Bombay High Court Flags Coercive GST Recoveries During Search Proceedings

Background of the Dispute

The Bombay High Court, in Modern Traders Vs Deputy Commissioner/Joint Commissioner, examined whether a payment of tax and penalty made during a Section 67 GST search could genuinely be treated as “voluntary”. The controversy centred on deposits made by the assessee in the middle of an ongoing search at its premises and the subsequent stand of the department that such payments were voluntary and not the result of any coercion.

The respondents (GST authorities) attempted to justify the collection by filing an additional affidavit in response to a prior court order dated 20th February, 2026, asserting that the assessee had willingly paid the disputed amounts. However, the Court juxtaposed this stand against judicial precedents and guidelines issued by other High Courts, particularly those focused on preventing recovery during search operations.

Stand Taken by the Department

The respondents contended that:

  • The assessee had, on its own, deposited the tax and penalty during the search.
  • Only later did the assessee allege coercion, which, according to the department, was an afterthought.

To bolster this argument, the respondents annexed an Office Memorandum dated 9th October, 2024, issued by the Government of India, Ministry of Personnel, Public Grievances and Pensions, Department of Personnel and Training. This memorandum laid down revised norms for handling complaints within Central Government departments.

Particular reliance was placed on clause (3) of those guidelines, which permits competent authorities to summarily file complaints containing vague, non-specific or unverifiable allegations, even without verifying the complainant’s identity. The apparent attempt was to characterise the assessee’s later grievance of coercion as a non-specific, unsubstantiated complaint falling within this category.

The High Court, however, chose not to immediately rule on that position. Instead, it decided first to review the facts in the light of existing judicial pronouncements governing recovery during search operations and the nature of so‑called “voluntary” deposits in such situations.

Reliance on Division Bench Ruling in M/s. Shiva Structures Pvt. Ltd.

The Court referred to a significant Division Bench decision of the same High Court (Aurangabad Bench) in M/s. Shiva Structures Pvt. Ltd. vs. Union of India and others (Writ Petition No.8614/2022). In that case, the Division Bench had categorically held:

“In the light of above, when it is apparently a matter wherein the petitioner either was made to deposit or had deposited the money even before adjudication of its liability to pay the tax, such payment cannot be treated as a voluntary one; more so, when it was made on the very date when the petitioner’s premises was visited by the revenue officials”.

The Bombay High Court in the present case underlined the essence of this ruling:

  • Where an assessee deposits money before adjudication of its tax liability, especially on the same day that the premises are visited by revenue officials,
  • Such deposit ordinarily cannot be treated as voluntary.

This principle directly impacted the characterization of payments made during or immediately around the time of a search, where the power imbalance and the pressure of proceedings may negate genuine free consent.

Search Timeline

The Court recorded the crucial factual matrix regarding the search and payment:

  • Respondent No. 1 initiated a search at the assessee’s premises on 1.11.2023.
  • The search continued until 02:30 hours on 2.11.2023.
  • During the pendency of the search, at 00:46 hours, the assessee made the impugned deposit.