department argued:
The payment was voluntary.
Proceedings under Section 73 had already been initiated by issuing a show cause notice.
Therefore refund should not be granted.
6. Analysis and Findings of the Court
The Court examined the statutory framework governing voluntary tax payments.
A. Voluntary Payment Under GST Law
The Court noted that voluntary payment is permitted under:
Section 73(5)
Section 74(5)
However such payment must genuinely be voluntary.
B. Procedure Under Rule 142
The Court emphasized that:
Payments made through DRC-03 must be acknowledged through DRC-04.
This ensures transparency and confirmation of voluntary payment.
C. CBIC Instructions Prohibiting Coercive Recovery
The Court referred to CBIC Instruction No. 01/2022-23 dated 25.05.2022, which clarifies that:
Recovery of tax cannot be made during search.
Payment during investigation must be voluntary.
As noted in this judgement, the above mentioned instruction was issued by CBIC in backdrop of Gujarat High Court Judgement in case of Bhoomi Associate vs Union of India SCA No 3196 of 2021 dated 16/02/2021.
D. Violation of Procedural Safeguards
The Court found that:
The payment was taken during the search itself.
The deposit was made before the search concluded.
Such circumstances clearly indicated coercion.
7. Judgment of the Court
The High Court held:
The deposit made during the search was not voluntary.
Authorities were directed to:
Refund ₹15,06,342 with 6% interest, and
Re-credit ₹25,00,000 to the electronic credit ledger.
Refund was granted without prejudice to the ongoing adjudication proceedings under Section 73.
8. Key Judicial Principle Emerging
GST authorities cannot collect tax during search operations without following due process of law.
Payments made during investigation must be truly voluntary, otherwise they are liable to be refunded.
9. CA BTA Insight
This judgment is extremely important in GST investigation and search cases.
Key Litigation Principles
GST authorities cannot recover tax during search operations.
Payment through DRC-03 must be voluntary.
Payments made during search proceedings are presumed coercive.
Recovery requires SCN and adjudication under Section 73/74.
Courts may order refund with interest for coercive deposits.
Practical Defence Strategy
In investigation cases:
Examine timing of DRC-03 payment.
Verify whether DRC-01A or SCN was issued.
Check compliance with CBIC Instruction 01/2022.
Gujarat High Court Judgement in case of Bhoomi Associate vs Union of India SCA No 3196 of 2021 dated 16/02/2021.
Argue coercion and absence of voluntary payment.
This judgment strengthens taxpayer protection against forced GST deposits during search and investigation.