GST payments made without lawful ascertainment during investigation are not voluntary and must be refunded.

The petitioner, a registered GST taxpayer providing manpower-supply services to government departments and public authorities, was subjected to inspection on 20 January 2024 based on alleged discrepancies between its GSTR-3B and GSTR-7 returns.

The petitioner subsequently made payments through Form GST DRC-03, including ₹20,97,352 and ₹15,00,000 on 27 March 2024, and ₹18,00,000 on 14 May 2024; it contended that the payments were obtained under coercion and were not voluntary.

The respondents later issued notices under Section 74 of the CGST/KGST Acts, followed by an adjudication order dated 6 February 2025.

The petitioner applied for refund of ₹38,97,352 and ₹15,00,000, but the applications were rejected on 12 November 2024. Its statutory appeals were also dismissed by the Joint Commissioner on 28 August 2025.

The Court applied Section 73(5) of the CGST Act, which permits payment before service of notice on the basis of the taxpayer’s own ascertainment or the proper officer’s ascertainment of tax, together with applicable interest.

Section 74(5) similarly permits payment in cases involving alleged fraud, wilful misstatement or suppression, but the payment must comply with the statutory requirements, including interest and penalty.

Rule 142(2) of the CGST Rules requires a person making such payment through Form GST DRC-03 to be issued an acknowledgment in Form GST DRC-04.

The Court relied on the Commissioner’s Instruction dated 25 May 2022, which clarifies that tax recovery cannot be made during search, inspection or investigation without a lawful demand and adjudication, although a taxpayer may voluntarily pay an admitted or ascertained liability.

It further relied on Union of India v. Bundl Technologies, which held that payment unsupported by self-ascertainment, written admission or proper statutory procedure cannot be treated as voluntary and may require refund.

It further relied on Sri J. Ramesh Chand v. Union of India, which identified the absence of prior demand, quantification, DRC-04 acknowledgment and contemporaneous particulars as circumstances indicating involuntary payment.

The Court also applied the constitutional principles under Articles 265 and 300A that tax must be collected only by authority of law and that property cannot be deprived without such authority.

The Court found no material showing that the amounts paid by the petitioner were based on its own ascertainment or on any prior ascertainment by the proper officer.

Although the respondents relied on Section 73(5)/Section 74(5), the payments were made without any prior demand or quantified liability, and the respondents did not issue the mandatory Form GST DRC-04 acknowledgment.

The DRC-03 forms also did not reflect payment of interest or penalty, despite the respondents’ reliance on Section 74(5), which further undermined the claim that the payments were voluntary statutory payments.

The Court considered the personal-appearance endorsement preceding the second payment particularly significant because it did not identify any statutory provision authorising the demand for appearance.

The subsequent initiation of adjudication proceedings could not retrospectively convert earlier coercive collections into voluntary payments; nor could proceedings under Section 79 establish voluntariness.

Applying Bundl Technologies, J. Ramesh Chand and the 25 May 2022 departmental instruction, the Court concluded that the payments were not legally voluntary and that retention of the amounts lacked authority of law.

It directed the respondents to refund ₹53,97,352 to the petitioner with interest at 6% per annum from the respective dates of payment until refund.

The Court expressly left open all rival contentions concerning the tax liability in the pending show-cause and adjudication proceedings.