The Karnataka High Court has ordered the refund of Rs. 10 crore along with 6% interest which was collected during the Search as the search was involuntary.
The bench of Justice S.R.Krishna Kumar has observed that the obtainment / collection / receipt of a sum of Rs.10 crores by the department from the petitioner at the time of search, inspection and seizure operations is not voluntary or by way of self-ascertainment and the same is wholly illegal, arbitrary and contrary to law and the provisions of the CGST Act and also without jurisdiction or authority of law and the said amount deserves to be refunded back to the petitioner together with interest at the rate of 6% p.a. within a stipulated timeframe.
The petitioner/assessee is doing business of trading in electronic equipment and footwear etc., and obtained a GST registration and was filing GST returns and making payment from 01.07.2017 onwards.
The Inspector Of Central Tax undertook a raid at the residence of the petitioner and seized certain movable articles including laptop etc. which was handed over back to the petitioner on 28.03.2023. Meanwhile, the search, inspection and seizure operations were conducted at the business premises of the petitioner and are alleged to have obtained transfer of Rs.10 crores from the petitioner by coercion and under the threat of arrest vide Form BRC 03.
In pursuance of the same, the petitioner approached this Court on 03.05.2023 till which date, the respondents had not issued any notice to the petitioner under Section 73 or 74 of the CGST Act.
During the pendency of the petition, some of the respondents have issued notice / intimation in GST DRC -01A followed by a show cause notice in GST DRC – 01 to the petitioner.
The petitioner contended that he did not voluntarily make the payment of Rs.10 crores to the respondents and that the same was received / obtained / collected by them under coercion and threat and as such, the obtainment / collection of Rs.10 crores from the petitioner on 24.03.2023 was illegal and that the department are to be directed to refund the entire sum together with interest back to the petitioner.
What did the GST dept. not do what it was ought to do?
The court held that the obtainment / collection / receipt of a sum of Rs.10 crores by the respondents from the petitioner at the time of search, inspection and seizure operations is not voluntary or by way of self-ascertainment and the same is wholly illegal, arbitrary and contrary to law and the provisions of the CGST Act and also without jurisdiction or authority of law and the said amount deserves to be refunded back to the petitioner together with interest at the rate of
6% p.a. within a stipulated timeframe.
No Show Cause Notice Issued Prior To The Search And Inspection
The court noted that prior to the search and inspection, the department did not issue any notice to the petitioner nor were any proceedings to ascertain, adjudicate or determine the tax, interest and penalty payable by the petitioner which indicates that there was no occasion for the petitioner to pay the said sum voluntarily by way of self-ascertainment to the respondents, thereby indicating that the amount was not paid voluntarily by the petitioner.
No acknowledgment in Form GST DRC-04 Issued By The GST Dept.
The court noted that Rule 142(2) of the CGST Rules, 2017, contemplates that upon the petitioner making payment in Form GST DRC-03, the GST department are bound to issue an acknowledgment in Form GST DRC-04 to the petitioner; undisputedly, GST department did not issue any such acknowledgment to the petitioner which is a circumstance to clearly indicate that the said amount was not a voluntary payment made by the petitioner.
No demand Prior To Search And Inspection
The court noted that prior to the search and inspection made by the department, there was no demand made by the respondents in relation to the amount paid by the petitioner under any of the provisions of the CGST Act, 2017, which is yet another circumstance to indicate that there was no warrant / reason for the petitioner to make voluntary payment during the course of search and inspection proceedings.
Form DRC-03 Merely Contained Amount Without Additional Details
The material on record also indicates that even at the time of payment by the petitioner, the details, material particulars, quantification etc., of the alleged self – ascertainment and voluntary payment by the petitioner are conspicuously absent except for filling up Form DRC-03 which merely contains the amount without additional details in this regard; interestingly, there are no other contemporaneous document in this regard, thereby establishing that the payment made by the petitioner cannot be construed or treated as voluntary as contended by the respondents.
Assessee Unknown About Proceedings Under Sections 73 to 74
The department would be entitled to invoke Section 74 only in cases of tax not paid / short paid / erroneously refunded / input tax credit wrongly availed or utilised by reason of fraud or any wilful – misstatement or suppression of facts; it follows therefrom that the provisions contained in Section 74 would apply only if the department were to prove the allegations contemplated in the said provision made against the assessee. In such proceedings to be initiated under Section 74, it is highly inconceivable that a tax payer/assessee in respect of whom, search, seizure and inspection proceedings are being conducted by the respondents would voluntarily make payment thereby exposing himself to the risk of admitting that he is guilty of the allegations contemplated in Section 74 of the CGST Act.
In other words, in the light of Form GST DRC-03 said to have been submitted by the petitioner along with the payment by invoking Section 74 (5) of the CGST Act, it is highly / inherently improbable that the said payment was made voluntarily by the petitioner that too during the course of search, seizure and inspection proceedings and even before he became aware or came to know whether proceedings under Sections 73 to 74 would be initiated against him and as such, the payment made by the petitioner cannot be said to be voluntary by way of self-ascertainment.
No Quantification By Dept. Prior To Payment
The court noted that prior to the payment made by the petitioner, there was no proceeding or order by the respondents which adjudicated or quantified or ascertained the amount payable by the petitioner nor any such quantification or ascertainment done / made by the petitioner for the purpose of arriving at the sum of Rs.10 crores paid by the petitioner, which was not preceded by any order or basis so as to arrive at the said figure. In the absence of any material to establish as to how the petitioner or quantified or arrived at a sum of Rs.10 crores paid by him and in the absence of requisite / necessary material particulars / details in this regard, it cannot be said that the said sum paid by the petitioner was voluntary and by way of self – ascertainment as contended by the respondents whose contention in this regard deserves to be rejected.
All Necessary Material, Account Seized Before Self-Ascertainment
The court found that the material pertaining to search, inspection and seizure proceedings comprising of mahazar, seizure order etc., will indicate that on 23.03.2023 itself, the residence of the petitioner was inspected by the respondents who seized one laptop from the petitioner; on the very next day i.e., on 24.03.2023, the department seized various movable, articles comprising of account books, desktops, server disks, mobile phones, hard disks, laptop etc., from the business premises of the petitioner and all necessary data that was required for the purpose of self-ascertainment had been seized from the petitioner by the respondents.
It follows therefrom that at the time of payment, there could not have been any material, accounts, etc., available with the petitioner that would enable him to proceed with self-ascertainment and accordingly, voluntarily make payment of Rs.10 crores to the respondents.
In other words, in the light of the undisputed fact that all necessary material, account etc., which was the basis for self- ascertainment having been seized by the respondents, it is highly improbable that the petitioner was in a position to carryout self-ascertainment and make payment which is yet another circumstance to establish that the said payment was not voluntary as falsely contended by the respondents, whose contention is liable to be rejected on this score also.
Except Conducting Search, Inspection And Seizure Proceedings, No Other Proceedings Were Prior To Payment
The court noted that except conducting search, inspection and seizure proceedings, no other proceedings or order were initiated or passed by the respondents prior to the payment made by the petitioner and no ascertainment had been made / done by the department till that time; the undisputed fact that the respondents themselves ascertained the actual amount payable by the petitioner only during the pendency of the petition by issuance of intimation in Form GST DRC-01A dated 17.02.2025, is sufficient to come to the conclusion that prior thereto and at the time of search, seizure and inspection proceedings during the course of which, payment was made, there was no ascertainment of the actual tax, interest and penalty payable by the petitioner which also establishes that the payment made by the petitioner was involuntary and not on his own account but at the instance of the respondents.
Immense Pressure During Search
The court noted that the voluntary payment by the petitioner would have to be made as per the procedure prescribed in the said provision, viz., firstly, ascertain the actual tax payable by him after verification / scrutiny of his accounts, secondly, calculate the interest payable by him in terms of Section 50 of the CGST Act, which provides for discretion in payment of interest upto 18% / 24% p.a. and thirdly, to calculate the penalty at 15% on the tax payable by him. In other words, this process of self-ascertainment calls for and demands verification / scrutiny of accounts and calculation of discretionary rate of interest up to 18% / 24% which is not a fixed rate of interest and penalty, all of which is highly improbable and physically / humanly impossible to be done by a tax payer / assessee who is already under immense pressure on account of search, inspection and seizure operation being conducted, particularly when all equipment which would be required / necessary for such self-ascertainment was not available with the petitioner.
No Payment Made By Towards Interest Or Penalty In GST DRC-03
The court noted that a perusal of the payment made by the petitioner in Form GST DRC-03 will indicate that the same is made under Section 74(5) of the CGST Act which mandates that such voluntary payment of tax should have been made by the petitioner along with interest under Section 50 of the CGST Act and penalty. The payment in Form GST DRC-03 will indicate that no payment is made by the petitioner towards interest or penalty and the relevant columns in this regard are shown as ‘Nil’ which is yet another circumstance to indicate that the payment was not made by the petitioner voluntarily in terms of Section 74(5) of the CGST Act, 2017, as contended by the respondents whose
contentions are liable to be rejected.
Radhika Agarwal’s case
The court held that the payment of Rs.10 crores by the petitioner during the course of search, inspection and seizure proceedings is contrary to the directions issued by the respondents themselves in Instruction No.1/2022-23 dated 25.05.2022, in which the officials of the respondents have been cautioned / warned against taking steps to collect / receive / obtain voluntary payment and reiterated by the Apex Court in Radhika Agarwal’s case, and as such, the contentions of the respondents cannot be accepted on this ground also.
Case Details
Case Title: Sri J Ramesh Chand Versus Union Of India
Case No.: Writ Petition No. 9890 Of 2023 (T-Res)
Date: 13/10/2025
Counsel For Petitioner: Bharat Raichandani
Counsel For Respondent: Anuparna Bordoloi
