Karnataka High Court Orders Refund Of ₹10 Crore, Says Payment During GST Search Was 'Not Voluntary' U/S 74(5) CGST Act

The Karnataka High Court held that the assessee's payment of Rs. 10 crores could not be treated as a voluntary payment under Section 74(5) of the CGST Act (Central Goods and Services Tax Act), as the DRC-03 shows 'NIL' entries for both interest and penalty. The bench observed that the 'NIL' entries clearly indicated that the payment was made by the assessee under coercion and under the threat of arrest. Justice S.R. Krishna Kumar stated that prior to the search and inspection conducted by the department, they did not issue any notice to the assessee nor were any proceedings to ascertain, adjudicate or determine the tax, interest and penalty payable by the assessee which indicates that there was no occasion for the assessee to pay the said sum voluntarily by way of self-ascertainment to the department, thereby indicating that the said amount was not paid voluntarily by the assessee. In this case, the petitioner/assessee was engaged in the business of trading in electronic equipment and footwear, etc. The Inspector of Central Tax and the Intelligence Officer conducted search, inspection and seizure operations at the business premises of the assessee and allegedly obtained Rs. 10 crores from the assessee by coercion and under the threat of arrest. In pursuance of the same, the assessee filed a petition, till which date, the department had not issued any notice to the assessee under Section 73 or 74 of the CGST Act. During the pendency of the petition, the department issued notice/intimation in GST DRC-01A, followed by a show cause notice in GST DRC–01 to the assessee. The assessee submitted that he did not voluntarily make the aforesaid payment of Rs.10 crores to the department and that the same was received/obtained/collected by them under coercion and threat. The bench noted that the payment of Rs.10 crores by the assessee to the department was involuntary and the same was not voluntary or by way of self-ascertainment as contended by the department. The bench stated that a perusal of the payment made by the assessee in Form GST DRC-03 will indicate that the same is made under Section 74(5) of the CGST Act, which mandates that such voluntary payment of tax should have been made by the assessee along with interest under Section 50 of the CGST Act and penalty. The said payment in Form GST DRC-03 will indicate that no payment is made by the assessee towards interest or penalty, and the relevant columns in this regard are shown as 'Nil', which is yet another circumstance to indicate that the payment was not made by the assessee voluntarily in terms of Section 74(5) of the CGST Act, 2017, added the bench. The bench held that the obtainment/collection/receipt of a sum of Rs.10 crores by the department from the assessee at the time of search, inspection and seizure operations is not voluntary or by way of self-ascertainment and the same is wholly illegal, arbitrary and contrary to law and the provisions of the CGST Act. In view of the above, the bench allowed the petition and directed the department to refund Rs.10 crores along with interest @ 6% per annum. Case Title: Sri J Ramesh Chand v. Union of India Case Number: WRIT PETITION NO. 9890 OF 2023 (T-RES)Citation: 2025 LiveLaw (Kar) 410 Counsel for Petitioner/Assessee: Bharat Raichandani Counsel for Respondent/Department: Anuparna BordoloiClick Here To Read/Download Order

Karnataka High Court Orders Refund Of ₹10 Crore, Says Payment During GST Search Was 'Not Voluntary' U/S 74(5) CGST Act

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Karnataka High Court Orders Refund Of ₹10 Crore, Says Payment During GST Search Was 'Not Voluntary' U/S 74(5) CGST Act

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