DRC-03 Deposit During Search Not Voluntary, Refund Ordered: Rajasthan HC in Baba Contractors v. Union of India

In M/s. Baba Contractors And Engineers v. Union of India & Ors. (2026:RJ-JD:27036-DB), the Rajasthan High Court held that Rs. 2,35,23,506 deposited during a DGGI search on 11.07.2025 was not voluntary (paras 1, 9, 17). A Division Bench of Justice Arun Monga and Justice Sunil Beniwal (author) partly allowed the writ, finding no self-ascertainment, no DRC-04 and no adherence to the Bhumi Associate safeguards (paras 16–18). Interest was declined, and the department remains free to adjudicate in accordance with law (paras 18.1, 20–21).

Headnote: DRC-03 Payment During Search

CGST Act, 2017 – Sections 67, 70, 74(1), 74(5), 74(6), 74(7) – CGST Rules, 2017 – Rule 142(1A), 142(2) – Form GST DRC-03 – Form GST DRC-04 – Search and seizure – Voluntary payment – Coercion – CBIC Instruction No. 01/2022-23 – Refund – Interest

Held: (i) A payment through Form GST DRC-03 during search proceedings cannot, merely by reason of such deposit, be presumed to be voluntary (para 9). (ii) Whether a payment was voluntary is essentially a question of fact, decided on the attending circumstances and the record (para 10.1). (iii) A Column 8 remark that payment was made "upon initiation of enquiry by DGGI" does not prove independent self-ascertainment; it shows the deposit followed departmental action (para 12.1). (iv) Non-issuance of DRC-04 is not determinative but is relevant; non-payment of interest weakens the plea of a complete Section 74(5) payment (paras 13–13.2). (v) Non-adherence to the Bhumi Associate directions and CBIC Instruction No. 01/2022-23 supports coercion (paras 15–16). (vi) Refund of Rs. 2,35,23,506 ordered within eight weeks; interest declined pending final determination of liability (paras 18–19).

(paras 9–21)

Case Details: Baba Contractors v. Union of India (2026:RJ-JD:27036-DB)

Final Outcome: Writ petition partly allowed; refund of Rs. 2,35,23,506 directed within eight weeks; interest declined at this stage

Case: M/s. Baba Contractors And Engineers v. Union of India & Ors.

Neutral Citation: 2026:RJ-JD:27036-DB

Case No.: D.B. Civil Writ Petition No. 21298/2025

Court: Rajasthan High Court, Jodhpur (Division Bench)

Date of Decision: 22 June 2026 (reserved on 2 April 2026)

Bench: Justice Arun Monga and Justice Sunil Beniwal (author)

Relevant Acts & Sections: CGST Act, 2017 – Sections 50, 67(2), 70, 74(1), 74(5), 74(6), 74(7), 74(8), 79; CGST Rules, 2017 – Rules 139, 142; CBIC Instruction No. 01/2022-23

Impugned Order: None – original writ petition seeking refund of the amount deposited through Form GST DRC-03 dated 11.07.2025 during search by DGGI, Udaipur Regional Unit

Counsel: For the petitioner: Mr. Hemant Kothari. For the respondents: Mr. Mahaveer Bishnoi, AAG, with Mr. Harshvardhan Singh Chundawat; Mr. Rajvendra Saraswat with Mr. Rishabh Dadhich.

Source: Rajasthan High Court (official website)

Key Holdings of the Rajasthan High Court

• A DRC-03 payment during search proceedings is not presumed voluntary only because the form was filed (para 9).
• Voluntariness depends on the stage of payment, statutory safeguards, DRC-04, departmental conduct and proof of self-ascertainment (para 9).
• Mere filing of DRC-03 does not bar an assessee from pleading coercion; the issue is one of fact (para 10.1).
• A Column 8 declaration that payment followed "initiation of enquiry" defeats, rather than proves, independent self-ascertainment (para 12.1).
• If DRC-04 was withheld for non-payment of interest, that itself shows no complete Section 74(5) ascertainment (paras 13.1–13.2).
• Prompt protest by the taxpayer is inconsistent with conscious acceptance of liability (para 14).
• Refund follows, but interest awaits the final determination of tax liability (paras 18–18.1).

Brief Facts of the Case

The petitioner is a partnership firm based at Abu Road, District Sirohi. On 11.07.2025, two DGGI Intelligence Officers searched its office and the partners' residences (para 2). The office search ran from 10:00 AM to 7:55 PM, and the residential search from 8:25 AM to 8:55 PM (para 2).

Summons under Section 70 were issued to partner Mr. Hemendra Singh, and records were seized (para 2.1). The petitioner pleaded that it was compelled to deposit Rs. 2,35,23,506 without any demand or notice (para 2.2). This comprised ITC reversal of Rs. 1,08,39,276 and cash payment of Rs. 1,26,84,240 through TDS, cash ledger and bank transfer (para 2.2).

According to the petitioner, the bank deposit was made at 6:34 PM, the office search closed at 7:55 PM, and DRC-03 was filed at 8:24 PM (para 3(ii)). By letters dated 17.07.2025 and 27.08.2025, it retracted the partner's statement and protested that payment was made under pressure (para 2.3). No DRC-04 or show cause notice had been issued till the hearing (para 2.3).

The department said the search arose from intelligence about fake ITC from M/s Keshav Cement Agency (para 4(i)). It claimed the partner admitted wrongful ITC of Rs. 2,04,55,222, and the firm voluntarily paid tax plus penalty of Rs. 30,68,284 under Section 74(5) (para 4(ii)). Column 8 of DRC-03 described the payment as voluntary "upon initiation of enquiry by DGGI" (para 4(ii)).

The petitioner sought refund with 12% interest, alleging recovery under threat and contrary to Instruction No. 01/2022-23 (para 2.4).

Issues Before the High Court

1. Whether the petitioner voluntarily deposited Rs. 2,35,23,506 and furnished Form GST DRC-03 under Section 74(5) of its own free will, or whether the payment was made under coercion during search and seizure (para 7).
2. If the payment was involuntary, whether refund with interest should follow (paras 2.4, 18–18.1).

Court's Findings and Reasoning

Petitioner's case (para 3): Form GST INS-01 was not furnished under Rule 139, and the timing of payment and closure of the search proved coercion (para 3). The petitioner relied on rulings of the Karnataka, Delhi, Punjab and Haryana and Gujarat High Courts (para 3(i)–(vii)).

Revenue's case (para 4): Payment was made through the petitioner's own portal credentials and banking channels (para 4(iii)). DRC-04 was premature since interest under Section 50 was unpaid (para 4(iv)). Instruction No. 01/2022-23 does not prohibit voluntary payment during search (para 4(v)).

Statutory scheme (paras 6–6.4): Section 74(5) is a pre-notice mechanism for voluntary discharge of tax, interest and 15% penalty (para 6.1). Section 74(6) bars a notice for the amount so paid, while Section 74(7) permits one for any shortfall (para 6.2). Rule 142(2) requires intimation in DRC-03 and acknowledgement in DRC-04 (paras 6.3–6.4).

Principles from precedents (paras 8–9.1): The Court surveyed Vallabh Textiles, Shree Ganesh Molasses, Samyak Metals, Neeraj Paper Marketing and Sri J. Ramesh Chand (paras 8.1–8.5). It agreed that a DRC-03 deposit during search cannot be presumed voluntary (para 9). The SLP against Vallabh Textiles was pending, but no stay was shown, so the rulings remain persuasive (para 9.1).

Radhika Agarwal and the nature of the inquiry (paras 10–10.1): Section 74(5) does not postulate payment under force or threat (para 10). Pre-notice payment is not automatically involuntary, but filing DRC-03 does not foreclose a plea of coercion (para 10.1). Voluntariness is a question of fact (para 10.1).

No prior ascertainment (paras 11–12): No Section 74(1) notice existed when the amount was paid, and no contemporaneous quantification by the petitioner was produced (para 11). The search was ongoing and records were with the officers, leaving no real opportunity for self-ascertainment (para 12).

Column 8 remark cuts against the department (para 12.1): The remark itself showed payment was made after the enquiry began (para 12.1). It therefore did not prove prior and independent self-ascertainment under Section 74(5) (para 12.1).

Non-issuance of DRC-04 (paras 13–13.3): Absence of DRC-04 is not determinative but is relevant to the department's conduct (para 13). The "interest not paid" explanation showed no complete self-ascertainment (paras 13.1–13.2). The department also never communicated any shortfall or issued a notice (para 13.3).

Prompt protest and Bhumi Associate (paras 14–15): The petitioner objected within a reasonable period, which is inconsistent with voluntary acceptance of liability (para 14). Bhumi Associate requires voluntary payment ordinarily after the search ends and officers leave; here, payment was made during the search (para 15).

Application to facts (paras 16–18.1): Five factors weighed: payment during search, no prior ascertainment, no proof of self-ascertainment, subsequent dispute, and non-adherence to Bhumi Associate and the CBIC Instruction (para 16). The deposit was not voluntary and its retention could not be sustained (para 17). Interest was declined because the investigation had not attained finality (para 18.1).

Final Outcome and Directions

• Writ petition partly allowed (para 17).
• Respondents to refund Rs. 2,35,23,506 deposited through Form GST DRC-03 (para 18).
• Refund within eight weeks from receipt of a certified copy of the order (para 19).
• Interest declined at this stage, pending final determination of liability (para 18.1).
• Department free to undertake assessment, adjudication or other proceedings permissible under the CGST Act (para 20).
• No opinion on the merits of the wrongful ITC allegation; all contentions kept open (para 21).
• Pending applications disposed of; silent on costs (para 22).

Legal Principle Laid Down

A deposit made through Form GST DRC-03 during search, inspection or investigation is not a voluntary payment under Section 74(5) merely because the form was filed. Voluntariness is a question of fact determined on the stage of payment, statutory safeguards, issuance of DRC-04, departmental conduct and contemporaneous proof of self-ascertainment. Where the amount is paid during the search, without prior quantification or DRC-04, against the Bhumi Associate safeguards and promptly disputed, it must be refunded, leaving adjudication open (paras 9, 10.1, 16–20).

Precedents Relied Upon

• Radhika Agarwal v. Union of India & Ors., 2025 INSC 272 – Relied upon – Section 74(5) relates to voluntary payment and does not postulate payment under force, coercion or threat of arrest. Discussed at paras 10–10.1.
• Nandini Satpati v. P.L. Dani, (1978) 2 SCC 424 – Referred (as quoted in Radhika Agarwal) – "compelled testimony" includes psychic and environmental coercion. Discussed at para 10.
• Vallabh Textiles v. Senior Intelligence Officer & Ors., 2022 SCC OnLine Del 4508 – Relied upon – deposit during search without DRC-04 lacked voluntariness. Discussed at paras 8.1, 9.1, 15.
• Shree Ganesh Molasses Trading Co. v. Superintendent, Office of the Commissioner, 2023 SCC OnLine Guj 4758 – Relied upon – refund of ITC reversed during search. Discussed at para 8.2.
• Samyak Metals v. Union of India, 2023 SCC OnLine P&H 7168 – Relied upon – without DRC-04 and Section 74(1) proceedings, payment not voluntary. Discussed at para 8.3.
• Neeraj Paper Marketing Ltd. v. Special Commissioner, Department of Trade and Taxes, GNCTD & Ors., 2023 SCC OnLine Del 7692 – Relied upon – unacknowledged DRC-03 deposit not voluntary. Discussed at para 8.4.
• Sri J. Ramesh Chand v. Union of India & Ors., Writ Petition No. 9890/2023 (Karnataka High Court, decided 13.10.2025) – Relied upon – Rs. 10 crore collected during search not a Section 74(5) payment. Discussed at para 8.5.
• Bhumi Associate v. Union of India, R/Special Civil Application No. 3196 of 2021 (Gujarat High Court) – Relied upon – voluntary payment should follow conclusion of search and departure of officers. Discussed at paras 8.1, 15, 16.

Important Paragraphs of the Judgment

Verbatim extracts from the judgment. For the full text, refer to the judgment PDF below.

Para 9 (no presumption of voluntariness): "A common thread running through all the judgments is that a payment made through Form GST DRC-03 during the course of search proceedings cannot, merely by reason of such deposit, be presumed to be voluntary."

Para 10.1 (question of fact): "At the same time, the mere filing of Form GST DRC-03 does not, by itself, foreclose an assessee from contending that the payment was obtained under coercion. The question as to whether a payment was voluntary or otherwise is essentially a question of fact, which is required to be determined on the basis of the attending circumstances and the material available on record."

Para 12.1 (Column 8 remark): "However, a perusal of the said column itself reveals that the payment was made pursuant to initiation of enquiry by the department. The said declaration, therefore, does not establish that the liability had been independently self-ascertained by the petitioner prior to commencement of departmental action."

Para 13.2 (DRC-04 and interest): "If the respondents were of the view that the payment made by the petitioner did not satisfy the requirements of Section 74(5) on account of non-payment of interest, the same would itself indicate that there was no complete and valid self-ascertainment of liability as contemplated under the provision."

Para 17 (conclusion): "Considering the above aspects so also the discussion made hereinabove, this Court is of the considered opinion that the impugned amount deposited by the petitioner was not voluntary in nature and thus, the retention of the amount deposited by the petitioner vide Form GST DRC-03, cannot be sustained."

Practical Impact of the Ruling

• For taxpayers: A DRC-03 filed during a search is not the end of the road. Prompt written protest, retraction and absence of DRC-04 can support a refund claim (paras 14, 16).
• For the department: Reliance on Section 74(5) needs contemporaneous self-ascertainment and compliance with Rule 142(2). Column 8 boilerplate will not carry the burden (paras 11, 12.1, 13.1).
• For search teams: The Bhumi Associate safeguards matter. Payment should ordinarily follow the conclusion of the search and departure of officers (para 15).
• For advocates and CAs: Build the record on timing, seizure of records, absence of quantification and non-issuance of DRC-04 (paras 3(ii), 12, 13).
• For pending investigations: Refund does not end the inquiry, and interest awaits final adjudication of liability (paras 18.1, 20–21).

FAQs on DRC-03 Payment During Search

1. What did the Rajasthan High Court hold in Baba Contractors v. Union of India?

It held that Rs. 2,35,23,506 deposited through DRC-03 during a DGGI search was not voluntary. The Court directed refund within eight weeks but declined interest at this stage (paras 17–19).

2. Is a DRC-03 payment during search treated as voluntary under Section 74(5)?

No, not automatically. A DRC-03 payment during search cannot be presumed voluntary merely because the deposit was made; voluntariness is a question of fact (paras 9, 10.1).

3. Does non-issuance of Form GST DRC-04 make a payment involuntary?

Not by itself, but it is relevant to the department's conduct. If DRC-04 was withheld because interest was unpaid, that indicates no complete self-ascertainment under Section 74(5) (paras 13–13.2).

4. Can the department still proceed after refunding the DRC-03 amount?

Yes. The order does not preclude assessment or adjudication, and all contentions on the ITC allegation were kept open (paras 20–21).

5. Is interest payable on refund of an involuntary DRC-03 deposit?

Not at this stage in this case. The Court declined interest because investigation was pending and final liability was yet to be determined (para 18.1).

Keywords: 2026:RJ-JD:27036-DB, Baba Contractors and Engineers v. Union of India, DRC-03 payment during search, Section 74(5) CGST Act, Rule 142(2) CGST Rules, Form GST DRC-04, voluntary payment, coercion, DGGI search, CBIC Instruction 01/2022-23, Bhumi Associate, Radhika Agarwal, tax litigation lawyer, Rajasthan High Court, Justice Sunil Beniwal

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Download Judgment PDF – Baba Contractors and Engineers v. Union of India

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Source: Rajasthan High Court (official website).

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