Tax Recovered During Search Without Voluntary Consent Refundable

Case Details: Baba Contractors and Engineers vs. Union of India - [2026] 187 taxmann.com 1019 (Rajasthan)

Judiciary and Counsel Details

Arun Monga & Sunil Beniwal, JJ.
Hemant Kothari for the Petitioner.
Mahaveer Bishnoi, AAG, Harshvardhan Singh Chundawat, Rajvendra Saraswat & Rishabh Dadhich for the Respondent.

Facts of the Case

The petitioner, a partnership firm, was subjected to search and seizure proceedings at its business premises and the residences of its partners, during which summons were issued, a partner’s statement was recorded, and records and electronic devices were seized. During the search, the amount was recovered through reversal of ITC and cash payments, and Form GST DRC-03 was filed on the same day. The petitioner subsequently contended that the statement and payment were made under pressure and sought a refund of the amount. It was further submitted that no show-cause notice had been issued at the time of deposit, and no acknowledgement in Form GST DRC-04 was issued. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that Section 74 read with Section 54 of the CGST Act and the Rajasthan GST Act, Rule 142 of the GST Rules, and the Rajasthan GST Rules contemplate voluntary payment before issuance of a show cause notice, which was not established in the present case. As the payment was made during the search, without evidence of voluntary compliance or issuance of Form GST DRC-04, retention of the recovered amount was held unsustainable, and a refund was directed. However, the Court held that the claim for interest under Section 56 read with Section 54 of the CGST Act and the Rajasthan GST Act was premature as the investigation.

List of Cases Reviewed

Vallabh Textiles v. Senior Intelligence Officer [2022] 145 taxmann.com 596/[2023] 95 GST 751/70 GSTL 3 (Delhi) /2022 SCC OnLine Del 4508 (para 9)
Shree Ganesh Molasses Trading Co. v. Superintendent, Office of the Commissioner [2023] 148 taxmann.com 36/97 GST 41/72 GSTL 190 (Gujarat) /2023 SCC OnLine Guj 4758 (para 9)
Samyak Metals (P.) Ltd. v. Union of India [2023] 151 taxmann.com 225/98 GST 520/74 GSTL 411 (Punjab & Haryana) /2023 SCC OnLine P&H 7168 (para 9)
Neeraj Paper Marketing Ltd. v. Special Commissioner, Department of Trade & Taxes, GNCTD [2024] 158 taxmann.com 470/102 GST 157/81 GSTL 490 (Delhi) /2023 SCC OnLine Del 7692(para 9)
J Ramesh Chand v. Union of India [2025] 179 taxmann.com 469/112 GST 402/103 GSTL 140 (Karnataka) (para 9)
Radhika Agarwal v. Union of India [2025] 171 taxmann.com 832/95 GSTL 225 (SC) /2025 INSC 272 (para 10.1) followed

List of Cases Referred to

Vallabh Textiles v. Senior Intelligence Officer [2022] 145 taxmann.com 596/[2023] 95 GST 751/70 GSTL 3 (Delhi) (para 3)
Neeraj Paper Marketing Ltd. v. Special Commissioner, Department of Trade & Taxes, GNCTD [2024] 158 taxmann.com 470/102 GST 157/81 GSTL 490 (Delhi) (para 3)
Shree Ganesh Molasses Trading Co. v. Superintendent, Office of the Commissioner [2023] 148 taxmann.com 36/97 GST 41/72 GSTL 190 (Gujarat) (para 3)
J Ramesh Chand v. Union of India [2025] 179 taxmann.com 469/112 GST 402/103 GSTL 140 (Karnataka) (para 3)
Samyak Metals (P.) Ltd. v. Union of India [2023] 151 taxmann.com 225/98 GST 520/74 GSTL 411 (Punjab & Haryana) (para 3)
Bhumi Associate v. Union of India [2021] 128 taxmann.com 56 (Gujarat) (para 8.1)
Radhika Agarwal v. Union of India [2025] 171 taxmann.com 832/95 GSTL 225 (SC) (para 10)