M/S. Gunnam Infra Projects Private ... vs The Union Of India on 7 November, 2025
AI Legal Insights
This GST case law examines the validity of rejecting GST refund applications and the nature of payments made during investigations. The Karnataka High Court, in M/S. Gunnam Infra Projects Private Limited vs The Union Of India, addressed whether deficiency memos were justified and if payments made via Form DRC-03 during search proceedings could be considered voluntary under Section 74(5) of the CGST Act, 2017, thus qualifying for a refund under Section 54. The court quashed the deficiency memos, emphasizing that payments made under duress are not voluntary and are eligible for a refund.
This ruling protects taxpayers from forced tax payments during GST investigations. It clarifies that payments made under coercion, without formal adjudication, are refundable, reinforcing taxpayer rights against undue pressure from tax authorities.
- Tax payments during investigation are not voluntary under Section 74(5) if made under coercion.
- Deficiency memos cannot be issued for refund applications with all required documents.
- Taxpayers are entitled to refunds for involuntary payments made without tax liability determination.
- Authorities must process refund applications according to law if all documents are submitted.
- Radhika Agarwal v. Union of India principle applies to GST refunds for involuntary payments.
QAre GST payments made during investigation considered voluntary?
No, GST payments made during investigation, especially under coercion or threat, are not considered voluntary under Section 74(5) of the CGST Act. The Radhika Agarwal case supports this, entitling taxpayers to a refund if payments were involuntary.
QWhat happens if my GST refund application is rejected with a deficiency memo?
If your GST refund application is rejected with a deficiency memo despite providing all required documents, the rejection may be legally untenable. You can challenge the deficiency memo, as the Karnataka High Court did in M/S. Gunnam Infra Projects Private Limited vs The Union Of India, and seek a direction for proper processing of your refund application.
QCan I claim a refund for GST paid during a search or investigation?
Yes, you can claim a refund for GST paid during a search or investigation if the payment was not voluntary and no tax liability was formally determined. The key is to demonstrate that the payment was made under duress or coercion, which makes it eligible for a refund under the CGST Act.
Ruling Summary
Judgment Summary: M/S. Gunnam Infra Projects Private Limited vs The Union Of India
1. Outcome
The Writ Petition was allowed. The High Court quashed the Deficiency Memos (Form RFD-03) dated 20.05.2025 and 21.05.2025 issued by the Deputy Commissioner of Central Tax. The Court directed the authorities to process the petitioner's refund applications in accordance with the law, making the petitioner entitled to consequential reliefs.
2. Core Issue
The central legal questions before the court were:
1. Whether the deficiency memos issued by the tax authorities, rejecting the petitioner's refund applications for want of supporting documents, were legally tenable.
2. Whether tax amounts paid via Form DRC-03 during search and investigation proceedings can be considered "voluntary" under Section 74(5) of the CGST Act, 2017, and thereby be eligible for a refund under Section 54.
3. Key Facts
* 08.06.2023: Officers from the Directorate General of GST Intelligence (DGGI) and the Anti-Evasion Unit conducted an inspection at the petitioner's premises.
* During the inspection and subsequent proceedings, the petitioner was allegedly compelled to make four separate payments totaling ₹3,11,59,298 via Form DRC-03, which were categorized by the department as voluntary payments under Section 74(5) of the CGST Act.
* May 2025: The petitioner filed refund applications in Form RFD-01 under Section 54 of the CGST Act to claim back the amount paid, asserting that the payment was made under duress and no tax liability had been adjudicated.
* 20.05.2025 & 21.05.2025: The Deputy Commissioner of Central Tax (Respondent No. 6) issued Deficiency Memos in Form RFD-03, rejecting the applications on the grounds that relevant supporting documents were not attached. This was done even after the petitioner resubmitted the applications.
* Aggrieved by the rejection, the petitioner filed a writ petition seeking to quash the deficiency memos and obtain a direction for the processing of its refund claim along with interest.
4. Arguments
* Petitioner's Arguments:
* The refund applications were complete and filed with all necessary documents as required under Rule 89 of the CGST Rules.
* The Proper Officer's role at the initial stage is only to check for the completeness of the application, not to adjudicate its merits. Issuing deficiency memos without specifying any actual missing document is a colorable exercise of power.
* Payments made during an investigation, under threat of adverse consequences, cannot be considered "voluntary."
* Recovery of tax without an adjudication order is contrary to law and violates Article 265 of the Constitution of India.
- Respondents' (Tax Department) Arguments:
- The petitioner failed to prove that the payments were made under duress or coercion; the DRC-03 forms indicated the payments were voluntary.
- The deficiency memos were issued in line with Rule 90(3) of the CGST Rules because the refund applications were incomplete.
- The memos did not reject the refund claim on merits but merely pointed out documentary deficiencies, and the petitioner was free to re-file the applications after curing the defects.
5. Court’s Reasoning
The Court's reasoning was two-fold:
-
On the Legality of the Deficiency Memos:
- The Court relied on the Delhi High Court's judgment in AB Enterprises, which held that a refund application can be deemed deficient only if it is incomplete in terms of Rule 89 of the CGST Rules.
- Upon examining the petitioner's refund applications, the Court found that they were filed with all requisite documents, including undertakings and certificates from a Chartered Accountant.
- Therefore, the Court concluded that the applications were complete, and the issuance of deficiency memos citing a lack of documents was legally untenable and arbitrary.
-
On the Nature of Payments During Investigation:
- The Court held that the primary question was whether a payment made during a search could be considered "voluntary" under Section 74(5).
- It extensively relied on a series of binding precedents, including the Supreme Court's decision in Radhika Agarwal v. Union of India, which clarified that Section 74(5) is for truly voluntary payments and cannot be used by tax authorities to compel payments under threat of arrest. The Supreme Court affirmed that assessees forced to pay tax without adjudication are entitled to seek a refund.
- The Court also cited several High Court judgments (Bundl Technologies, Kesar Color Chem Industries, etc.), which have consistently held that payments made at odd hours during a search, without a proper ascertainment of liability, are inherently involuntary and coercive. Such collection of tax without the authority of law is a violation of Articles 265 and 300A of the Constitution.
- Applying this settled law, the Court concluded that the amounts paid by the petitioner could not be construed as voluntary. Since the payments were involuntary and no tax liability had been determined, the petitioner was entitled to claim a refund.
6. Statutory References
* Constitution of India: Articles 226, 227, 265, and 300A.
* Central Goods and Services Tax (CGST) Act, 2017:
* Section 54: Refund of tax.
* Section 74: Determination of tax for fraud, etc., specifically Section 74(5) regarding voluntary payments before notice.
* Section 67(1): Power of inspection, search, and seizure.
* Central Goods and Services Tax (CGST) Rules, 2017:
* Rule 89: Application for refund (Form RFD-01) and required documents.
* Rule 90: Acknowledgement (Form RFD-02) and communication of deficiencies (Form RFD-03).
* Rule 92: Order sanctioning refund.
* Forms: GST RFD-01, GST RFD-03, GST DRC-03.
7. Precedents Cited
* AB Enterprises v. Commissioner of Delhi Goods and Services Tax (2023 SCC Online Del 7434)
* Radhika Agarwal v. Union of India ((2025) 6 SCC 545)
* Bhumi Associate v. Union of India (2021 SCC OnLine Guj 3016)
* Union of India v. Bundl Technologies Private Limited (2022 SCC OnLine Kar 565)
* Intelligence Officer, DGGI, Bengaluru v. Kesar Color Chem Industries (2025 SCC OnLine Kar 18697)
* J. Ramesh Chand v. Union of India (W.P.No.9890 of 2023, Kar. HC)
* Vallabh Textiles v. Senior Intelligence Officer (2022 SCC OnLine Del 4508)
Key Legal Principles
- Upon examining the petitioner's refund applications, the Court found that they were filed with all requisite documents, including undertakings and certificates from a Chartered Accountant.
- Therefore, the Court concluded that the applications were complete, and the issuance of deficiency memos citing a lack of documents was legally untenable and arbitrary.
- . **On the Nature of Payments During Investigation:**
- It extensively relied on a series of binding precedents, including the Supreme Court's decision in **_Radhika Agarwal v. Union of India_**, which clarified that Section 74(5) is for truly voluntary payments and cannot be used by tax authorities to compel payments under threat of arrest. The Supreme Court affirmed that assessees forced to pay tax without adjudication are entitled to seek a refund.
- Applying this settled law, the Court concluded that the amounts paid by the petitioner could not be construed as voluntary. Since the payments were involuntary and no tax liability had been determined, the petitioner was entitled to claim a refund.