Case Summary: M/s Vallabh Textiles v. Senior Intelligence Officer & Ors.

Court: Delhi High Court
Petition No.: W.P.(C) 9834/2022
Judgment Date: 20.12.2022
Neutral Citation: 2022/DHC/005682
Relevant Sections: Section 67, 73(5), 74(5), 76(6) of CGST Act; Rule 142(1A), 142(2) of CGST Rules
Category of Dispute: Recovery during Search / Voluntariness of DRC-03 Payment

Facts (Paras 1–21)

The petitioner, engaged in trading ready-made garments and selling goods of third parties on commission, was subjected to a search under Section 67 on 16–17 February 2022 (paras 1–6). Officers alleged clandestine cash sales on behalf of two entities—EAPL and Navrang Enterprises—worth ₹149.90 crores, yielding alleged cash commission of ₹7.49 crores (paras 10–15). Statements of the directors/proprietors of these entities were recorded supporting the allegation (paras 18–21).

During the search, which continued overnight, the petitioner’s representative, Mr. Sumit Jain, signed various documents and was required to deposit tax. The petitioner deposited ₹1,80,10,000 in four DRC-03 tranches between 01:28 AM and 07:03 AM on 17.02.2022—while the search was still in progress (paras 2, 33). The petitioner later retracted, alleging the deposit was coerced and that statutory safeguards, including independent witnesses and CCTV recording, were violated (paras 22.2–22.12).

Questions Before the Court

Whether the cumulative deposit of ₹1,80,10,000 made via DRC-03 during the search proceedings was voluntary or was obtained under coercion?

Observations (Paras 24–41)

The Court noted that voluntariness of payment must be judged in the context of the statutory scheme of Sections 73 and 74 read with Rule 142 (paras 24–33). The Court observed that:

1. No DRC-04 acknowledgment—mandatory under Rule 142(2)—was issued, showing non-compliance with the statutory procedure for voluntary self-ascertainment (para 32).

2. Deposits were made during an ongoing search, at odd hours, which undermines voluntariness (paras 33–36).

3. Safeguards mandated in Bhumi Associate (Gujarat HC)—particularly that no recovery may be made during search and DRC-03 must be filed the day after search ends—were violated (paras 38–39).

4. CBIC Instruction 01/2022-23, intended to prevent coercive recovery during search, failed to incorporate all Gujarat High Court directions and was therefore inadequate (paras 37–39).

5. The Court rejected the department’s argument that objection was raised belatedly, holding that statutory procedure must be strictly followed (para 40).

The cumulative circumstances established coercion rather than voluntary self-ascertainment.

Judgment (Paras 42–47)

The Court held that the deposit of ₹1,80,10,000 lacked voluntariness. The amount was ordered to be refunded with 6% simple interest from 17.02.2022 until payment, to be completed within 10 days (paras 42–45).
The Court also directed CBIC to align Instruction 01/2022-23 with the mandatory directions in Bhumi Associate (para 46).

Summary of Cases Referred

Between the Fine Lines (Trade / Industry Takeaways)

This judgment reiterates that any DRC-03 payment during search is inherently suspect and must adhere strictly to Section 73/74 and Rule 142. Officers cannot demand, suggest, or facilitate payments during search, midnight hours, or before providing elbowroom for legal advice. Businesses should insist on issuance of DRC-04 and ensure that any payment is made after conclusion of search to avoid later disputes about coercion.

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