Baba Contractors and Engineers v. Union of India

GST update /2026-27/0056

GST UPDATE

Hon’ble Court: Rajasthan High Court

Case Title: Baba Contractors and Engineers v. Union of India

Petition No. & Citation: D.B. CIVIL WRIT PETITION NO. 21298 OF 2025

Hon’ble Judge(s) Justice Arun Monga & Justice Sunil Beniwal

Date of Order JUNE 22, 2026

Outcome Appeal allowed in part

Brief Facts of the Case

The petitioner, Baba Contractors and Engineers was subjected to simultaneous search and seizure proceedings by the Directorate General of GST Intelligence (DGGI) on 11.07.2025 at its business premises as well as the residences of its partners under Section 67 of the CGST Act. During the search, summons under Section 70 were issued, statements of the partner were recorded, and the firm's books of accounts and electronic devices were seized. While the search was still in progress, the departmental officers allegedly compelled the petitioner to deposit a total amount of Rs. 2,35,23,506 through reversal of Input Tax Credit amounting to Rs. 1,08,39,276 and cash payment of Rs. 1,26,84,230, and also required the petitioner to file Form GST DRC-03 on the same day, despite no show cause notice or adjudication having been initiated. Shortly thereafter, the petitioner addressed letters to the department stating that the partner's statement had been recorded under pressure and that the payment was made under coercion during the search. The petitioner further pointed out that no acknowledgment in Form GST DRC-04 had been issued and no show cause notice had been served. Alleging that the amount had been recovered illegally and in violation of the CBIC Instruction No. 01/2022-23 governing voluntary payments during search proceedings, the petitioner filed the present writ petition seeking refund of the amount so deposited along with interest.

Relevant Section / Rule / Notification

• Section 67, 70,74,54,56 of the CGST Act

• CBIC Instruction No. 01/2022-23 dated 25.05.2022

Question before Hon’ble Court

• Whether the petitioner voluntarily deposited a sum of Rs.2,35,23,506/- and furnished Form GST DRC-03 under Section 74(5) of the CGST Act of its own free will or whether such payment was made under coercion during the course of search and seizure proceedings?

Brief Arguments by Petitioner

• Search proceedings Illegal

The search was conducted without providing Form GST INS-01 as required under Rule 139.

• Timing of events established coercion

During the search, the petitioner was threatened and coerced into depositing Rs. 2,35,23,506 without issuance of any show cause notice, demand or adjudication order. The sequence of deposit, filing of Form GST DRC-03 and immediate conclusion of search proceedings demonstrated that the amount was recovered coercively. The absence of Form GST DRC-04 further showed that the payment was never treated as voluntary by the department.

• Immediate Retraction of the Statements

The petitioner promptly retracted the statement and asserted that the statement and payment were made under pressure. No show cause notice, adjudication proceedings or Form GST DRC-04 had been issued thereafter.

• Issue covered by binding judicial precedents

Reliance was placed on J. Ramesh Chand v. Union of India, wherein the Karnataka High Court held that recovery made during search through Form GST DRC-03 without issuance of SCN or Form GST DRC-04 could not be treated as voluntary. Reliance was also placed on Neeraj Paper Marketing Ltd. and Vallabh Textiles, where payments made through Form GST DRC-03 during search proceedings, without issuance of Form GST DRC-04, were held to be involuntary and liable to be refunded. Reliance was further placed on Samyak Metals (P.) Ltd. and Shree Ganesh Molasses Trading Co., wherein it was held that amounts collected during search or investigation, without adjudication and unless proved to be voluntary, are without authority of law and liable to be refunded.

Brief Arguments by Respondent

• Petition not maintainable as search was conducted properly

The writ petition is misconceived as the petitioner suppressed material facts. The investigation was initiated on specific intelligence regarding fraudulent ITC, and the search was conducted lawfully under Section 67(2) in the presence of independent witnesses.

• Voluntary payment under Section 74(5) to avail benefit of reduced penalty

The petitioner's partner admitted wrongful availment of ITC without actual supply of goods, following which the petitioner voluntarily deposited Rs. 2,35,23,506 through Form GST DRC-03 under Section 74(5) to avail the benefit of reduced penalty; therefore, the allegation of coercion is baseless. Column 8 of DRC-03 itself records that the payment was voluntary.

• Non-issuance of SCN or DRC-04 is immaterial

Since the investigation was still pending, non-issuance of a show cause notice or Form GST DRC-04 did not render the payment involuntary or illegal. DRC-04 is only a procedural acknowledgment and was premature as interest had not been paid.

• CBIC Instruction permits voluntary payment

CBIC Instruction No. 01/2022-23 does not prohibit voluntary payment during search or investigation. The petitioner was merely informed of the statutory option under Section 74(5) and voluntarily chose to deposit the admitted tax and penalty through Form GST DRC-03.

Findings and Judgement

The Court made the detailed analysis of the 6 judgements relied upon and further Sections 73(5) and 74(5) along with the CBIC Instruction No.01/2022-23 and made the following analysis:

• Payment through Form GST DRC-03 is not automatically voluntary. To be checked independently based on the facts and circumstances

A payment made during search or investigation cannot be presumed to be voluntary merely because it was made before issuance of a show cause notice. The question of voluntariness depends upon the facts and surrounding circumstances of each case. In the instant case, the department failed to establish that the petitioner had independently quantified or self-ascertained its tax liability before filing Form GST DRC-03.

• Payment during search indicated absence of voluntariness. Subsequent retractions were also made timely

The amount was deposited while the search proceedings were still continuing and the petitioner's records and electronic devices were under the control of the department. Further, the petitioner promptly disputed the voluntariness of the payment by raising objections within a reasonable time.

• Non-issuance of Form GST DRC-04

Non-Issuance of Form GST DRC-04 for nonpayment of interest further weakened the departments contention that the payment was voluntary.

• CBIC Instruction No. 01/2022-23 was not followed

The Court held that the safeguards laid down in Bhumi Associate and incorporated in the CBIC Instruction were not adhered to, as the payment was obtained during the course of search itself.

• Plea of interest on Refund was premature

Interest was declined as the investigation and adjudication were still pending. Therefore, the payment of Interest would necessarily depend upon the outcome of such determination.

Accordingly, following aspects were noted :

(i) the payment was obtained during search proceedings,

(ii) there was no prior ascertainment or determination of liability,

(iii) the respondents have failed to establish any independent self-ascertainment by the petitioner,

(iv) the petitioner subsequently disputed the voluntariness of the payment, and

(v) the directions issued in Bhumi Associate (supra) by the Gujarat High Court as well as in CBIC Instruction No.01/2022-23 were not adhered to.

Based on the above, it was held that the amount deposited was not voluntary in nature and the same shall be refunded within a period of eight weeks form the sate of the order.

Cases Relied Upon

Case Law Citation

Vallabh Textiles v. Senior Intelligence Officer [2022] 145 taxmann.com 596; [2023] 95 GST 751; 70 GSTL 3; 2022 SCC OnLine Del 4508

Shree Ganesh Molasses Trading Co. v. Superintendent, Office of the Commissioner [2023] 148 taxmann.com 36; 97 GST 41; 72 GSTL 190; 2023 SCC OnLine Guj 4758

Samyak Metals (P.) Ltd. v. Union of India [2023] 151 taxmann.com 225; 98 GST 520; 74 GSTL 411; 2023 SCC OnLine P&H 7168

Neeraj Paper Marketing Ltd. v. Special Commissioner, Department of Trade & Taxes, GNCTD [2024] 158 taxmann.com 470; 102 GST 157; 81 GSTL 490; 2023 SCC OnLine Del 7692

J. Ramesh Chand v. Union of India [2025] 179 taxmann.com 469; 112 GST 402; 103 GSTL 140 (Karnataka HC)

Radhika Agarwal v. Union of India [2025] 171 taxmann.com 832; 95 GSTL 225; 2025 INSC

Bhumi Associate v. Union of India [2021] 128 taxmann.com 56 (Gujarat)/R/Special Civil Application Nos. 3196 of 2021

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