Deepak Agro Industries vs. State of H.P. (HP High Court): The Distinction Between "Voluntary Payment" and "Deposit Under Protest"

Deepak Agro Industries vs. State of H.P. (HP High Court): The Distinction Between “Voluntary Payment” and “Deposit Under Protest”

This crucial ruling for AY 2026 (delivered on February 24, 2026) safeguards a taxpayer’s right to appeal and natural justice, specifically when the Department attempts to “force-close” proceedings by mislabeling payments.

The Legal Issue

Can the GST Department conclude a case by issuing Form DRC-05 (Intimation of Conclusion) simply because the taxpayer deposited the demanded amount, even if that deposit was made “Under Protest” while filing a detailed reply to contest the demand?

Facts of the Case

The Demand: The Assistant Commissioner issued a show-cause notice (DRC-01) for ₹18.58 Lakhs (GST & IGST).
The Taxpayer’s Response: The petitioner filed DRC-06, specifically requesting time to file a detailed reply and informing the Department that they were depositing the amount “Under Protest” to avoid coercive recovery.
The Department’s Haste: On the same day the petitioner submitted a detailed reply with supporting documents, the Assistant Commissioner issued Form DRC-05, stating that since the tax was “paid,” the proceedings were concluded.
The Appeal Rejection: The Appellate Authority dismissed the petitioner’s appeal, holding that once tax and penalty are paid, the matter is “admitted” and there is no scope for further adjudication or appeal.

The Decision

The Himachal Pradesh High Court ruled in favour of the assessee, quashing both the DRC-05 and the Appellate Order:

“Under Protest” is Not Voluntary: The Court held that a deposit made “under protest” (as defined in Black’s Law Dictionary) is a disputed payment made unwillingly to preserve the right to challenge the demand. It is not a voluntary admission of liability under Section 73(8).
Mandatory Adjudication (Section 75): The Revenue committed a gross error by “dropping” the SCN without considering the detailed reply and documents filed by the petitioner. The law requires a speaking order on the merits of the dispute.
Appellate Right Preserved: The Appellate Authority was wrong to refuse the appeal. Payment made during an investigation or audit under protest does not strip a taxpayer of their statutory right to a fair hearing.
Outcome: The Court remanded the matter back to the Assistant Commissioner for fresh adjudication on merits, to be completed by March 2026.

Key Takeaways for Taxpayers

Label Your Payments: Whenever depositing money during an audit or SCN stage that you intend to fight, explicitly use the words “DEPOSITED UNDER PROTEST” in your DRC-03 or covering letter.
DRC-05 is Not Always Final: If the Department issues a DRC-05 (Conclusion of Proceedings) against your will or without hearing your defense, it can be challenged as a violation of Natural Justice.
Right to Appeal: Paying the tax does not mean you have “admitted” the guilt. You retain the right to appeal as long as you have not filed a “voluntary acceptance” or a “self-ascertainment” statement.

HIGH COURT OF HIMACHAL PRADESH

Deepak Agro Industries

State of Himachal Pradesh^*

Vivek Singh Thakur and Ranjan Sharma, JJ.

CWP No. 345 of 2026

FEBRUARY 24, 2026

Navneet Kumar Bhalla, Adv. for the Petitioner. Sushant Keprate, Addl. Adv. General for the Respondent.

ORDER

Vivek Singh Thakur, J.- Notice. Mr. Sushant Keprate, Additional Advocate General, appears, waives and accepts service of notice on behalf of the respondents/State. As agreed, matter has been heard and is being decided today, vide this order.

2. Petitioner has approached this Court, seeking following substantive relief:-

“i. Issue writ of certiorari quashing intimation in Form GST DRC-05 dated 19.12.2023 Annexure P-10 issued without jurisdiction and in gross violation of Principles of Natural Justice.”

3. In present case, respondent No. 3, Assistant Commissioner Sales Taxes and Excise, Sarahan, Circle Sirmour, South Zone, Shimla, H.P. had issued notice to petitioner in Form GST DRC-01, dated 28.09.2023 (Annexure P-5), for recovery of GST & IGST, amounting to Rs.18,58,538/-.

4. In response to the show cause notice, petitioner had submitted Form GST DRC-06, dated 28.10.2023, with prayer to allow time to file detailed reply, but with information that tax demanded was deposited under protest and in this regard, a written request was also made, as evident from Annexure P-6.

5. Petitioner filed detailed reply on Form GST DRC-06 on dated 30.11.2023, along with supporting documents.

6. Thereafter, respondent No. 3, passed an order on Form GST DRC-05 (Annexure P-10) on 19.12.2023, stating therein as under:-

“This has reference to the show cause notice referred to above. As you have paid the amount of tax and other dues mentioned in the notice along with applicable interest and penalty in accordance with the relevant provisions of Act, the proceedings initiated vide the said notice are hereby concluded.”

7. Learned Additional Advocate General has also placed on record photocopy of the even dated order stated to have been passed by the Assistant Commissioner, wherein it has been recorded by the Assistant Commissioner that as present petitioner had deposited due amount of Rs.18,58,538/-, demanded vide Form GST DRC-01 voluntarily, proceedings initiated vide notice dated 28.09.2023, were dropped with immediate effect.

8. Crux of decision in both copies, i.e., copy of order obtained by the petitioner through electronic mode as well as photocopy of order placed on record by the learned Additional Advocate General, is that deposit made by the petitioner was treated as voluntarily deposit and notice was concluded and proceedings were dropped accordingly, whereas it is undisputed that the petitioner had requested time for filing detailed reply with deposit of the demanded amount, but under protest and, thereafter, detailed reply was also filed by the petitioner. But respondent No. 3 dropped the proceedings and concluded the notice by adjudicating the matter without taking into consideration detailed reply as well as document filed therewith.

9. In appeal preferred by the petitioner, Appellate Authority, i.e., Additional Commissioner, Grade-I (Appeal), has also disposed of the appeal, vide order dated 22.07.2025 with following operative portion:-

“5.9 I find that the usage of the expression ‘deemed to be concluded’ in sub-section 8 of section 73 of the Act clearly indicates that there is no scope for any decision by the Adjudicating Authority, once payment of tax along with due interest has been made.”

10. Taking into consideration the aforesaid facts and submissions made by learned counsel for the petitioner as well as the documents placed on record by the learned Additional Advocate General, we are of the considered opinion that respondent No. 3 has committed a mistake by treating the deposit as voluntarily deposit and concluding the notice accordingly, whereas the matter was and is required to be adjudicated on merit by respondent No. 3.

11. Accordingly, order dated 19.12.2023 GST DRC-05 (Annexure P-10) is quashed and set-aside and consequently, order dated 22.07.2025 (Annexure P-12), passed by the Appellate Authority also stands quashed and set-aside.

12. Matter is remanded back to respondent No. 3 for adjudication on merit in accordance with law, after giving due opportunity of hearing to the petitioner. Needful be done on or before 31.03.2026.

13. This writ petition stands disposed of in above terms. Pending miscellaneous application(s), if any, also stands disposed of.