Payments made by M/s. Hukkeri Taluka Samagra Grameen Abhivraddi Sangh deemed involuntary; tax authorities directed to refund Rs. 53.97 lakh with 6% interest
In a significant ruling on August 31, 2026, the Karnataka High Court, headed by Justice C.M. Poonacha, held that payments made under the Central Goods and Services Tax Act, 2017 (CGST Act) by M/s. Hukkeri Taluka Samagra Grameen Abhivraddi Sangh were not voluntary but made under coercion and duress, thereby entitling the petitioner to a refund with interest.
The petitioner, a registered taxpayer engaged in manpower supply services to various government departments, had made payments totaling Rs. 53,97,352 under Section 73(5) of the CGST Act during the course of an inspection and subsequent proceedings. The payments were challenged on the grounds that they were made involuntarily and without proper statutory procedure.
The court examined crucial provisions including Section 73(5) and Section 74(5) of the CGST Act and Rule 142 of the CGST Rules, 2017, which mandate that voluntary payments must be based on self-ascertainment or proper assessment by tax authorities and require issuance of acknowledgment in Form GST DRC-04. The petitioner had filed the necessary Form GST DRC-03 but the tax authorities failed to issue the required acknowledgment, raising doubts about the voluntariness of the payments.
Further, the court observed that no proper notice or demand was issued before the payments were made, and the petitioner was subjected to coercive tactics during inspection, including unlawful summons without citing legal provisions. The payments did not include interest or penalty as required by law for voluntary payments under Section 73(5)/74(5). The court relied heavily on precedents such as the Division Bench ruling in Union of India vs. Bundl Technologies (2022) and the Supreme Court judgment in Radhika Agarwal vs. Union of India (2025), which emphasize that tax collection without lawful authority violates Articles 265 and 300A of the Constitution.
The court noted that mere initiation of proceedings under Section 79 does not validate the payments as voluntary and that the coercive environment negated any claim of self-ascertainment by the petitioner. Consequently, the orders rejecting the petitioner's refund claims for the financial years 2017-18 and 2018-19 were quashed.
The Karnataka High Court directed the respondents to refund the amount of Rs. 53,97,352 along with interest at the rate of 6% per annum from the date of payment till the date of refund. The court left all other contentions in the show-cause notice and adjudication proceedings open for determination in due course.
This ruling reiterates the importance of adherence to proper statutory procedures and safeguards against coercive tax recovery methods, reinforcing taxpayers' constitutional rights under the GST regime.
Bottom Line:
Goods and Services Tax (GST) - Refund of payment made under alleged coercion and duress - Payments made by the petitioner not voluntary and hence refundable with interest.
Statutory provision(s): CGST Act 2017 Sections 73(5), 74(5), 79; CGST Rules 2017 Rule 142
