Facts of the Case

The petitioner, Gland Chemicals Pvt. Ltd., a company incorporated under the Companies Act, 1956, represented by its Manager C. Dayakar, with office at Malur, Kolar and registered office at Hyderabad, was issued a Show Cause Notice dated 11.11.2022 under Section 74 of the Central Goods and Services Tax Act, 2017 for the tax periods July 2017 to June 2021. On 03.08.2021, during a DGGI investigation in which its representative was detained until the early hours, the petitioner deposited Rs.14,32,32,135/- in Form GST DRC-03. Its subsequent refund application in Form GST RFD-06 was rejected by order dated 04.08.2023, against which an appeal in Form GST APL-01 was pending before the Joint Commissioner of Commercial Taxes (Appeals-4). The petitioner filed WRIT PETITION NO. 24577 OF 2023 (T-RES) before the Karnataka High Court under Articles 226 and 227, but confined the hearing to alternative reliefs — expeditious disposal of the pending refund appeal and refund of the deposited amount, less the 10% pre-deposit payable under Section 107(6).

Issues Involved

  1. Whether the amount of Rs.14,32,32,135/- deposited during the DGGI investigation was voluntary, and whether that question can be decided in the pending refund appeal.
  2. Whether the pending refund appeal ought to be decided independently of, and notwithstanding, the pendency of proceedings under the impugned show cause notice.
  3. What interim protection is appropriate for the petitioner while its appeal remains pending.

Petitioner's Arguments

  • The deposit of Rs.14,32,32,135/- on 03.08.2021 was coerced, made after the petitioner's representative was detained until the early hours, and was not voluntary.
  • The absence of an acknowledgment in Form GST DRC-04, and the fact that the show cause notice sought recovery of the very same amount, shows the deposit was not truly voluntary.
  • The refund application in Form GST RFD-06 was wrongly rejected, and the appeal against that rejection, filed in Form GST APL-01, was pending before the appellate authority.
  • There was apprehension that the department would appropriate the deposited amount while concluding proceedings under the impugned show cause notice before the pending appeal was decided.
  • Relied on the Karnataka High Court Division Bench ruling in Union of India v. Bundle Technologies (P.) Ltd. and CBIC Instruction No.1/2022-23 dated 25.05.2022 against coercive recovery during investigation.

Respondent's Arguments

  • The amount was deposited voluntarily by the petitioner's representative, accompanied by a written request for closure of the proceedings.
  • Despite that written request, the petitioner is now canvassing the same grievance both before the Court and before the appellate authority.

Court Order/Findings

  • The fifth respondent's order rejecting the refund had itself concluded that the deposit was voluntary, but the Court held that the correctness of that conclusion must be examined in the pending appeal, on the facts and in light of the settled position in Bundle Technologies.
  • The appellate authority cannot confirm rejection of the refund merely because proceedings under the impugned show cause notice are pending; it must decide the appeal on its own merits, applying the Bundle Technologies ratio and Instruction No.1/2022-23, in a time-bound manner.
  • The petition was disposed of, directing the Joint Commissioner of Commercial Taxes (Appeals-4) to decide the pending refund appeal within six weeks from the first hearing after the order.
  • The Court clarified that this disposal is not to be construed as the petitioner giving up its grievance against the terms of the show cause notice — liberty reserved on that count.

Important Clarification

  • An amount deposited during a search or investigation, especially where coercion is alleged and no DRC-04 acknowledgment is issued, cannot automatically be treated as voluntary; the question must be examined on facts by the appellate authority.
  • An appellate authority deciding a refund appeal cannot mechanically decline relief solely because a parallel show cause notice/adjudication for the same amount is pending.
  • The Bundle Technologies ratio and CBIC Instruction No.1/2022-23 (against coercive recovery during investigation) remain the touchstone for testing the 'voluntariness' of pre-SCN deposits.
  • Confining a writ petition to alternative reliefs (expeditious disposal of a pending appeal) does not amount to abandoning the primary challenge to the show cause notice itself.

Sections Involved

  • Section 74, CGST Act, 2017 — determination of tax not paid by reason of fraud, wilful misstatement or suppression of facts.
  • Section 107(6), CGST Act, 2017 — mandatory pre-deposit for filing an appeal before the Appellate Authority.
  • Form GST DRC-03 / DRC-04, CGST Rules, 2017 — voluntary payment of tax and its acknowledgment.
  • Forms GST RFD-06 and GST APL-01, CGST Rules, 2017 — refund rejection order and appeal against it.
  • Articles 226 and 227, Constitution of India — writ and superintendence jurisdiction of the High Court.

Decision – In Favour of

The petition was disposed of with directions rather than decided on merits. The Court did not rule on the voluntariness of the deposit or the validity of the show cause notice, but directed expeditious disposal of the petitioner's pending refund appeal and expressly preserved its right to contest the notice — an outcome that is disposed of with directions, in part in favour of the Assessee on the limited relief actually pressed.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: Karnataka High Court
  • Case No.: WRIT PETITION NO. 24577 OF 2023 (T-RES)
  • CNR: Not available on record
  • Coram: Justice B M Shyam Prasad
  • Decision Date: 07.12.2023
  • Disposal Nature: Disposed of with directions

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