Facts of the Case

M/S KUM Internationals, an exporter of granite slabs, monuments and memorials, had Rs.2,20,40,580/- and, four days later, a further Rs.91,31,774/- collected from it by CGST officers during search, inspection and seizure operations conducted on 3 and 10 June 2024, by reversal of Input Tax Credit through Form GST DRC-03. The petitioner alleged the amounts were obtained under coercion, and that a subsequent letter requesting closure of the matter (leading to a closure order dated 27.08.2024) was similarly extracted under duress, and sought a refund of the entire sum.

Issues Involved

  1. Whether the amounts collected from the petitioner during search and seizure proceedings constituted a voluntary payment by way of self-ascertainment under Section 74(5) of the CGST Act, or an involuntary, coerced payment.
  2. Whether the consequential closure order, premised on the petitioner's alleged request, could stand if the underlying payment was found involuntary.

Petitioner's Arguments

  • The payment was not voluntary self-ascertainment but was obtained under coercion, threat and duress, contrary to CBIC Instruction No. 1/2022-23 dated 25.05.2022, and the entire amount together with interest ought to be refunded.

Respondent's Arguments

  • The payment was made purely voluntarily and based on the petitioner's own self-ascertainment of tax liability, and was legal and proper; the petition was liable to be dismissed.

Court Order / Findings

  • Applying the multi-factor test laid down in J. Ramesh Chand v. Union of India (Karnataka HC), the Court found the payment involuntary because: (i) no notice or quantification proceedings preceded the search; (ii) no acknowledgment in Form GST DRC-04 was issued as mandated by Rule 142(2) of the CGST Rules; (iii) all business records were seized by the officers themselves, precluding any genuine self-ascertainment; (iv) tax was collected on one date and interest/penalty on a separate later date, indicating no contemporaneous self-computation; and (v) the interest collected exceeded the statutory ceiling of 18%/24% per annum prescribed under Section 74(5).
  • Since the payment was not voluntary, the closure letter said to have been given by the petitioner requesting closure must also be treated as involuntary, rendering the consequential closure order unsustainable.
  • The Court quashed the closure order and directed refund of both sums together with interest at 6% per annum from the respective dates of collection, within two months, while keeping all rival contentions in any future show cause/adjudication proceedings open.

Important Clarification

  • A payment made during search, inspection or seizure proceedings will not be treated as "voluntary self-ascertainment" under Section 74(5) where it is not preceded by any demand or quantification, no DRC-04 acknowledgment is issued, all relevant records have been seized (precluding genuine self-ascertainment), and/or the interest collected exceeds the statutory rate cap — such payment must be refunded with interest, and any closure obtained on that basis is equally involuntary and unsustainable.

Sections Involved

  • Section 74(5), CGST Act, 2017 – voluntary payment of tax, interest and penalty before notice.
  • Rule 142(2), CGST Rules, 2017 – acknowledgment of voluntary payment in Form GST DRC-04.
  • CBIC Instruction No. 1/2022-23 dated 25.05.2022 – guidelines against coercive recovery during search.

Decision – In Favour of

Decided in favour of the Assessee – the closure order is quashed and refund of the entire amount with 6% interest is directed.

Case Details

  • Court: High Court of Karnataka at Bengaluru
  • Case No.: WP No. 26885 of 2024 (T-RES)
  • Neutral Citation: NC: 2025:KHC:40313
  • Coram: Hon'ble Justice S.R. Krishna Kumar
  • Date of Order: 13 October 2025

Link to Download the Order

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