M/S B.G. Granites vs Assistant Commisisoner (Hpu) on 13 October, 2025
AI Legal Insights
This GST case law, M/S B.G. Granites vs Assistant Commissioner (Hpu), addresses the critical issue of GST refunds concerning payments made during search and seizure operations. The Karnataka High Court examined whether a payment of Rs. 10 Crores was a voluntary payment under Section 74(5) of the CGST Act, 2017, or if it was extracted under coercion. The court ultimately ruled in favor of the assessee, directing a refund with interest, underscoring the importance of distinguishing between voluntary and coerced GST payments. This case provides crucial guidance on GST refunds and the application of Section 74(5).
This case clarifies the distinction between voluntary GST payments and those extracted under duress during search, inspection, or seizure. Taxpayers can claim refunds for coerced payments, while the department must ensure payments are genuinely voluntary to avoid refund liabilities.
- GST payments made under coercion during search are refundable.
- Interest at 6% is applicable on delayed GST refunds from date of payment.
- Taxpayers must document circumstances surrounding GST payments during search operations.
- Authorities must avoid coercion to ensure GST payments are genuinely voluntary.
- Section 74(5) of the CGST Act applies to self-ascertained, voluntary payments only.
QWhat happens if I pay GST under pressure during a raid?
If GST is paid under coercion or threat during a search, inspection, or seizure operation, it is not considered a voluntary payment. You are entitled to claim a refund of the amount paid, along with applicable interest.
QHow do I prove that my GST payment was not voluntary?
Document all circumstances surrounding the payment, including communication with officers, any explicit or implicit threats made, and the overall environment during the search operation. This evidence will be crucial in demonstrating that the payment was made under duress and not voluntarily.
QWhat is Section 74(5) of the CGST Act?
Section 74(5) of the CGST Act pertains to the voluntary payment of tax before a show cause notice is issued where there is a potential fraud, suppression or wilful misstatement. The payment is on self ascertainment and avoids penalties, assuming no other taxes are outstanding.
Ruling Summary
ummary of Judgment: M/S B.G. Granites vs Assistant Commissioner (Hpu) on 13 October, 2025**
1. Outcome
The Writ Petition is allowed. The Karnataka High Court declared the Petitioner entitled to a refund of Rs. 10 Crores along with interest at 6% per annum from March 24, 2023, until the date of payment. The Respondents are directed to process this refund within two months. All rival contentions between the parties arising from the subsequently issued show cause notice and adjudication proceedings are kept open, and no opinion was expressed on them.
2. Core Issue
The core issue was whether the payment of Rs. 10 Crores made by the Petitioner to the GST authorities during the course of search, inspection, and seizure operations was a voluntary payment made under Section 74(5) of the CGST Act, 2017, based on self-ascertainment, or if it was extracted under coercion and threat, thereby entitling the Petitioner to a refund.
3. Key Facts
* The Petitioner, Sri J Ramesh Chand, proprietor of M/s Million Lights (doing business in electronic equipment and footwear), is a registered GST taxpayer.
* On March 23, 2023, the 3rd Respondent (Inspector of Central Tax) raided the Petitioner's residence and seized a laptop.
* On March 24, 2023, Respondents 3 and 4 (Intelligence Officer, DGGI) conducted search, inspection, and seizure operations at the Petitioner's business premises.
* On the same day (March 24, 2023), Rs. 10 Crores was allegedly transferred by the Petitioner towards Goods and Service Tax via Form GST DRC-03. The Petitioner contended this payment was obtained by coercion and threat of arrest.
* The Respondents did not issue Form GST DRC-04 (acknowledgment of voluntary payment) as mandated by Rule 142(2) of the CGST Rules.
* The Petitioner filed the Writ Petition on May 3, 2023, by which time no notice under Section 73 or 74 of the CGST Act had been issued.
* During the pendency of the Writ Petition, the Respondents issued an intimation in Form GST DRC-01A, followed by a show cause notice in Form GST DRC-01 to the Petitioner.
4. Arguments (Taxpayer vs Revenue)
* Taxpayer (Petitioner):
* The payment of Rs. 10 Crores was not voluntary but was obtained under coercion and threat of arrest by the Respondents.
* Such collection without prior adjudication or issuance of a show cause notice (SCN) is impermissible in law and contrary to various pronouncements by the Supreme Court and High Courts.
* The Respondents failed to issue the mandatory acknowledgment in Form GST DRC-04, indicating the involuntary nature of the payment.
* The collection violated CBIC Instruction No. 01/2022-23 dated May 25, 2022, which cautions against forced recoveries during search proceedings.
* Demanded a refund of the entire sum with interest.
* Revenue (Respondents):
* The payment of Rs. 10 Crores was made by the Petitioner purely voluntarily based on their self-ascertainment of tax liability.
* Therefore, the payment was legal and proper, and the petition should be dismissed.
* Show cause notices have subsequently been issued, indicating ongoing adjudication.
5. Court’s Reasoning
The Court meticulously analyzed the facts in light of statutory provisions and extensive judicial precedents, concluding that the payment was involuntary and illegal:
- Deprecation of Forced Payments: The Court reaffirmed the consistent stance of the Supreme Court (e.g., Dabur India Ltd., Radhika Agarwal) and various High Courts against extracting payments under coercion during search or investigation proceedings, emphasizing that such practices are extra-legal and unconstitutional.
- Non-compliance with Procedure for Voluntary Payment (Section 74(5) & Rule 142(2)):
- No prior notice under Section 73 or 74 was issued, nor was any adjudication or determination of tax liability made by the Respondents before the payment.
- The mandatory acknowledgment in Form GST DRC-04, to be issued by the proper officer upon receipt of voluntary payment via DRC-03, was not issued.
- There was no prior demand made by the Respondents under the CGST Act.
- The DRC-03 submitted by the Petitioner did not contain sufficient details or quantification methodology for a genuine "self-ascertainment."
- It is inherently improbable for a taxpayer facing search proceedings under Section 74 (involving fraud/misstatement) to voluntarily pay, thereby self-incriminating.
- All necessary records (laptop, accounts, server, mobile, hard disks) required for self-ascertainment were seized by the Respondents, making genuine self-ascertainment by the Petitioner impossible.
- The Respondents themselves only ascertained the alleged tax payable much later, during the pendency of the petition (via DRC-01A dated 17.02.2025), contradicting their claim of prior self-ascertainment by the Petitioner.
- Section 74(5) requires payment of tax, interest (discretionary rates), and penalty (15%). The DRC-03 form showed 'Nil' for interest and penalty, further undermining the claim of voluntary payment as per the statutory scheme.
- Violation of CBIC Instructions: The payment during search proceedings directly contravened CBIC Instruction No. 01/2022-23 dated May 25, 2022, which explicitly states that no "recovery" should be made during search/inspection/investigation and that voluntary payments, if any, should be made after the officers have left the premises.
- Reliance on Precedents: The Court extensively cited and relied upon a multitude of judgments from various High Courts (Gujarat, Karnataka, Delhi, Punjab & Haryana) that consistently held payments made under similar circumstances (during search, without prior adjudication, and where voluntariness was disputed) to be involuntary and liable for refund.
- Violation of Constitutional Principles: The involuntary collection of tax without the authority of law violated Article 265 of the Constitution of India.
6. Statutory References
* Constitution of India: Articles 226, 265, 300-A
* Central Goods and Services Tax Act, 2017 (CGST Act):
* Section 50 (Interest on delayed payment)
* Section 67 (Power of inspection, search, seizure)
* Section 69 (Power to arrest)
* Section 70 (Power to summon persons to give evidence and produce documents)
* Section 73(5) (Voluntary payment before SCN for non-fraud cases)
* Section 74(1), 74(5), 74(6), 74(7), 74(8) (Determination of tax in fraud cases and voluntary payment scheme)
* Section 79 (Recovery of tax)
* Section 132 (Punishment for offences)
* Central Goods and Services Tax Rules, 2017 (CGST Rules):
* Rule 142(1), 142(1A), 142(2) (Notice and order for demand, intimation, and acknowledgment of voluntary payments)
* Form GST DRC-01A (Intimation of tax ascertained by officer)
* Form GST DRC-01 (Show Cause Notice)
* Form GST DRC-03 (Intimation of voluntary payment)
* Form GST DRC-04 (Acknowledgment of voluntary payment by proper officer)
* CBIC Instructions:
* Instruction No. 01/2022-23 [GST - Investigation] dated 25.05.2022
* Instruction No. 02/2022-23 [GST - Investigation] dated 17.08.2022
7. Precedents Cited
* Dabur India Ltd. v. State of U.P., (1990) 4 SCC 113 (Supreme Court)
* Radhika Agarwal v. Union of India, (2025) 6 SCC 545 (Supreme Court)
* Bhumi Associates v. Union of India, (2021) 124 taxmann.com 429 (Gujarat High Court)
* Union of India v. Bundl Technologies Pvt. Ltd., (2022) 136 taxmann.com 112 (Karnataka High Court, Division Bench)
* Bundl Technologies Pvt. Ltd. v. UOI; W.P. No. 4467/2021 dated 14.09.2021 (Karnataka High Court, Single Bench)
* Suretex Prophylactics (India) Private Limited vs. Union of India and Others; W.P.No.2444/2022 dated 27.02.2023 (Karnataka High Court, Single Bench)
* Kesar Colour Chem Industries vs. Senior Intelligence Officer and Another -W.P.No.17853/2021 dated 26.09.2024 (Karnataka High Court, Single Bench)
* The Intelligence Officer and Another vs. M/s. Kesar Colour Chem Industries W.A.No.1649/2024 dated 28.01.2025 (Karnataka High Court, Division Bench)
* Vallabh Textiles vs. SIO & Ors.; (2022) 145 taxmann.com 596 (Delhi High Court)
* Lovelesh Singhal vs. Commr., Delhi GST; (2023) 157 taxmann.com 611 (Delhi High Court)
* Mahavir Singh vs. Assistant Commissioner; (2024) 163 taxmann.com 543 (Delhi High Court)
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* Samyak Metals Pvt. Ltd. vs. UOI; (2023) 151 taxmann.com 225 (Punjab & Haryana High Court)
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* LML Ltd., vs Collector of Central Excise, Kanpur - 2002 (142) ELT 273 (Supreme Court)
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* Swadeshi Cotton Mills Co. Ltd V. Union of India - AIR 1981 SC 818, 831
* Rajesh Kumar v. Dy. CIT- [2006] 157 Taxmann 168 (Supreme Court)
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* Commissioner of Central Excise v. KVR Construction, 2012 (50) VST 469 (Karnataka High Court)
* Nandini Satpathy v. P.L. Dani, (1978) 2 SCC 424 (Supreme Court)
* Siddharth v. State of U.P., (2022) 1 SCC 676 (Supreme Court)
* Joginder Kumar v. State of U.P., (1994) 4 SCC 260 (Supreme Court)
* D.K. Basu v. State of W.B., (1997) 1 SCC 416 (Supreme Court)
* VODAFONE ESSAR SOUTH LTD VS. UNION OF INDIA', 2009 (237) ELT 35 (Bombay High Court)
* CENTURY KNITTERS (INDIA) LTD. VS. UNION OF INDIA', 2013 (293) ELT 504 (Punjab & Haryana High Court)
* William E Connor Associates & Sourcing (P.) Ltd v. Union of India , [2023] 152 taxmann.com 174 (Punjab & Haryana High Court)
* Diwakar Enterprises (P.) Ltd v. Commissioner of CGST , [2023] 149 taxmann.com 419 (Punjab & Haryana High Court)