GST Officers Not Empowered to Compel ‘Voluntary Payments’ During Searches, Must Be Refunded When Challenged: Karnataka HC

The Karnataka High Court has held that payments made by an assessee during search or investigation proceedings, when claimed to have been made under duress, cannot be retained by the authorities without adjudication. The bench of Justice M. Nagaprasanna quashed the deficiency memos issued by the Deputy Commissioner of Central Tax rejecting refund applications filed by Gunnam Infra Projects Pvt. Ltd., and directed the department to process the refund in accordance with law. The bench reaffirmed that GST officers have no power to compel “voluntary payments” during searches and must process refund claims properly when such payments are challenged as coerced. Officers from the Directorate General of GST Intelligence (DGGI) and the Anti-Evasion Unit conducted a search on Gunnam Infra Projects Pvt. Ltd. on June 8, 2023, under Section 67(1) of the CGST Act. During this operation, the company allegedly paid ₹2.42 crore through Form DRC-03, purportedly under pressure to avoid “adverse consequences.” Over subsequent months, the assessee made additional payments totaling ₹3.11 crore under similar circumstances. After the investigation, the company sought a refund of the amounts paid by filing applications in Form RFD-01 on May 9 and May 16, 2025, citing Section 54 of the CGST Act. However, the Deputy Commissioner of Central Tax rejected these requests through deficiency memos dated May 20 and 21, 2025, claiming that “supporting documents” were missing. The company approached the High Court, arguing that all required documents had been filed and that the rejection was arbitrary and illegal. The petitioner argued that the refund applications were complete in all respects under Rule 89(2) of the CGST Rules. The Deputy Commissioner had no jurisdiction to adjudicate the merits of a refund claim through a deficiency memo. The officers’ act of forcing payments during inspection violated Article 265 of the Constitution (“no tax shall be collected except by authority of law”). The Department should have acknowledged the refund applications under Rule 90(2) and Rule 92(1) and processed them within the prescribed 60 days. The DGGI contended that payments made in Form DRC-03 are treated as voluntary unless proven otherwise. The petitioner failed to demonstrate coercion or provide supporting documents. The deficiency memos were valid under Rule 90(3) since the refund applications were incomplete. The memos did not deny the refund on merits but merely required rectification of deficiencies. The court examined the statutory framework under Sections 54 and 74 of the CGST Act and the related Rules 89, 90, and 92. The Court observed that under Rule 90(3), a deficiency memo can only be issued if the refund application is incomplete in terms of Rule 89(2). If the application is complete and accompanied by prescribed documents, officers must issue an acknowledgment (RFD-02) and process the refund. The officer cannot reject a refund claim on the ground of alleged coercion or voluntariness of payment; such questions require proper adjudication under Section 74. The Court reiterated, “An application can be rejected as deficient only where any deficiencies are noted which render it incomplete in terms of Rule 89. The fact that the officer is not satisfied on merits does not justify issuing a deficiency memo.” Accordingly, the Court found the impugned deficiency memos to be “unsustainable and contrary to the CGST Act and Rules.” The High Court quashed the deficiency memos and directed the Deputy Commissioner of Central Tax to process the refund applications filed by the petitioner under Section 54 of the CGST Act within the time prescribed. Consider the petitioner’s claim for interest on delayed refund in accordance with law. Case Details Case Title: M/S. Gunnam Infra Projects Private Limited Versus The Union Of India Case No.: Writ Petition No.17779 Of 2025 (T - Res) Date: 07/11/2025 Counsel For Petitioner: Lochana S. Babu Counsel For Respondent: M.N.Kumar Click Here To Read Order Read More: GST Dept. Ought To Take Decision Expeditiously On Refund Applications: Delhi High Court

GST Officers Not Empowered to Compel ‘Voluntary Payments’ During Searches, Must Be Refunded When Challenged: Karnataka HC

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