Imagine this.
A GST search begins at 10:00 in the morning.
Records are taken into custody.
Laptops are examined.
Statements are recorded.
Partners are questioned simultaneously at the office and residence.
By evening, investigating officers say that substantial input tax credit appears inadmissible.
No show-cause notice has been issued.
No adjudicating authority has determined the liability.
No appealable order exists.
Yet before the search team leaves, crores of rupees are transferred to Government accounts and Form GST DRC-03 is generated.
The Department later says:
“The taxpayer paid voluntarily.”
The taxpayer says:
“The payment was extracted during the search.”
At first sight, the dispute appears factual.
But underneath lies a much more important constitutional question:
CAN A STATUTORY OPTION TO PAY TAX VOLUNTARILY BE CONVERTED INTO AN INVESTIGATIVE POWER TO RECOVER TAX?
Indian GST jurisprudence is increasingly answering that question in the negative.
The emerging principle is not that every DRC-03 filed during a search is automatically illegal.
It is something considerably more sophisticated:
PAYMENT DURING SEARCH MAY BE LEGALLY POSSIBLE. RECOVERY DURING SEARCH IS NOT.
And Form DRC-03 proves only that money was deposited.
It does not conclusively prove why it was deposited.
FIRST PRINCIPLE: SEARCH, DETERMINATION AND RECOVERY ARE THREE DIFFERENT STATUTORY POWERS
The entire controversy becomes easier to understand if the CGST Act is read structurally.
Section 67
authorises inspection, search and seizure.
Its purpose is investigative and evidentiary.
Sections 73 and 74
for periods up to FY 2023-24 governed determination of tax liability.
Section 74A
now governs determination for FY 2024-25 onward. India Code expressly records that Sections 73 and 74 are confined to periods up to FY 2023-24, while Section 74A applies from FY 2024-25 onward.
Section 79
contains the statutory machinery for recovery once an amount has legally become recoverable.
Those functions should not silently collapse into one event.
The correct architecture is:
SEARCH
↓
INVESTIGATION
↓
NOTICE / STATUTORY DETERMINATION, IF DISPUTED
↓
ADJUDICATION
↓
AMOUNT BECOMES PAYABLE
↓
RECOVERY
There is, however, an important statutory shortcut.
The taxpayer may itself accept or ascertain liability before notice and voluntarily discharge it.
That is where DRC-03 enters the picture.
But a shortcut available to the taxpayer should not become a shortcut available to the investigator.
That distinction is the heart of the controversy.
DRC-03 IS AN INTIMATION OF PAYMENT — NOT A WARRANT OF RECOVERY
For the older regime, Sections 73(5) and 74(5) enabled a taxpayer to discharge liability before service of a show-cause notice.
In fraud-type cases under the former Section 74(5), the taxpayer could pay tax, interest and the prescribed 15% penalty before notice.
For FY 2024-25 onward, Section 74A maintains the concept. Sub-section (8) deals with pre-notice payment in non-fraud cases and sub-section (9) with fraud/wilful-misstatement/suppression cases.
The key word running through this architecture is not recovery.
It is option.
The person may pay.
The law does not say that an investigating officer conducting search under Section 67 may compel him to pay.
Therefore:
DRC-03 IS THE PROCEDURAL CONSEQUENCE OF A VOLUNTARY DECISION.
It is not the statutory source of authority for obtaining that decision.
That distinction was eventually recognised not merely by High Courts, but by CBIC itself.
CBIC INSTRUCTION 01/2022-23: THE DEPARTMENT ITSELF DRAWS THE LINE
On 25 May 2022, CBIC issued Instruction No. 01/2022-23 [GST-Investigation], titled:
“Deposit of tax during the course of search, inspection or investigation”
Technically, it is a CBIC Instruction, although judgments occasionally describe it as a circular.
Its legal clarification is extraordinarily important.
The Board first accepted that taxpayers sometimes voluntarily discharge partial or full GST liability through DRC-03 when issues are pointed out during search or investigation.
But it then distinguished voluntary payment from recovery.
CBIC stated that recovery under Section 79 can occur only after due legal process where the amount has become payable. It therefore clarified that there should not normally arise any situation requiring an officer to make “recovery” of tax during search, inspection or investigation.
At the same time, the Instruction expressly preserves the taxpayer's freedom voluntarily to make payment during or after the proceedings if liability has genuinely been ascertained. The Supreme Court later reproduced these very passages.
The Board's formula is therefore:
VOLUNTARY PAYMENT DURING INVESTIGATION
Permissible
but
RECOVERY DURING INVESTIGATION
No statutory occasion should arise
That difference is far more important than the GST form used.
THEN WHY DO HIGH COURTS SAY “NO RECOVERY DURING SEARCH”?
Because the problem began before the CBIC Instruction.
The seminal judicial intervention came from the Gujarat High Court.
BHUMI ASSOCIATE: THE HIGH COURT BUILDS A “COOLING-OFF” WALL BETWEEN SEARCH AND PAYMENT
In Bhumi Associate v. Union of India, SCA No. 3196 of 2021 and connected matters, order dated 16 February 2021, the Gujarat High Court expressed serious concern about amounts being obtained during GST searches.
It directed the authorities to formulate safeguards.
The first direction was emphatic:
No recovery by cheque, cash, e-payment or adjustment of ITC should be made during search/inspection proceedings under Section 67.
But the second direction is even more jurisprudentially interesting.
Even where the assessee comes forward and says that he wants to make a voluntary DRC-03 payment, the Court said he should be advised to file it the next day after the search concludes and after the visiting officers have left the premises.
Why?
Because voluntariness requires more than the physical ability to press “Submit”.
A person surrounded by investigating officers may technically control his laptop but may not necessarily be exercising independent economic judgment.
The Gujarat High Court therefore introduced what can be described as a cooling-off principle:
SEARCH ENDS
↓
OFFICERS LEAVE
↓
TAXPAYER GETS BREATHING SPACE
↓
LEGAL / TAX ADVICE
↓
INDEPENDENT ASCERTAINMENT
↓
THEN DRC-03
This is the strongest judicial safeguard in the jurisprudence.
AN IMPORTANT LEGAL TENSION: CBIC DID NOT FULLY ADOPT BHUMI ASSOCIATE
This distinction deserves particular attention.
CBIC's 25 May 2022 Instruction did adopt the larger principle that coercive recovery should not occur during search.
But it did not reproduce in identical terms Bhumi Associate's stronger second direction requiring a willing taxpayer ordinarily to wait until the following day after search officers have left.
The Delhi High Court noticed precisely this point in Vallabh Textiles v. Senior Intelligence Officer.
That means we effectively have two layers:
CBIC STANDARD
A genuinely voluntary payment during investigation is not legally prohibited.
BHUMI ASSOCIATE SAFEGUARD
Even an apparently willing taxpayer should ordinarily be given post-search breathing space before making DRC-03.
This distinction becomes crucial when examining later cases.
VALLABH TEXTILES: WHEN THE CLOCK BECAME A WITNESS
M/s Vallabh Textiles v. Senior Intelligence Officer, W.P.(C) 9834/2022, Delhi High Court, decided 20 December 2022, is one of the clearest factual cases on involuntary GST recovery.
The search commenced at approximately 3:30 p.m. on 16 February 2022.
It concluded only at approximately 9:30 a.m. the following morning.
During that continuing search, four payments totalling approximately ₹1.80 crore were made through DRC-03:
1:28 a.m.
2:15 a.m.
5:04 a.m.
7:03 a.m.
The search officers were still present.
The search itself had not concluded.
The Delhi High Court examined the statutory mechanism, Rule 142, CBIC Instruction 01/2022-23 and Bhumi Associate.
One particularly significant circumstance was the absence of the acknowledgement contemplated through Form GST DRC-04.
The Court ultimately held that the amounts had not been deposited voluntarily and directed refund with interest.
The lesson from Vallabh Textiles can be expressed elegantly:
THE TIME STAMP ON DRC-03 MAY TELL A DIFFERENT STORY FROM THE WORD “VOLUNTARY” WRITTEN ON IT.
A payment at 2:15 a.m. while search proceedings remain active does not automatically become coercive.
But it demands a convincing explanation as to how genuine independent ascertainment occurred in that environment.
SHREE GANESH MOLASSES: THE OTP BECOMES EVIDENCE
The Gujarat High Court then dealt with an even more striking factual matrix in Shree Ganesh Molasses Trading Co. v. Superintendent, SCA No. 4026 of 2022, decided 18 January 2023.
A CGST search was conducted.
At about 1:00 a.m., ITC of approximately ₹37.68 lakh was reversed and DRC-03 was filed.
The taxpayer alleged that officers required access to the GST portal and that the OTP went to the mobile phone of the partner's son, who was elsewhere.
More importantly, material relating to the telephone conversation surrounding procurement of the OTP was placed before the Court.
The taxpayer had also filed a retraction shortly thereafter.
The Gujarat High Court revisited Bhumi Associate and the Delhi High Court's reasoning in Vallabh Textiles and ordered refund.
The case produces a powerful modern evidentiary principle:
AN OTP PROVES AUTHENTICATION. IT DOES NOT NECESSARILY PROVE VOLUNTARINESS.
Digital consent and legal consent are different concepts.
A person may authenticate a banking transaction under economic duress.
A taxpayer may enter an OTP because officers are standing beside him.
The electronic system proves who authorised the transaction.
The surrounding evidence determines whether the authorization reflected free will.
SAMYAK METALS: WHERE IS THE DRC-04, AND WHERE IS THE ADJUDICATION?
In M/s Samyak Metals Pvt. Ltd. v. Union of India, CWP No. 26529 of 2022, Punjab & Haryana High Court, decided 24 May 2023, the Court again examined deposits obtained in the context of GST investigation.
It relied upon Vallabh Textiles and the CBIC safeguards.
The absence of proper acknowledgement in DRC-04 and the absence of the normal statutory determination process weighed against Revenue's argument that the payment should simply be retained as voluntary.
The Court directed refund with interest.
This brings us to an important evidentiary test.
If Revenue says:
“This was a valid voluntary payment under Section 74(5).”
then one can legitimately ask:
Where is the statutory ascertainment?
Where is the corresponding interest?
Where is the applicable penalty, if Section 74(5) is invoked?
Where is DRC-04?
What statutory consequence did the Department itself give to the alleged voluntary payment?
A Department cannot easily treat the transaction as a Section 74(5) payment when retaining the money, but ignore the procedural architecture of Section 74(5) when its voluntariness is challenged.
NEERAJ PAPER MARKETING: CASH AND ELECTRONIC CREDIT ARE BOTH PROPERTY
Neeraj Paper Marketing Ltd. v. Special Commissioner, Department of Trade and Taxes, W.P.(C) 158/2023, Delhi High Court, decided 5 December 2023, sharpened the principle further.
The taxpayer sought refund of approximately ₹28.20 lakh deposited during a Section 67 operation.
The Delhi High Court expressly framed the issue as whether payments made while the visiting team was conducting operations could genuinely be treated as voluntary payments under Sections 73(5) or 74(5).
Again, DRC-04 had not been issued.
The Court followed Vallabh Textiles, directed refund of the cash component and restoration of the amount debited from the electronic credit ledger, with interest treatment according to the nature of the amount.
That judgment is important for another reason:
COERCIVE RECOVERY IS NOT CONFINED TO CASH.
It may occur through:
bank transfer,
cash ledger debit,
electronic credit reversal,
or
DRC-03.
The medium does not decide legality.
The statutory authority and voluntariness do.
SUSHIL KUMAR: 3:10 A.M. IS NOT JUST A TIME — IT IS EVIDENCE
Perhaps the cleanest illustration comes from Sushil Kumar v. Delhi State GST, W.P.(C) 15519/2023, decided by the Delhi High Court on 26 February 2024.
The search began at approximately 5:30 p.m.
It continued until approximately 5:00 a.m.
During the search, payments were made at:
3:10 a.m. and 3:18 a.m.
while departmental officers were still present.
No pre-existing demand against the taxpayer had been shown.
The Court specifically observed that the fact that deposits were made at 3:10 and 3:18 a.m., before the search concluded at 5:00 a.m., demonstrated lack of voluntariness and was contrary to CBIC Instruction No. 01/2022-23.
It directed refund/re-credit, with 6% interest on the appropriate cash component.
This produces one of the strongest lines for understanding the jurisprudence:
THE CLOCK CAN SOMETIMES CROSS-EXAMINE THE DEPARTMENT BETTER THAN THE TAXPAYER CAN.
RADHIKA AGARWAL WAS NOT A FACTUAL DRC-03 REFUND CASE OF THE LEAD PETITIONER
Radhika Agarwal v. Union of India, 2025 INSC 272, decided on 27 February 2025, arose from a large batch of proceedings dealing principally with arrest powers under the Customs Act and GST enactments.
The lead proceeding itself was Customs-related.
Therefore it would be incorrect to describe Radhika Agarwal as though Ms Radhika Agarwal had undergone a GST search, paid DRC-03 and approached the Supreme Court seeking its refund.
She did not.
But that does not make the decision merely a Customs precedent being borrowed by analogy.
The Supreme Court's majority judgment expressly moves into the GST statutory regime, analyses GST arrest/search provisions, and then, in paragraphs 63 to 68, separately considers allegations that GST assessees were being made to pay tax because of threats of arrest.
That portion of the judgment is direct GST law.
RADHIKA AGARWAL: THE SUPREME COURT ELEVATES THE PRINCIPLE
The Supreme Court first reproduced CBIC Instruction No. 01/2022-23 dated 25 May 2022.
It noted CBIC's own clarification that Section 79 recovery normally follows due process and that there should not arise a situation requiring tax recovery during search, inspection or investigation merely because an issue has been detected.
The Court then examined Section 74(5).
Its conclusion was categorical:
Section 74(5) relates to voluntary payment and does not contemplate payment under force, coercion or threat of arrest.
The Court further held that the relevant CBIC instructions are binding and must be followed “in letter and spirit.”
It characterised coercion or threat of arrest for extracting such payment as a violation of fundamental rights and the law of the land.
Then comes paragraph 67.
After analysing Revenue's own data, the Supreme Court observed that there appeared to be some force in the allegation that assessee were being compelled to pay tax as a condition for not being arrested.
The Court said Section 74(5):
gives an option to the assessee and does not confer a right upon tax authorities to compel or extract tax by threatening arrest.
It described such conduct as unacceptable and violative of the rule of law.
Paragraph 68 then expressly states that where tax is deposited under threat, force or coercion, the assessee may approach the court for refund, and departmental action may also follow against offending officers.
Therefore the correct position of Radhika Agarwal in this jurisprudence is:
NOT THE FACTUAL FOUNDATION — BUT THE SUPREME COURT-LEVEL LEGAL CAPSTONE.
The factual cases establish what coercion can look like.
Radhika Agarwal supplies the authoritative Supreme Court proposition that the statutory option of voluntary GST payment cannot become an instrument of extraction through arrest pressure.
THE CASE-LAW HIERARCHY :
BHUMI ASSOCIATE — Gujarat High Court
Creates protective safeguards.
No recovery during Section 67 search. Give the taxpayer breathing space.
↓
CBIC INSTRUCTION 01/2022-23
Administratively accepts the distinction:
Voluntary payment permitted; recovery during investigation should not arise.
↓
VALLABH TEXTILES
Early-morning deposits during continuing search held involuntary.
↓
SHREE GANESH MOLASSES
OTP, timing and surrounding circumstances expose coercion.
↓
SAMYAK METALS / NEERAJ PAPER / SUSHIL KUMAR
High Courts repeatedly order refund/re-credit where procedure and surrounding circumstances contradict voluntariness.
↓
RADHIKA AGARWAL — SUPREME COURT
The legal principle is elevated:
Section 74(5) is an option to pay—not a power to extract through force, coercion or threat of arrest.
↓
LATER HIGH COURT CASES
Apply the now-strengthened principle to increasingly large recoveries.
SRI J. RAMESH CHAND: ₹10 CRORE AND THE QUESTION “WHERE DID THIS NUMBER COME FROM?”
The Karnataka High Court decision in Sri J. Ramesh Chand v. Union of India, W.P. No. 9890/2023, decided on 13 October 2025, concerned approximately ₹10 crore allegedly obtained during GST search proceedings.
The case has subsequently been discussed in detail by the Rajasthan High Court in Baba Contractors.
Among the factors scrutinised were the absence of prior determination, the circumstances in which the ₹10 crore amount was arrived at, lack of DRC-04 acknowledgement and the continuation of investigative proceedings.
The Karnataka High Court concluded that the collection was not voluntary and ordered consequential relief. Baba Contractors records the case as one of the principal authorities in this jurisprudential line.
The case raises a devastating evidentiary question:
IF THE TAXPAYER SELF-ASCERTAINED ₹10 CRORE, SHOW THE SELF-ASCERTAINMENT.
Where is the working?
Where are the invoices?
Where is the reconciliation?
Where is the tax period?
Where is the calculation of interest?
Where is the applicable penalty?
How did an investigation that was still underway produce such a precise admitted liability?
A round figure without a contemporaneous computation may be evidence not of ascertainment—but of negotiation or pressure.
BABA CONTRACTORS: 2026 RAJASTHAN HIGH COURT BUILDS A MODERN “TOTALITY OF CIRCUMSTANCES” TEST
The latest major decision in this chain is M/s Baba Contractors and Engineers v. Union of India, S.B. Civil Writ Petition No. 21298/2025, Rajasthan High Court, pronounced 22 June 2026, Neutral Citation 2026:RJ-JD:27036-DB.
The amount involved was:
₹2,35,23,506
The search was conducted on 11 July 2025 at the firm's office and partners' residences.
According to the record, the office search ran from approximately 10:00 a.m. to 7:55 p.m., while proceedings at the residence continued until approximately 8:55 p.m.
Payments and DRC-03 activity occurred while these proceedings were still unfolding.
The taxpayer later specifically disputed the voluntariness of the deposit.
No DRC-04 acknowledgement had been issued.
The Rajasthan High Court did not apply a simplistic rule that:
Payment during search = automatically coercive.
Instead it examined the entire environment.
The Court identified, among other factors:
payment obtained during search;
absence of prior ascertainment or determination;
failure to establish independent self-ascertainment by the taxpayer;
subsequent challenge to voluntariness;
and
non-compliance with Bhumi Associate and CBIC Instruction 01/2022-23.
It concluded that the ₹2.35 crore payment could not be treated as voluntary and directed refund within eight weeks. Importantly, it declined at that stage to award interest because final liability had yet to be determined, while expressly leaving Revenue free to continue lawful assessment/adjudication.
This judgment is particularly valuable because it expresses the modern principle clearly:
DRC-03 DOES NOT CREATE A PRESUMPTION OF VOLUNTARINESS. THE COURT MUST EXAMINE THE SURROUNDING CIRCUMSTANCES.
A small citation correction is also worth noting: portions of the Baba Contractors pleadings reproduce the CBIC Instruction date as 25.02.2022, but the actual Instruction No. 01/2022-23 was issued on 25.05.2022, as confirmed by the Supreme Court's reproduction of the document in Radhika Agarwal.
THE DEEPER QUESTION: WHO BEARS THE BURDEN OF PROVING VOLUNTARINESS?
Suppose Revenue produces Form DRC-03.
Should that end the case?
No.
DRC-03 establishes that a taxpayer's credentials were used to intimate a payment.
But consider a search where:
the officers are still present,
records remain seized,
statements are still being recorded,
arrest is being discussed,
the payment occurs at 2:30 a.m.,
no independent computation exists,
no lawyer or tax adviser has been consulted,
and DRC-04 never follows.
In those circumstances, merely saying:
“But the taxpayer himself filed DRC-03”
begs the very question under adjudication.
The better evidentiary enquiry is:
Was there an independently formed decision to discharge an independently ascertained liability?
That requires looking beyond the form.
DIGITAL AUTHENTICATION ≠ FREE WILL
Modern tax administration is digital.
That makes this distinction especially important.
A GST login proves access.
An OTP proves authentication.
A DRC-03 timestamp proves submission.
A bank UTR proves transfer.
But none of those digital artifacts, standing alone, proves volition.
Consider an analogy.
If a person transfers money from his own bank account while being threatened, the bank record proves that the transfer occurred.
It does not prove the absence of coercion.
Similarly:
AUTHENTICATION ANSWERS “WHO?”
while:
VOLUNTARINESS ANSWERS “WHY?”
Tax law should not confuse the two.
WHAT FACTS SHOULD A COURT EXAMINE?
A sophisticated voluntariness enquiry should compare two competing factual patterns.
Genuine voluntary payment tends to look like this:
Search/investigation identifies an issue.
The taxpayer receives or understands the computation.
There is time for internal review.
Legal or tax advisers are consulted.
The taxpayer prepares its own working.
The tax, interest and penalty—where legally applicable—correspond with the statutory provision relied upon.
The search has ended or there is other convincing evidence of free decision-making.
DRC-03 is independently filed.
DRC-04 follows.
The taxpayer does not immediately retract.
The Department itself treats the payment consistently with the statutory pre-notice scheme.
Coercive recovery tends to look different:
Search is still continuing.
Payment occurs late at night or early morning.
Officers remain on the premises.
Threat of arrest or detention is present.
Portal credentials or OTP are obtained in officers' presence.
The figure is rounded or unsupported by contemporaneous workings.
No DRC-04 is issued.
The taxpayer protests shortly afterwards.
The investigation continues as though no liability had actually been settled.
No statutory consequences associated with voluntary payment are given.
The larger the number of these indicators present together, the weaker Revenue's assertion of voluntariness becomes.
WHY DRC-04 MATTERS SO MUCH
Rule 142 is sometimes treated as mere paperwork.
That misses its evidentiary role.
When a person makes a legitimate pre-notice payment and intimates it through DRC-03, the statutory framework contemplates acknowledgement through DRC-04.
Why?
Because DRC-04 demonstrates that the proper officer has accepted the payment within the statutory voluntary-payment mechanism.
Repeated absence of DRC-04 in the decided cases has therefore become relevant evidence.
It does not necessarily mean:
No DRC-04 = coercion automatically.
But it raises a legitimate question:
If Revenue itself never processed the deposit as the voluntary statutory payment it now claims it was, why should a court simply accept that characterization?
This is precisely why DRC-04 repeatedly appears in Vallabh Textiles, Shree Ganesh Molasses, Samyak Metals, Neeraj Paper, Sushil Kumar and Baba Contractors.
ARTICLE 265: “LEVIED” AND “COLLECTED” ARE DIFFERENT CONSTITUTIONAL COMMANDS
Article 265 states:
No tax shall be levied or collected except by authority of law.
The Constitution does not merely regulate the levy.
It separately regulates collection.
That distinction is central.
Suppose Revenue is ultimately correct.
Suppose the taxpayer actually owes ₹5 crore.
That does not retrospectively validate every method by which ₹5 crore might have been obtained.
The Department may be correct on:
TAXABILITY
and simultaneously wrong on:
RECOVERY PROCEDURE.
Therefore:
ULTIMATE LIABILITY DOES NOT RETROSPECTIVELY AUTHORISE AN UNLAWFUL COLLECTION.
That is why High Courts can order refund of a coerced DRC-03 payment while expressly allowing the Department to issue a proper notice and determine the very same liability according to law.
Baba Contractors makes that distinction particularly clear.
A REFUND ORDER DOES NOT MEAN THE TAXPAYER HAS WON THE TAX CASE
This is another point that should not be misunderstood.
When a High Court orders repayment of ₹2 crore allegedly recovered during search, it is not necessarily holding:
“No GST is payable.”
It may simply be saying:
“You cannot retain money through a procedure Parliament did not authorise.”
Revenue remains free to:
investigate,
issue notice,
produce evidence,
adjudicate,
establish tax liability,
and ultimately recover the lawful amount.
That distinction is fundamental to the rule of law.
The taxpayer is not entitled to escape lawful tax.
The Government is not entitled to escape lawful procedure.
THE SECTION 74A ERA: THE NUMBER CHANGED, THE CONSTITUTIONAL PRINCIPLE DID NOT
An important current-law update is necessary.
For tax periods up to FY 2023-24, references to Sections 73 and 74 remain relevant.
For FY 2024-25 onward, Section 74A now governs the principal determination mechanism.
Section 74A(8)(i) permits pre-notice payment in non-fraud cases.
Section 74A(9)(i) provides the corresponding mechanism in fraud/wilful-misstatement/suppression cases, including the 15% penalty component.
Both provisions preserve the concept of payment based on the taxpayer's own ascertainment or tax as ascertained by the proper officer.
What Parliament has not inserted is:
“During search, the proper officer may compel immediate DRC-03 payment.”
Therefore Radhika Agarwal's constitutional reasoning remains highly relevant beyond old Section 74(5):
AN OPTION GIVEN TO THE TAXPAYER DOES NOT BECOME A RECOVERY POWER OF THE OFFICER.
THE REVENUE'S STRONGEST COUNTERARGUMENT
A balanced analysis must confront Revenue's best case.
The statute does not say that voluntary payment can occur only after the search ends.
Indeed, the CBIC Instruction expressly states that the law does not bar voluntary payment during search, inspection or investigation.
Further, the statutory provisions permit payment not only on the taxpayer's own ascertainment but also on tax ascertained by the proper officer.
Therefore, Revenue can legitimately argue:
“Our officers detected the problem, quantified it, explained it to the taxpayer, and the taxpayer voluntarily chose to discharge it immediately.”
That argument cannot be rejected merely because officers were present.
Which is why the legal proposition should not be overstated.
The strongest formulation is:
A PAYMENT MADE DURING SEARCH IS NOT PER SE VOID UNDER THE STATUTE; BUT A RECOVERY EFFECTED THROUGH THE COERCIVE ENVIRONMENT OF SEARCH IS WITHOUT AUTHORITY OF LAW.
Bhumi Associate adopts an even more protective judicial standard within its framework by insisting upon post-search breathing space.
The ultimate question remains factual:
WAS THERE A REAL CHOICE?
THE “BUT THE TAXPAYER SIGNED IT” ARGUMENT
Tax investigations frequently involve signed statements.
Revenue may say:
“The director admitted liability.”
“He signed the statement.”
“He himself generated DRC-03.”
“He supplied the OTP.”
None is irrelevant.
But none is automatically conclusive.
A signed statement proves that a statement exists.
An OTP proves authentication.
A DRC-03 proves payment.
The court must still determine whether those acts occurred in conditions compatible with free consent.
The Supreme Court in Radhika Agarwal recognised a broader conception of coercion, referring to the classic discussion in Nandini Satpathy concerning psychological and environmental pressure—not merely physical violence.
That matters greatly in tax investigation.
The threat need not always sound like:
“Pay ₹5 crore or I will arrest you.”
The atmosphere itself may be relevant.
THE MOST IMPORTANT CROSS-EXAMINATION QUESTIONS FOR REVENUE
Where Revenue asserts a voluntary DRC-03 payment, the real enquiry should be:
When did the search begin?
When did it end?
When precisely was DRC-03 filed?
Who operated the computer?
Who received and communicated the OTP?
Was arrest discussed?
What exact liability had been ascertained?
Where is the computation?
Was interest calculated?
Was the statutory penalty calculated?
Was any written communication of ascertainment given?
Was DRC-04 issued?
Did the taxpayer consult a professional adviser?
Was the amount later protested?
What statutory consequence did Revenue itself give to the alleged voluntary payment?
Would the taxpayer probably have made the same payment, in the same amount, at the same time, had the officers already left?
The last question is not itself a statutory test.
But it captures the jurisprudential logic of this entire line of cases.
THE TAXPAYER'S CONDUCT ALSO MATTERS
Courts should not presume coercion merely because a search occurred.
A taxpayer alleging coercion should preserve contemporaneous evidence.
A protest made immediately or soon after the search is far more persuasive than a generic allegation raised years later.
Relevant contemporaneous material may include search panchnamas, timestamps, DRC-03 records, DRC-04 status, bank transfers, OTP messages, CCTV, lawful call recordings, communications with lawyers or accountants, retraction letters, e-mails, statements, officers' arrival/departure times and the actual computation allegedly accepted.
Shree Ganesh Molasses demonstrates particularly well how apparently mundane digital material—an OTP conversation—can become decisive evidence.
The legal contest is ultimately evidentiary.
THE MOST LEGALLY DEFENSIBLE ADMINISTRATIVE PRACTICE IS ALSO THE SIMPLEST
Suppose investigators discover what they genuinely believe to be ₹8 crore of fraudulent ITC.
They need not obtain ₹8 crore before leaving the premises.
They can:
detect the issue;
preserve the evidence;
complete the search;
communicate the computation;
permit the taxpayer to obtain advice;
and then:
If the taxpayer agrees:
it can voluntarily discharge the liability through the statutory mechanism.
If the taxpayer disputes liability:
issue the appropriate notice and adjudicate.
Nothing is lost.
Revenue retains every substantive power Parliament gave it.
What Revenue loses is only the ability to convert the inherently coercive environment of a search into an instant collection mechanism.
That is not a statutory entitlement in the first place.
THE DEEPER CONSTITUTIONAL PRINCIPLE
The entire controversy can be condensed into four statutory functions:
SECTION 67
INVESTIGATE
↓
SECTIONS 73 / 74 / 74A
DETERMINE
↓
SECTIONS 78 / 79
RECOVER
The voluntary-payment provision creates a taxpayer-controlled bridge that may shorten this sequence.
It does not reverse the direction of the bridge.
In other words:
VOLUNTARY PAYMENT CAN SHORT-CIRCUIT ADJUDICATION AT THE TAXPAYER'S OPTION.
But:
INVESTIGATION CANNOT SHORT-CIRCUIT ADJUDICATION AT THE OFFICER'S COMMAND.
That is the deepest statutory principle behind these cases.
CASE-LAW POSITION IN ONE FRAME
Bhumi Associate — Gujarat High Court, 2021
No recovery during Section 67 search; even willing taxpayers should be given post-search breathing space before DRC-03.
CBIC Instruction No. 01/2022-23 — 25 May 2022
Recovery during search/investigation should not arise; genuinely voluntary payment is nevertheless permissible.
Vallabh Textiles — Delhi High Court, 2022
Four payments between 1:28 a.m. and 7:03 a.m. while search continued until 9:30 a.m.; voluntariness rejected.
Shree Ganesh Molasses — Gujarat High Court, 2023
₹37.68 lakh ITC reversal around 1 a.m.; OTP evidence and surrounding circumstances supported coercion; refund ordered.
Samyak Metals — Punjab & Haryana High Court, 2023
Failure of statutory safeguards including DRC-04; refund with interest.
Neeraj Paper Marketing — Delhi High Court, 2023
₹28.20 lakh paid/debited during Section 67 proceedings; refund/re-credit granted.
Sushil Kumar — Delhi High Court, 2024
DRC-03 deposits at 3:10 and 3:18 a.m. while search continued to 5:00 a.m.; held involuntary.
Radhika Agarwal — Supreme Court, 2025 INSC 272
Not a factual DRC-03 refund case of the lead petitioner, but a common Customs/GST judgment containing a direct GST ruling in paras 63–68: Section 74(5) is voluntary and cannot be used to compel/extract payment through force, coercion or threat of arrest. Refund through court and action against officers may follow.
Sri J. Ramesh Chand — Karnataka High Court, 2025
₹10 crore recovery during GST search held involuntary/illegal on examination of the surrounding facts; subsequently relied upon in Baba Contractors.
Baba Contractors and Engineers — Rajasthan High Court, 22 June 2026
₹2.35 crore DRC-03 deposit held not voluntary after applying a totality-of-circumstances test; refund ordered while Revenue's right to conduct lawful adjudication was preserved.
CONCLUSION: DRC-03 IS NOT A DIGITAL CONFESSION
Form GST DRC-03 performs a legitimate and useful statutory function.
A taxpayer who discovers or accepts liability should be able to discharge it quickly without unnecessary litigation.
Nothing in the jurisprudence should destroy that facility.
But the voluntary-payment mechanism becomes legally dangerous when the sequence changes from:
“I have examined the liability and choose to pay”
to:
“The search team says I must pay before they leave.”
The Gujarat High Court recognised the danger first.
CBIC acknowledged it administratively.
Delhi, Punjab & Haryana, Karnataka, Rajasthan and other High Courts applied the principle to actual recoveries.
And the Supreme Court in Radhika Agarwal supplied the constitutional capstone:
SECTION 74(5) GIVES AN OPTION TO THE ASSESSEE. IT DOES NOT GIVE THE TAX AUTHORITIES A RIGHT TO EXTRACT TAX THROUGH THREAT OF ARREST.
The best expression of the law is therefore neither:
“Every payment during search is illegal.”
nor:
“Once DRC-03 is filed, payment is conclusively voluntary.”
The more accurate principle is:
DRC-03 PROVES PAYMENT. IT DOES NOT PROVE FREE WILL.
And the deeper constitutional principle is:
SEARCH CAN DISCOVER LIABILITY. SEARCH CANNOT BECOME THE MODE OF RECOVERING A DISPUTED LIABILITY.
Ultimately, the question is not whether the taxpayer clicked “Submit.”
The question is:
DID THE TAXPAYER HAVE A REAL CHOICE NOT TO CLICK IT?
That is where the future litigation on coercive GST recovery will increasingly be decided.
Disclaimer
This article is intended for professional, academic and legal discussion. Whether a particular payment was voluntary or coerced is inherently fact-sensitive. Sections 73 and 74 now govern periods up to FY 2023-24, while Section 74A applies to FY 2024-25 onward. Applicable statutory amendments and jurisdiction-specific binding precedent should be independently examined before reliance in litigation.
This revised structure also resolves the earlier conceptual problem: the Supreme Court case is now the apex legal principle rather than being presented as the factual starting point. The factual story is built from the direct DRC-03 cases, while Radhika Agarwal gives them constitutional and Supreme Court-level reinforcement.