Saturday, February 3, 2024

Delhi HC Orders Refund of Coercively Deposited Amounts During Midnight Search Operation

The Delhi High Court recently ruled in favor of Neeraj Paper Marketing Ltd., directing the Department of Trade & Taxes to refund Rs. 28,20,000/- deposited coercively during a midnight search operation in 2018-19 and 2019-20.


  • Neeraj Paper Marketing Ltd., a business trading in waste paper and craft paper, faced a search operation on 29-7-2022.
  • The authorities found a mismatch in GSTR-2A and GSTR-3B entries for the years 2018-19 and 2019-20, leading to a demand for tax payment.

Coercive Deposit Claim:

  • Neeraj Paper Marketing Ltd. claimed that the officers coerced them into depositing Rs. 28,20,000/- under GST DRC-03 during the midnight search operation.
  • Payments were made in cash and by debiting the Electronic Credit Ledger (ECL).

Legal Proceedings:

  • The petitioner argued that the deposit wasn't voluntary as the prescribed procedure for voluntary deposits was not followed.
  • The authorities issued a Show Cause Notice, but the amount paid during the investigation was not considered in the demand.
  • The court noted that acknowledgments under relevant rules were not issued for the payments.

Court's Ruling:

  • The court emphasized that the payments were not voluntary as the procedure for voluntary deposits was not followed.
  • Referring to previous judgments, the court stated that not following stipulated procedures indicates non-voluntariness.
  • The petitioner's director acknowledged a mismatch but didn't accept incorrect ITC, promising to pay any tax liability arising from the mismatch.

Key Takeaways:

  1. Voluntary Deposit Procedures: The court highlighted the importance of following the prescribed procedures for voluntary deposits.
  2. Acknowledgment Requirement: Proper acknowledgment under relevant rules is crucial for validating deposits.
  3. Mismatch vs. Incorrect ITC: Acknowledging a mismatch doesn't imply accepting incorrect Input Tax Credit (ITC), and liability needs proper ascertainment.
  4. Coercive Circumstances: Payments made under compelling circumstances, like during a midnight search operation, may not be considered voluntary.

Conclusion: The court's decision underscores the necessity of adherence to procedural requirements for voluntary deposits. Businesses facing tax-related investigations should be aware of their rights and procedures to ensure fair treatment during such operations. The ruling sets a precedent for cases where coercive circumstances may influence deposit decisions during tax investigations.