Department cannot make illegal recoveries of tax payments in respect of Input Tax Credit without issuing any notice.

Case Title: Samyak Metals (P.) Ltd. vs. Union of India

Court: High Court of Punjab and Haryana

Petition No.: CWP No. 26529 of 2022

Relevant Section: Section 74 of CGST Act, Rule 142(2) of CGST Rules

Category of Dispute: Refund of tax recovered without adjudication

Date of Judgement: May 24, 2023

Relevant Provisions: Sections 74(1), 74(5) of CGST Act, Rule 142(2) of CGST Rules

Facts of the Case

1. The petitioner, Samyak Metals (P.) Ltd., engaged in manufacturing aluminium ingots and registered under GST, was subjected to a search by CGST officials on 25.02.2021. During the search, purchases from M/s D.G. Enterprises were questioned. [Para 2]
2. Allegedly coerced, the petitioner deposited ₹35,73,147 (including tax, interest, and penalty) via Form GST DRC-03 on 26.02.2021 without any show cause notice under Section 74(1) or adjudication. [Para 2–3]
3. No FORM GST DRC-04 acknowledging the payment was ever issued. Petitioner challenged the legality of the recovery and sought refund. [Para 3]

Question(s) in Consideration

• Whether recovery of tax amount through DRC-03 without issuing notice under Section 74(1) and without issuance of DRC-04 is valid and lawful? [Para 1, 7]
• Whether such recovery can be treated as voluntary under Section 74(5)? [Para 4, 6]

Observation of Court

1. The Court referred to its own earlier decision in Modern Insecticides Ltd. v. Commissioner, CGST (CWP No. 8035 of 2021), where similar recovery without following due process was held illegal. [Para 6]
2. It also cited Bhumi Associate v. Union of India (Gujarat High Court) and Vallabh Textiles v. Senior Intelligence Officer (Delhi High Court), which emphasized that any recovery during search must be voluntary and in accordance with law. [Para 6]
3. As per Rule 142(2) of CGST Rules, when payment is made in DRC-03, proper officer must issue DRC-04 acknowledging acceptance, which was not done in this case. [Para 7]
4. The CBIC Instruction No. 01/2022-23 dated 25.05.2022 mandates that taxpayers be informed of the voluntary nature of DRC-03 payments and such payment should not be forcibly extracted. This was not followed. [Para 7]

Judgement of the Court

1. The Court held that the recovery was not voluntary and the department failed to follow the statutory and procedural safeguards. [Para 8]
2. Directed refund of ₹35,73,147 along with simple interest at 6% per annum from the date of deposit till realization. Refund to be processed within two weeks from receipt of certified copy of the order. [Para 8–9]

Between Fine Lines

• The High Court ruled against coercive tax recovery without due process under the CGST Act.
• Payments made under Form DRC-03 must be voluntary and followed by issuance of DRC-04.
• Any recovery without show cause notice under Section 74(1) is illegal.
• Taxpayers must be informed of their rights before making any payments during investigations.
• Refund was ordered with interest for breach of procedural safeguards.

Summary of Referred Cases

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