The Karnataka High Court has delivered an important ruling on GST payments made during investigation, inspection and search proceedings, holding that payments made by a taxpayer during an investigation cannot automatically be treated as voluntary merely because they were deposited through Form GST DRC-03.
In M/s Hukkeri Taluka Samagra v. ITS President, the Court directed the GST authorities to refund ₹53,97,352, along with 6% annual interest from the respective dates of payment until the date of refund. The judgment reinforces the requirement that GST authorities must follow the statutory procedure before treating a payment as a voluntary discharge of tax liability.
Background of the Case
The petitioner, M/s Hukkeri Taluka Samagra Grameen Abhivravdi Sangh, was a registered GST taxpayer providing manpower supply services to government departments and public authorities.
The GST authorities inspected the petitioner’s premises on 20 January 2024 following an intelligence report alleging discrepancies between the taxpayer’s GSTR-3B and GSTR-7 returns.
During the course of the proceedings, the taxpayer made payments through Form GST DRC-03. On 27 March 2024, payments of ₹20,97,352 and ₹15 lakh were made, aggregating to ₹35,97,352. Subsequently, another payment of ₹18 lakh was made on 14 May 2024.
The taxpayer later sought refund of the amounts, contending that the payments had not been made voluntarily but had been made under circumstances arising from the investigation.
The refund applications were rejected by the GST authorities in November 2024. The rejection was subsequently upheld in appeal on 28 August 2025, leading the taxpayer to approach the Karnataka High Court.
Whether GST Payments During Investigation Were Voluntary?
The principal issue before the High Court was whether the payments made through DRC-03 could be regarded as voluntary payments under Sections 73 or 74 of the CGST Act.
The Revenue argued that the taxpayer had voluntarily deposited the amounts after the inspection and that subsequent adjudication and recovery proceedings under Section 74 supported the department’s position.
The petitioner, however, argued that there had been no prior determination or ascertainment of tax liability and that the payments could not therefore be treated as voluntary tax payments.
The High Court accepted the taxpayer’s submissions.
Absence of DRC-04 Acknowledgment
One of the significant factors considered by the Court was the failure of the GST authorities to issue Form GST DRC-04.
Under Rule 142(2) of the CGST Rules, where a taxpayer makes a voluntary payment under Section 73(5) or Section 74(5), the proper officer is required to issue an acknowledgement in Form GST DRC-04.
The Court found that no such acknowledgement had been issued in the present case.
This omission was relevant because the department sought to rely upon the DRC-03 payments as evidence that the taxpayer had voluntarily discharged its liability.
No Prior Ascertainment of Tax Liability
The Court also observed that there was no material demonstrating that the taxpayer had independently ascertained its tax liability before making the payments.
According to the Court, merely making a payment through DRC-03 during an investigation does not by itself establish that the taxpayer had voluntarily determined and accepted its tax liability.
The Court also noted that no prior demand or assessment had been made by the department before the payments were deposited.
This distinction is particularly important because a payment made during investigation cannot automatically acquire the character of a voluntary payment merely because the taxpayer uses Form DRC-03.
Payment Under Section 74(5) Without Interest and Penalty
Another important factor considered by the Court was the manner in which the DRC-03 forms had been completed.
The payments were stated to have been made under Section 74(5) of the CGST Act. However, the Court noted that Section 74(5) contemplates payment of tax along with applicable interest and penalty.
In the DRC-03 forms, the amounts towards interest and penalty were shown as nil.
The Court considered this inconsistency significant while determining whether the payments could genuinely be regarded as voluntary payments under Section 74(5).
GST Recovery During Investigation Must Follow Due Process
The High Court also referred to the GST instructions dated 25 May 2022, which emphasize that tax recovery should not be undertaken during search, inspection or investigation proceedings without following the prescribed legal procedure.
The judgment therefore reiterates an important principle: GST investigation powers cannot be used as a substitute for statutory assessment and recovery procedures.
A taxpayer’s payment during an investigation must be examined in the context in which it was made and cannot automatically be presumed to be voluntary.
Subsequent Recovery Proceedings Did Not Make the Earlier Payments Voluntary
The Revenue also relied upon subsequent proceedings initiated under Section 79 of the CGST Act.
The High Court rejected this argument, observing that the subsequent initiation of recovery proceedings could not establish that the earlier DRC-03 payments were voluntary.
The Court specifically held that mere proceedings under Section 79 did not indicate that the payments made by the petitioner were voluntary.
High Court Orders Refund With Interest
After considering the facts and statutory provisions, the Karnataka High Court allowed the writ petition and quashed the appellate orders that had rejected the taxpayer’s refund claims.
The GST authorities were directed to refund ₹53,97,352, together with interest at 6% per annum from the date of payment until the date of refund.
Key Takeaway for GST Taxpayers
The judgment is significant for taxpayers facing GST search, inspection or investigation proceedings. It makes clear that a payment through DRC-03 during an investigation should not automatically be considered voluntary.
Where the department seeks to treat such payment as voluntary under Section 73(5) or Section 74(5), the statutory requirements must be satisfied, including proper ascertainment of liability and issuance of the prescribed DRC-04 acknowledgment.
The ruling also highlights that GST authorities must follow due process before recovering tax and that payments allegedly obtained during investigation can be challenged where the surrounding circumstances indicate that they were not genuinely voluntary.
Case: M/s Hukkeri Taluka Samagra v. ITS President
Writ Petition No.: 108177 of 2025 (T-RES)
Court: Karnataka High Court
Refund Directed: ₹53,97,352 + 6% interest
Key Issues: DRC-03 payments, voluntary payment, Sections 73/74, Rule 142(2), DRC-04 and GST investigation/recovery