Case Classification under GST Act, 2017

Category: Refund of amount deposited during search; Voluntariness of payment under Sections 73(5)/74(5); Procedural violation under Rule 142(2).

Case Details

• Case Title: Neeraj Paper Marketing Ltd. v. Special Commissioner, Department of Trade & Taxes, GNCTD & Ors.

• Court: High Court of Delhi

• Petition Type: W.P.(C) 158/2023

• Date of Judgment: 05.12.2023

• Relevant Statutory Provisions:

  • CGST Act: Sections 67(2), 73(5)-(7), 74(4)-(7)

  • CGST Rules: Rule 142(1A), Rule 142(2)

• Dispute Category: Refund / Input Tax Credit mismatch / Coercion during search proceedings

Facts (Paras 1–7)

The petitioner, a registered GST dealer engaged in trading waste and craft paper, was subjected to a search under Section 67(2) on 29.07.2022 based on allegations of suppressed transactions and excess ITC claims (Para 3, ). Officers inspected books for FY 2017–18 to 2020–21 and found an alleged ITC mismatch of ₹60 lakh in 2018–19 and ₹20 lakh in 2019–20 (Para 4).

During this late-night search, the Director’s statement was recorded (Para 6), and under alleged coercion the petitioner deposited ₹25.20 lakh on 29.07.2022 and ₹3 lakh on 30.07.2022 through DRC-03, partly in cash and partly through ITC ledger (Para 5). The petitioner later sought refund on 13.12.2022 claiming the deposit was involuntary (Para 7).

Questions for Determination (Paras 8–12)

1. Whether the sum of ₹28.20 lakh deposited during the search can be treated as a voluntary payment under Section 73(5) or Section 74(5) of the CGST Act?

2. Whether failure of the department to issue acknowledgment in Form DRC-04 under Rule 142(2) undermines the validity of such payment?

3. Whether subsequently issued SCNs under Section 74(7) without giving credit for deposited amounts further confirm that the payment was non-voluntary?

Court’s Observations (Paras 8–19)

The Bench examined the statutory framework of Sections 73 and 74 and highlighted that voluntary payments must follow the procedure mandated under Rule 142(2) which includes issuance of acknowledgment Form DRC-04 (Para 9).

The Court noted that:

• The department did not issue DRC-04, thus breaching mandatory procedure (Para 9).

• The SCNs issued later did not adjust the deposit made, thereby treating the payments as if no self-ascertainment existed, evidencing non-voluntariness (Paras 12–14).

• The Director’s statement merely acknowledged mismatch, not admission of tax liability; hence no basis for treating payments as voluntary (Para 17).

• The payments were made late at night (11:49 PM and 12:38 AM) during search, strengthening the inference of coercion (Para 18).

• Precedents such as Vallabh Textiles and Lovelesh Singhal were relied on to reiterate that non-compliance with Rule 142 procedures renders such payments involuntary (Paras 15 & 19).

Judgment / Verdict (Paras 20–21)

The High Court unequivocally held that:

• The payments were not voluntary.

• The department is directed to refund ₹23.70 lakh (cash component) with 6% interest from 13.12.2022 till actual payment (Para 20).

• The department must restore ₹4.50 lakh by reversing the debit in the Electronic Credit Ledger (ECL) (Para 20).

• The writ petition was allowed in full (Para 21).

Cases Referred – Summary Table

Between Fine Lines (Practical Takeaways for Industry)

Businesses must be aware that any deposit during search proceedings is valid as “voluntary” only when accompanied by Form DRC-04 acknowledgment. Payments made late at night, during search or under pressure, or deposits that do not later reflect as credit in SCNs, will likely be deemed coercive and refundable. Always insist on statutory compliance under Rule 142, avoid making payments during search, and promptly retract any statement obtained under stress.

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