Madras HC Orders ₹2.27 Crore GST Refund To Mill After Surprise Inspection During Family Wedding, Citing Missing DRC-04 Acknowledgment

The petitioner, a yarn and synthetic-fibre business, challenged orders dated 27 March 2024 that concluded GST proceedings after payments were made through Form GST DRC-03 during an inspection on 19 and 20 October 2023.

The petitioner alleged that the payments were coerced, disputed the tax demands, and said it had raised its objection in a representation dated 6 November 2023.

The respondents maintained that the payments were voluntary and that the petitioner’s representative used the firm’s GST portal credentials and OTP to make them.

The petitioner sought to quash the orders and obtain refunds; it also argued that the authorities had not issued Form GST DRC-04 acknowledging the payments.

The Court found from the respondents’ counter that DRC-04 had not been issued and that the petitioner’s representation had not been considered.

Rule 142(2) of the CGST Rules requires a person making a payment of tax, interest or penalty—whether on self-ascertainment or as communicated by the proper officer—to report it in Form GST DRC-03, after which the proper officer is to acknowledge acceptance of the payment in Form GST DRC-04.

The respondents relied on Rule 142(3) as permitting conclusion of proceedings through Form GST DRC-05 where the payment fully discharges the liability.

The Court relied on ATR Malleable Casting (P.) Ltd. v. Inspector of Central Taxes, which treated the absence of the DRC-04 acknowledgement as material under Rule 142(2).

It also referred to Vallabh Textiles v. Senior Intelligence Officer and a prior Madras High Court decision concerning payments made under coercion and the need for genuine self-ascertainment before treating a payment as voluntary.

The respondents cited departmental Instruction No. 01/2022-2023, which states that tax recovery ordinarily follows notice and adjudication, while permitting voluntary payment based on an ascertainment of liability.

The Court noted the petitioner’s allegation that the payments were made under pressure during inspection and its subsequent written objection, while also recording the respondents’ position that the payments were voluntary.

It observed that the 17-day interval before the objection was submitted did not, by itself, defeat the petitioner’s claim, taking account of the family wedding that coincided with the inspection.

More decisively, the respondents’ own counter stated that DRC-04 had not been issued and that the petitioner’s objection was followed by a show-cause notice and closure order without the objection being considered.

Applying Rule 142(2) and the reasoning in ATR Malleable Casting, the Court held that the omission and failure to consider the petitioner’s representation rendered the impugned orders unsustainable.

It stated that the petitioner could file an appeal manually within twelve weeks if it wished to do so.

The writ petitions were allowed, with no order as to costs.