Refund of Amount Along With Applicable Interest Upheld as Recovery Made During Investigation Without Adjudication Was Contrary to Law | HC

Case Details: Intelligence Officer, Directorate General of GST Intelligence vs. Kesar Color Chem Industries - [2025] 171 taxmann.com 739 (Karnataka)

Judiciary and Counsel Details

• V. Kameswar Rao & S. Rachaiah, JJ.
• Aravind Kamath, ASG & Neeralgi Jeevanbabu Jagadish, CGSC for the Petitioner.
• Smt. Nikita Badheka, Parth Badheka & Sandeep Huilgol, Advs. for the Respondent.

Facts of the Case

The assessee challenged the investigation initiated under Section 67 of the Central Goods and Services Tax Act, 2017 (“CGST Act”) and questioned the validity of the summons issued to a witness. During the investigation, the intelligence officers recorded the statement of a partner, alleging that invoices were issued without an actual supply of goods. The assessee contended that the payments made during the investigation were extracted under coercion and could not be classified as self-ascertainment under Section 74(5) of the CGST Act. It was further asserted that any recovery prior to adjudication violated Article 265 of the Constitution, which mandates that no tax shall be levied or collected except by the authority of law. Seeking relief, the assessee filed a writ petition before the Karnataka High Court, challenging the pre-SCN recovery and demanding a refund of the amount paid.

High Court Held

The Hon’ble Karnataka High Court held that the recovery of tax amounts during an investigation without adjudication is contrary to law and violates Article 265 of the Constitution. The Court emphasized that self-ascertainment under Section 74(5) requires a voluntary determination of tax liability, which was absent in this case. Although the declaration in Form DRC-03 stated the payments were voluntary, the surrounding circumstances and evidence demonstrated coercion. Consequently, the payments made by the assessee could not be deemed as self-ascertained tax liability. The Court ruled that such recovery was illegal and unenforceable, directing the refund of the recovered amount along with applicable interest in favour of the assessee.

List of Cases Reviewed

• Lovelesh Singhal v. Commissioner, Delhi Goods and Services Tax and others – (para 31) – Distinguished