Wrong Payment of tax, Goods and Services Tax - GST

[vaibhav agrawal]

During search and sezuire the concerned officer had determined a liability which was paid by the taxpayer through DRC-03. Later we got to know that there was an arithmetical error in the calculation done by the officer. What is the remedy as DRC-03 can't be amended. Excess tax paid will be refunded ?

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[YAGAY andSUN]

Legal Position on Remedy for Excess Tax Paid via DRC-03 Due to Arithmetical Error During Search Proceedings

The taxpayer, during the course of a search and seizure operation conducted by the departmental authorities, was advised of a purported tax liability based on calculations furnished by the concerned officer at the time of investigation. Acting in good faith and to demonstrate cooperation with the proceedings, the taxpayer discharged the advised liability voluntarily through Form GST DRC-03, as contemplated under Section 73(5) or Section 74(5) of the CGST/TNGST Act, 2017.

Subsequently, upon detailed verification and internal reconciliation, it came to light that the said liability was incorrectly computed due to an arithmetical error on the part of the officer, leading to excess payment of tax. It is pertinent to note that Form DRC-03, being a voluntary payment mechanism, does not create a final or conclusive tax liability in the absence of an adjudication order under Section 73(9) or 74(9). Furthermore, there exists no statutory provision permitting amendment or rectification of Form DRC-03 once payment is made.

In such circumstances, the correct and legally permissible remedy available to the taxpayer is to seek refund of the excess tax paid by filing an application under Section 54(1) of the CGST/TNGST Act, 2017, read with Rule 89 of the CGST Rules. The taxpayer is entitled to submit Form GST RFD-01 electronically on the GST portal, selecting the relevant reason for refund as “Excess payment of tax” or “Any other,” depending on the available options.

The refund application must be supported by:

• A copy of the Form GST DRC-03 evidencing the payment.

• A detailed computation sheet establishing the error.

• Documentary evidence of the search/seizure proceedings, such as the panchanama or investigation records.

• A self-declaration (or CA certificate, as required) to establish that the incidence of tax has not been passed on to any other person, in order to rebut the doctrine of unjust enrichment.

It is critical to note that the application must be filed within two years from the date of payment, in accordance with the limitation prescribed under Section 54(1) read with the Explanation thereto. Judicial precedents, including the ruling in M/s. Sahil Enterprises v. Union of India [2022 (64) G.S.T.L. 273 (P&H)], have affirmed the right of a taxpayer to claim refund of tax paid through DRC-03 during investigation where such payment is later found to be excessive or unwarranted.

Additionally, the Central Board of Indirect Taxes and Customs (CBIC), through Circular No. 125/44/2019-GST dated 18.11.2019, has clarified that refund of any amount paid in excess through DRC-03 or otherwise is permissible, subject to the conditions prescribed under Section 54 and Rule 89.

Accordingly, the taxpayer is legally entitled to a refund of the excess amount so paid, and the proper course of action is to initiate a refund claim under Section 54 in the prescribed manner. In case of rejection or non-disposal of the refund claim, appropriate appellate remedy under Section 107 of the Act may be invoked.

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