Court holds non-issuance of statutory acknowledgment (Form GST DRC-04) and non-consideration of protest fatal; tax paid under coercion during inspection deemed unsustainable
In a significant judgment delivered on October 28, 2026, the Madras High Court, presided over by Justice N. Senthilkumar, quashed the tax recovery orders passed against M/s. Aruna Mills and directed the respondents to refund the amounts paid under duress during a surprise GST inspection. The petitioner, engaged in manufacturing cotton and synthetic yarns, had been subjected to an inspection on October 19 and 20, 2023, coinciding with a major family wedding, which they claimed hindered their ability to cooperate fully.
During the inspection, the petitioner's accounting staff was compelled to make payments amounting to approximately Rs. 8.99 lakhs through Form GST DRC-03 by accessing the GST portal under coercion, without the petitioner's authorization. The petitioner protested the payment as involuntary and sought a refund. However, the tax authorities neither issued the mandatory acknowledgment in Form GST DRC-04 nor duly considered the petitioner's representation dated November 6, 2023.
The respondents contended that payments were voluntary, supported by the procedural safeguards like One-Time Password (OTP) authentication sent to the registered partners' contact details. They also submitted that the petitioner had filed a reply and availed hearing opportunities, and that the final order in Form GST DRC-05 was passed after considering the submissions.
Rejecting the respondents' contentions, the Court emphasized the legal mandate under Rule 142 of the CGST Rules that a payment made through Form GST DRC-03 must be acknowledged by the tax authorities via Form GST DRC-04, failing which the payment cannot be considered valid. The Court also took note of binding precedents including the Supreme Court's ruling in Vallabh Textiles and the Calcutta High Court's Division Bench decision in ATR Malleable Casting (P.) Ltd. which underscored the necessity of compliance with this procedural safeguard.
The Court further observed that the petitioner's delay of 17 days in submitting the protest representation was reasonably explained by the extraordinary circumstance of the family wedding, and such delay could not be mechanically treated as fatal to their claim. It was also held that coercive recovery of tax during inspection without due adjudication violates the scheme of the GST law, which contemplates voluntary payment pending final determination.
Consequently, the Court set aside the impugned orders dated March 27, 2024, and directed the respondents to refund the tax amounts collected under IGST, CGST, and SGST for the assessment years 2020-21 to 2023-24 within eight weeks. The Court also granted liberty to the petitioner to file a manual appeal within twelve weeks if so desired.
This judgment reinforces the principle that tax payments under GST must be voluntary and properly acknowledged, and that recovery during investigation or inspection without adherence to statutory procedures is liable to be quashed. It also highlights the necessity for tax authorities to consider representations made by taxpayers and to respect due process before confirming tax demands.
Bottom Line:
GST - Amount collected during surprise inspection through Form GST DRC-03, when alleged to have been paid under coercion and when Form GST DRC-04 acknowledgment was not issued, cannot be sustained - Non-consideration of assessee's protest/refund representation and non-issuance of DRC-04 are fatal - Order in Form GST DRC-05 set aside and refund directed.
Statutory provision(s):
Central Goods and Services Tax Act, 2017 Sections 67, 73(5), 74(5), 107; Rule 142 of the CGST Rules, 2017
