Madras High Court mandates refund of goods and services tax collected during inspections without statutory acknowledgements

The Madras High Court ruled that goods and services tax (GST) funds collected from businesses during departmental inspections and search proceedings must be refunded if authorities failed to issue the mandatory Form DRC-04 acknowledgement. The petitioner contested the forcible extraction of payments during spot inquiries without adhering to the procedural safeguards stipulated under tax statutes. The court affirmed that coercive revenue recovery during investigations, devoid of formal documentation and voluntary admission protocols, constitutes an arbitrary exercise of administrative power.

Under goods and services tax procedures, departmental inspections and investigative visits must follow strict statutory guidelines regarding the recording of statements and collection of voluntary deposits. Form DRC-04 serves as the official acknowledgement for payments made voluntarily during proceedings, distinguishing legitimate voluntary remittances from coerced spot collections. When tax officials compel businesses to transfer funds during raids without issuing proper statutory notices or acknowledgements, it violates fundamental principles of administrative fairness and due process.

Chartered accountants and tax advisors must guide clients subjected to sudden departmental searches to refuse coercive spot payments and insist on formal statutory procedures. Practitioners should file immediate writ petitions for refunds in cases where funds were extorted without issuing Form DRC-04 or equivalent acknowledgements. Bottom line: unauthorized spot collections during tax inspections are legally untenable and subject to immediate judicial reversal.