Facts of the Case

The Petitioner, Sushil Kumar, engaged in manufacturing and trading of ferrous and non-ferrous metals, was subjected to a GST search operation on 16–17 November 2023 based on allegations of suppression of transactions, stock discrepancies, and tax evasion.

During the search proceedings, which continued overnight, the authorities allegedly compelled the Petitioner to deposit ₹40,06,342 (₹15,06,342 towards stock variation and ₹25,00,000 towards alleged wrongful ITC) through Form GST DRC-03, without issuance of any formal demand or show cause notice.

The Petitioner contended that:

  • The payment was made under duress and coercion during the search (around 3 AM).
  • No acknowledgment in Form GST DRC-04 was issued.
  • No opportunity was provided to explain discrepancies.

Accordingly, the Petitioner sought refund of the amount along with interest.

 

Issues Involved

  1. Whether GST deposited during search proceedings without issuance of notice can be treated as voluntary payment?
  2. Whether such recovery during search violates provisions of the CGST Act, 2017 and CBIC instructions?
  3. Whether the Petitioner is entitled to refund with interest?
  4. Whether interest is payable on amounts debited from the Electronic Credit Ledger?

 

Petitioner’s Arguments

  • The deposit made at 3 AM during search proceedings cannot be termed voluntary.
  • No proceedings under Section 73 or 74 CGST Act had been initiated at the time of payment.
  • Recovery without due process violates statutory safeguards and CBIC Instruction No. 01/2022-23.
  • Relied on M/s Vallabh Textiles vs Senior Intelligence Officer (Delhi HC) holding coerced deposits refundable with interest.
  • Absence of DRC-04 acknowledgment indicates procedural violation.

 

Respondent’s Arguments

  • The payment was made voluntarily by the Petitioner.
  • Proceedings under Section 73 CGST Act had subsequently been initiated through issuance of a show cause notice.
  • Amount debited from Electronic Credit Ledger does not attract interest.

 

Court’s Findings / Order

The Delhi High Court held:

  • Deposits made during search at 3:10 AM and 3:18 AM clearly indicate lack of voluntariness.
  • Recovery during search proceedings is contrary to law and CBIC instructions, which prohibit coercive recovery without due process.
  • No material was produced by the department to prove voluntary payment.
  • The deposit was therefore coercive and without authority of law.

Directions Issued:

  1. Refund of ₹15,06,342 (cash component) with 6% interest per annum.
  2. Re-credit of ₹25,00,000 (ITC component) to Electronic Credit Ledger.
  3. No interest payable on ITC portion unless refund application was filed earlier.
  4. Refund is without prejudice to ongoing proceedings under Section 73.

 

Important Clarifications by the Court

  • No recovery can be made during search unless supported by adjudication.
  • Payments during search must be truly voluntary, not influenced by coercion.
  • CBIC Instruction dated 25.05.2022 is binding and must be strictly followed.
  • Deposits made during search before officers leave premises are presumed non-voluntary.
  • Interest is not payable on Electronic Credit Ledger amounts unless claimed properly.

 

Sections Involved

  • Section 73, CGST Act, 2017 – Determination of tax (non-fraud cases)
  • Section 74, CGST Act, 2017 – Determination of tax (fraud cases)
  • Section 79, CGST Act, 2017 – Recovery proceedings
  • Section 50, CGST Act, 2017 – Interest on delayed payment
  • Rule 142, CGST Rules, 2017 – Demand and recovery procedure
  • CBIC Instruction No. 01/2022-2023 (GST Investigation)

Link to download the order -   https://delhihighcourt.nic.in/app/showFileJudgment/SAS26022024CW155192023_170907.pdf

 

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