Sri J Ramesh Chand vs Union Of India on 13 October, 2025

1. Outcome

The Writ Petition is allowed. The Court directed the respondents to:
* Refund Rs. 10,00,00,000/- (Rupees Ten Crores) collected from the petitioner.
* Pay interest at 6% per annum on the said amount from March 24, 2023, till the date of payment.
* Complete the refund within two months from the date of receipt of the order.
The Court clarified that all rival contentions between the parties pursuant to the show cause notice and adjudication proceedings of the respondents are kept open, and no opinion is expressed on them.

2. Core Issue

The core issue was whether the payment of Rs. 10,00,00,000/- made by the petitioner to the tax authorities during the course of search, inspection, and seizure operations was a voluntary payment based on self-ascertainment under Section 74(5) of the CGST Act, 2017, or if it was obtained under coercion and threat, rendering it illegal and warranting a refund.

3. Key Facts

• The petitioner, Sri J Ramesh Chand, is the proprietor of M/s Million Lights, engaged in trading electronic equipment and footwear.
• March 23, 2023: Respondent 3 conducted a raid at the petitioner's residence and seized a laptop.
• March 24, 2023: Respondents 3 and 4, along with other officials, conducted search, inspection, and seizure operations at the petitioner's business premises.
• During these operations, Rs. 10,00,00,000/- (Rupees Ten Crores) was collected from the petitioner, allegedly under coercion and threat of arrest, via Form GST DRC-03.
• At the time of this payment, the respondents had not issued any notice to the petitioner under Section 73 or 74 of the CGST Act, 2017.
• The respondents did not issue any acknowledgment in the prescribed Form GST DRC-04 for the received payment, even until the date of the petition.
• The petitioner filed the present writ petition on May 3, 2023, seeking to quash the payment and direct a refund.
• During the pendency of the petition, the respondents subsequently issued an intimation in Form GST DRC-01A, followed by a show cause notice in Form GST DRC-01.
• All necessary documents, accounts, and equipment (laptops, desktops, servers, hard disks) required for self-ascertainment were seized by the respondents during the search.
• The Form GST DRC-03 submitted by the petitioner showed 'Nil' in the columns for interest and penalty.

4. Arguments

• Taxpayer (Petitioner):
  • The payment was not voluntary but obtained by the respondents under coercion and threat during the search and inspection proceedings, which is impermissible in law.
  • The collection was contrary to CBIC Instruction No. 01/2022-23 dated May 25, 2022, which cautions against forced recovery during investigation.
  • No prior notice under Section 73 or 74 of the CGST Act was issued, nor were any adjudication proceedings initiated or order passed to quantify the tax liability, making the recovery illegal and without authority of law (violating Article 265 of the Constitution).
  • The respondents' failure to issue Form GST DRC-04 acknowledgment (as per Rule 142(2)) confirms the involuntary nature of the payment.
  • It was impossible for the petitioner to undertake a genuine "self-ascertainment" when all relevant documents and electronic equipment were seized by the department.
  • The payment in DRC-03 did not include interest or penalty, which is contrary to the requirements of Section 74(5) for a voluntary payment.
• Revenue (Respondents):
  • The payment of Rs. 10 Crores by the petitioner was purely voluntary and based on the petitioner's own ascertainment of tax liability.
  • Therefore, the said payment was legal and proper, and the petition should be dismissed.
  • (Implicitly, from court's reasoning) The issuance of subsequent show cause notices validates their claim, and disputed questions of fact cannot be addressed in a writ petition.

5. Court’s Reasoning

The Court meticulously examined the facts in light of statutory provisions, CBIC instructions, and numerous precedents:

• Consistent Judicial View: The Court reiterated that the practice of obtaining forced/involuntary payments from taxpayers during search/inspection proceedings has been consistently deprecated by the Supreme Court and various High Courts (citing Dabur India Ltd., Radhika Agarwal, and several others).
• Lack of Voluntariness:
  • Absence of Prior Proceedings: No prior notice under Section 73 or 74, or any adjudication proceedings, existed to justify a voluntary payment.
  • Non-Issuance of DRC-04: The non-issuance of Form GST DRC-04 (acknowledgment of voluntary payment) is a strong indicator that the payment was not voluntary.
  • No Prior Demand: There was no demand from the respondents prior to the payment, making the notion of "voluntary payment" during search highly questionable.
  • Lack of Quantification Basis: The absence of details or a clear basis for the Rs. 10 Crores payment, beyond filling DRC-03, suggests it wasn't a genuine self-ascertainment.
  • Inherent Improbability: It is highly improbable for a taxpayer, facing allegations under Section 74 (fraud, misstatement, suppression), to voluntarily admit guilt by making such a payment during ongoing search and seizure, especially when doing so exposes them to greater liability.
  • Seizure of Records: All necessary records and electronic equipment required for self-ascertainment were seized by the department, making independent calculation and verification by the petitioner impossible.
  • "Nil" Interest/Penalty in DRC-03: A payment under Section 74(5) requires interest and penalty. The DRC-03 showing 'Nil' for these amounts further undermines the claim of voluntary payment as per the statutory scheme.
  • Contradiction in Department's Stance: The fact that the department subsequently initiated ascertainment proceedings (issuing DRC-01A and DRC-01) during the petition's pendency contradicted their claim that the initial Rs. 10 Crores was a voluntary self-ascertained payment.
• Violation of Instructions: The collection of the amount during the search operation directly contravened CBIC Instruction No. 01/2022-23 dated May 25, 2022, which explicitly warns against compelling voluntary payments during search/inspection and emphasizes that recovery can only be made after due legal process (Section 79, notice, adjudication order). This instruction itself was a result of judicial directives from the Gujarat High Court in Bhumi Associates.
• No Authority to Recover Pre-Adjudication: The Court emphasized that tax recovery can only be made after a demand is confirmed through an adjudication order, as per Section 79. Any collection prior to this, and not genuinely voluntary, is illegal and without jurisdiction, violating Article 265 of the Constitution.
• Reliance on Precedents: The Court heavily relied on its own Single and Division Bench judgments in Bundl Technologies Pvt. Ltd. and Kesar Colour Chem Industries, as well as judgments from Delhi High Court (Vallabh Textiles, Lovelesh Singhal, Mahavir Singh) and Punjab & Haryana High Court (Parsvnath Traders, Samyak Metals Pvt. Ltd.), which have consistently ruled against forced payments during investigation and mandated refunds.

6. Statutory References

• Constitution of India: Article 226, Article 265, Article 300-A.
• Central Goods and Services Tax Act, 2017 (CGST Act, 2017):
  • Section 50 (Interest on delayed payment)
  • Section 67(1) (Power of inspection, search, seizure)
  • Section 73(1), 73(3), 73(5), 73(6), 73(7) (Determination of tax not paid for reasons other than fraud)
  • Section 74(1), 74(5), 74(6), 74(7), 74(8) (Determination of tax not paid by reason of fraud, willful misstatement or suppression of facts)
  • Section 79 (Recovery of tax)
• Central Goods and Services Tax Rules, 2017 (CGST Rules, 2017):
  • Rule 142(1), 142(1A), 142(2) (Notice and order for demand of amounts payable under the Act)
  • Form GST DRC-01A (Intimation of tax ascertained)
  • Form GST DRC-01 (Show Cause Notice)
  • Form GST DRC-03 (Intimation of payment made voluntarily)
  • Form GST DRC-04 (Acknowledgement of acceptance of payment)
• CBIC Instructions/Circulars:
  • Instruction No. 01/2022-23 [GST – Investigation] dated May 25, 2022
  • Instruction No. 02/2022-23 [GST – Investigation] dated August 17, 2022 (Guidelines for arrest and bail)
  • Circular No. 128/47/2019-GST dated December 23, 2019 (Arrest memo format)
  • Instruction No. 01/2025-GST dated January 13, 2025 (Amendment to arrest grounds)
  • Circular F. No. 296/63/2020-CX9 dated January 19, 2022 (Master circular on Recovery and Write-Off Arrears of Revenue)

7. Precedents Cited

1. Dabur India Ltd. v. State of U.P. (1990) 4 SCC 113 (Supreme Court)
2. Radhika Agarwal v. Union of India (2025) 6 SCC 545 (Supreme Court)
3. Siddharth v. State of U.P. (2022) 1 SCC 676 (Supreme Court)
4. Joginder Kumar v. State of U.P. (1994) 4 SCC 260 (Supreme Court)
5. D.K. Basu v. State of W.B. (1997) 1 SCC 416 (Supreme Court)
6. Nandini Satpathy v. P.L. Dani (1978) 2 SCC 424 (Supreme Court)
7. Bhumi Associates v. Union of India (2021) 124 taxmann.com 429 (Gujarat High Court)
8. Mahavir Singh vs. Assistant Commissioner (2024) 163 taxmann.com 543 (Delhi High Court)
9. Lovelesh Singhal vs. Commr., Delhi GST (2023) 157 taxmann.com 611 (Delhi High Court)
10. Parsvnath Traders vs. Pr. Commr., CGST (2023) 153 taxmann.com 361 (Punjab & Haryana High Court)
11. Samyak Metals Pvt. Ltd. vs. UOI (2023) 151 taxmann.com 225 (Punjab & Haryana High Court)
12. Modern Insecticides Ltd. and Anr. vs. Commr. CGST and Anr. (2023) 153 taxmann.com 548 (Punjab & Haryana High Court)
13. Shree Ganesh Molasses Trading Co. vs. Supdt., Office of the Commr. (2023) 148 taxmann.com 36 (Gujarat High Court)
14. Union of India vs. Bundl Technologies Pvt. Ltd. (2022) 136 taxmann.com 112 (Karnataka High Court - Division Bench)
15. Bundl Technologies Pvt. Ltd. vs. UOI W.P. No. 4467/2021 dated 14.09.2021 (Karnataka High Court - Single Bench)
16. Vallabh Textiles vs. SIO & Ors. (2022) 145 taxmann.com 596 (Delhi High Court)
17. Suretex Prophylactics (India) Private Limited vs. Union of India and Others W.P.No.2444/2022 dated 27.02.2023 (Karnataka High Court)
18. Kesar Colour Chem Industries vs. Senior Intelligence Officer and Another W.P.No.17853/2021 dated 26.09.2024 (Karnataka High Court - Single Bench)
19. 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)
20. LML Ltd., vs Collector of Central Excise, Kanpur 2002 (142) ELT 273 (SC)
21. Concepts Global Impex V. UOI 2018 (11) TMI 688 (P&H HC)
22. Century Metal Recycling Pvt Ltd V. UOI [2008 (10) TMI 96 (P&H HC)]
23. Makemytrip (India) Pvt. Ltd & Ibibo Group Pvt. Ltd Vs. Union of India & Ors. [(2016) 233 DLT 484 (DB)] (Delhi High Court)
24. Union of India Vs. Makemytrip (India) (P) Ltd. [(2019) 11 SCC 765] (Supreme Court)
25. Sivashankar Granites Pvt Ltd V Asst Commr of C. Ex., Warangal [1998 (98) E.L.T 32 AP]
26. M/s FCI OEN Connectors Ltd. V Union of India & Ors [WP 5901 of 2021 T- RES, Karnataka High Court]
27. Commissioner of Cus., Bangalore V. Next Fashion Creators Pvt. Ltd [2012 (280) ELT 374 (Kar)]
28. Mount Shivalik Breweries V. Union of India [2003 (157) ELT 9 (Del)]
29. Commissioner of Customs, Bangalore V. Sami Labs Ltd. [2012(278) ELT 601 (Kar)]
30. Phthalo Colours and Chemicals India Ltd V. Commissioner of C.E, ST 2019 - TIOL - 1176- CESTAT- AHM
31. Reliance Transport & Travels Ltd. V. Commissioner of Customs 2018- TIOL- 3620- CESTAT- DEL
32. Commr. of Customs V. Reliance Transport & Travels Ltd. [2020(372) ELT A105(SC)]
33. Swadeshi Cotton Mills Co. Ltd V. Union of India AIR 1981 SC 818
34. Rajesh Kumar v. Dy. CIT [2006] 157 Taxmann 168 (SC)
35. EBIZ. Com Pvt LTd. V. Commissioner of Central Excise, Customs and Service Tax and Ors [2016 (9) TMI 1405 - Allahabad High Court]
36. Central Excise vs. KVR Construction 2012(50) VST 469 (Karnataka High Court)
37. VODAFONE ESSAR SOUTH LTD VS. UNION OF INDIA 2009 (237) ELT 35 (BOM)
38. CENTURY KNITTERS (INDIA) LTD. VS. UNION OF INDIA 2013 (293) ELT 504 (P & H)
39. CONCEPTS GLOBAL IMPEX VS. UNION OF INDIA 2019 (365) ELT 32 (P & H)
40. William E Connor Associates & Sourcing (P.) Ltd v. Union of India [2023] 152 taxmann.com 174 (Punj. & Har.)
41. Diwakar Enterprises (P.) Ltd v. Commissioner of CGST [2023] 149 taxmann.com 419 (Punj. & Har.)