Payment Deposited via Form GST DRC-03 During Search Lacks Voluntariness and Must Be Refunded Absent Prior Adjudication

The petitioner, a partnership firm, was subjected to search and seizure operations by the Directorate General of GST Intelligence (DGGI) on 11.07.2025 at its business and residential premises

During the search, the petitioner deposited ₹2,35,23,506/- (via ITC reversal and cash) through Form GST DRC-03

The petitioner subsequently retracted statements made during the search, alleging the payments were made under coercion and departmental pressure

The respondents claimed the payment was a voluntary "self-ascertainment" of tax liability under Section 74(5) of the CGST Act following intelligence that the petitioner availed fraudulent ITC without physical supply of goods

The petitioner moved the High Court seeking a refund of the deposited amount

Section 74(5) of the CGST Act, 2017, which permits a person to pay tax, interest, and a 15% penalty based on self-ascertainment before the service of a show-cause notice

Rule 142(2) of the CGST Rules, 2017, which mandates the proper officer to issue an acknowledgment in Form GST DRC-04 upon receipt of voluntary payment

The court relied on the "voluntariness" standards established in Vallabh Textiles v. Senior Intelligence Officer and Bhumi Associate v. Union of India, as incorporated in CBIC Instruction No. 01/2022-23, which advises that voluntary payments should be made after the conclusion of search proceedings to prevent coercion

The court referenced the Supreme Court’s dictum in Radhika Agarwal v. UOI, emphasizing that Section 74(5) does not postulate payment under force or threat of arrest

The court reasoned that the "voluntariness" of a payment is a question of fact determined by the attending circumstances

It observed that the deposit was made while search proceedings were ongoing and records were under the control of authorities, leaving no room for independent "self-ascertainment" by the petitioner

The court found that the respondents produced no contemporaneous material to show the petitioner determined the liability independently prior to the search

Furthermore, the respondents failed to issue the mandatory acknowledgment in Form GST DRC-04

The court rejected the Revenue's argument that the payment was voluntary based on the remarks in Form DRC-03, noting that the deposit occurred only after the investigative machinery was set in motion and failed to adhere to the safeguard of making payments after search teams left the premises

The petitioner's prompt retraction further negated the plea of voluntary compliance

It partially allowed the writ petition and directed the respondents to refund ₹2,35,23,506/- within eight weeks

The court declined to grant interest at this stage, as the final tax liability is yet to be adjudicated in the ongoing investigation

The respondents were permitted to continue their investigation and initiate formal adjudication proceedings in accordance with the Law