Navigating GST Challenges: Unsigned Orders, Refunds and Strategic Dispute Resolution

Introduction

The Goods and Services Tax (GST) regime in India, governed by the Central Goods and Services Tax (CGST) Act, 2017, provides mechanisms for compliance and dispute resolution, including relief under Section 128A, introduced via the Finance Act (No. 2), 2024. This section offers a conditional waiver of interest and penalties for tax demands under Section 73 for the financial years 2017-18, 2018-19, and 2019-20. However, procedural irregularities, such as unsigned orders, complicate matters for taxpayers who have made payments via Form GST DRC-03. This article examines a scenario where a taxpayer paid tax, interest, and penalty after receiving an unsigned order, exploring whether they can challenge the payment as made "under protest," seek to reopen the order, apply for Section 128A benefits or file an appeal, and claim a refund. It further addresses the implications of remanded proceedings and whether the DRC-03 payment can be treated as a "deposit" to bypass the two-year refund time limit under Section 54, drawing on the principles from the Mafatlal Industries Ltd. v. Union of India case (1997) 5 SCC 536.

Background: Unsigned Orders and Payments under DRC-03

Under the GST framework, demand orders under Sections 73 or 74 must be authenticated, typically via a signature (manual or digital, per the Information Technology Act, 2000). An unsigned order lacks legal validity, potentially rendering it void and providing grounds for taxpayers to challenge its enforceability.

Form GST DRC-03 is used for voluntary or prompted payments of tax, interest, or penalties during investigations, audits, or in response to a show-cause notice (SCN). Payments linked to an SCN require the SCN number and issuance date to be specified within 30 days. When payments are made under coercion or to avoid disputes, taxpayers may claim they were made "under protest," indicating no admission of liability.

In this scenario, the taxpayer paid tax, interest, and penalty via DRC-03 after receiving an unsigned order. The key questions are whether the taxpayer can:

1. Challenge the payment as made "under protest."
2. Seek to reopen the order due to its unsigned status.
3. Apply for Section 128A benefits or file an appeal, including after the order is remanded and a fresh order is issued.
4. Claim a refund of amounts paid, including treating the payment as a "deposit" to bypass the two-year time limit under Section 54, as per the Mafatlal case.

Legal Framework

1. Validity of Unsigned Orders

Orders under the CGST Act must be properly authenticated to be enforceable. An unsigned order fails this requirement and may be deemed void. Courts, including the Madras High Court, have held that unsigned or improperly authenticated orders violate principles of natural justice and can be quashed, often directing authorities to issue fresh SCNs or orders.

2. Payments Made "Under Protest"

Payments via Form GST DRC-03 are often treated as "voluntary" by tax authorities. However, judicial precedents, such as rulings from the Madras High Court, recognize that payments made under pressure (e.g., to avoid coercive actions like bank account attachment) can be classified as "under protest." Such payments are treated as deposits rather than self-ascertained liabilities under Sections 73 or 74, making them eligible for refund if the demand is overturned. To establish a payment as "under protest," the taxpayer must:

• Explicitly state the protest in writing (e.g., in correspondence or on the DRC-03 form).
• Avoid admitting liability in communications with authorities.
• Provide evidence of coercion or circumstances indicating the payment was not entirely voluntary.

3. Section 128A: Waiver of Interest and Penalty

Section 128A, effective from November 1, 2024, provides a conditional waiver of interest and penalties for demands under Section 73 (non-fraud cases) for FY 2017-18, 2018-19, and 2019-20. To avail of this benefit, taxpayers must:

• Pay the full tax amount by March 31, 2025, using electronic cash or credit ledgers (except for reverse charge cases, where cash is mandatory).
• File an application in Form GST SPL-01 (for cases without a final order) or SPL-02 (for cases with an order or appellate proceedings) within three months from March 31, 2025, or six months from re-determination if reassessed from Section 74 to Section 73.
• Withdraw any pending appeals or writ petitions, with proof of withdrawal uploaded.
• Ensure the demand does not pertain to erroneous refunds, late fees, or interest on delayed returns.

Section 128A does not provide refunds for interest or penalties already paid. However, if the tax demand is reduced or overturned through an appeal or reopened proceedings, a refund of tax, interest, and penalty may be pursued under Section 54.

4. Appeals and Refunds

Taxpayers can appeal a demand order under Section 107 (to the Appellate Authority) or Section 112 (to the Appellate Tribunal), subject to a 10% pre-deposit for first appeals. If successful, a refund of amounts paid, including via DRC-03, can be claimed under Section 54, within two years from the relevant date (e.g., date of payment or appellate order).

5. Remanded Proceedings and Options Post-Remand

When an order is remanded back to the adjudicating authority (e.g., due to the lack of a signature), the authority must re-adjudicate, typically by issuing a fresh SCN or order. During this period:

• Ongoing Proceedings: No appeal can be filed, as there is no appealable order. Applying for Section 128A benefits is also premature unless a new order is issued under Section 73. Refunds for DRC-03 payments may be pursued, but authorities may defer processing until adjudication concludes.
• Post-Fresh Order: Once a fresh order is issued, the taxpayer can:
• File an appeal under Section 107 within three months, challenging the demand.
• Apply for Section 128A benefits if the order is under Section 73 for FY 2017-18 to 2019-20, paying the tax by March 31, 2025, and filing Form GST SPL-02.

6. Treating DRC-03 Payments as Deposits and the Mafatlal Case

The Mafatlal Industries Ltd. v. Union of India case (1997) 5 SCC 536 is a landmark judgment by the Supreme Court of India on refunds under tax laws, particularly under the Central Excise Act. Its principles are relevant to GST and the treatment of payments as "deposits" versus "taxes paid." Key takeaways from the case include:

• Payments Under Protest: The Supreme Court held that payments made under protest or without admitting liability are not considered "taxes paid" but rather "deposits" held by the government. Such deposits are not subject to the statutory time limits for refund claims (e.g., Section 11B of the Central Excise Act, analogous to Section 54 of the CGST Act) if the payment is later found to be unjustified.
• Unjust Enrichment: Refunds are subject to the principle of unjust enrichment, meaning the taxpayer must prove they have not passed on the tax burden to another party. However, for deposits made under protest, the focus is on the payment's characterization rather than its economic impact.
• Procedural Irregularities: If a payment is made in response to an invalid or void order (e.g., an unsigned order), it strengthens the argument that the payment is a deposit, as the underlying demand lacks legal sanctity.

In the context of GST, if the DRC-03 payment is classified as a deposit made "under protest" due to the unsigned order's invalidity, the two-year time limit under Section 54 may not apply, as the payment is not considered a tax payment. The Madras High Court and other judicial precedents have applied Mafatlal's principles to GST, holding that payments made under coercion or in response to procedurally defective orders are deposits, refundable without statutory time constraints, provided:

• The taxpayer explicitly indicated the payment was under protest (e.g., in writing or on the DRC-03 form).
• The payment was made under duress or due to an invalid order.
• The refund claim is filed promptly after the order is quashed or the demand is overturned, to avoid laches (unreasonable delay).

However, the GST framework imposes stricter procedural requirements than the Central Excise regime in Mafatlal. Section 54 and Rule 89 mandate refund applications within two years from the relevant date, and authorities may argue this applies even to deposits. The success of treating a DRC-03 payment as a deposit hinges on judicial interpretation and the specific facts of the case.

Analysis of the Scenario

Step 1: Challenging the Unsigned Order

The taxpayer can challenge the unsigned order as procedurally defective by:

• Filing a writ petition under Article 226 before the High Court, seeking to quash the order and requesting a fresh SCN or order.
• Alternatively, raising the issue before the Appellate Authority under Section 107, arguing the order is void.

Given judicial precedents, the unsigned order is likely to be quashed, with the case remanded to the adjudicating authority for re-adjudication.

Step 2: Claiming Payment as "Under Protest"

To establish the DRC-03 payment as "under protest," the taxpayer must demonstrate:

• The payment was made under duress (e.g., to avoid coercive actions or due to the unsigned order).
• Written communication indicating no admission of liability.
• The order's invalidity, compelling the payment to avoid harassment.

Per the Madras High Court and Mafatlal, such payments are deposits, not self-ascertained liabilities, strengthening the case for a refund if the demand is overturned.

Step 3: Treating the Payment as a Deposit to Bypass Time Limits

Under the Mafatlal case, if the DRC-03 payment is classified as a deposit made "under protest" in response to an unsigned (and thus invalid) order, the two-year time limit under Section 54 may not apply. The taxpayer can argue:

• The payment was not a tax payment but a deposit, as it was made under protest due to the order's lack of legal sanctity.
• The unsigned order's invalidity supports treating the payment as a deposit, as there was no valid demand to justify the payment.
• The Mafatlal principle applies, allowing refunds of deposits without statutory time limits, provided the claim is filed promptly after the order is quashed or the demand is overturned.

To succeed, the taxpayer must:

• Provide evidence of protest (e.g., written correspondence or DRC-03 annotations).
• File a refund application in Form GST RFD-01, citing the payment's status as a deposit and referencing the quashed order.
• Act promptly to avoid laches, as courts may deny refunds for unreasonable delays even for deposits.

However, tax authorities may contest this, arguing that Section 54's time limit applies to all refund claims under GST, including deposits. The outcome depends on judicial interpretation, and legal advice is crucial to navigate this issue.

Step 4: Options After Remand and Receipt of Fresh Order

During remanded proceedings:

• Ongoing Proceedings: No appeal can be filed, as there is no appealable order. Section 128A applications are premature unless a new order is issued under Section 73. Refunds for DRC-03 payments may be pursued as deposits under Mafatlal, but authorities may defer processing until adjudication concludes, citing the ongoing case. The taxpayer should file a refund application under Section 54, supported by evidence of protest and the unsigned order's invalidity, to preserve the claim.
• Post-Fresh Order: Once a fresh order is issued, the taxpayer can:
• File an Appeal: Under Section 107 within three months, challenging the demand, with a 10% pre-deposit.
• Apply for Section 128A Benefits: If the order is under Section 73 for FY 2017-18 to 2019-20, pay the tax by March 31, 2025, and file Form GST SPL-02 within three months from March 31, 2025, withdrawing any appeals.

Step 5: Refund Post-Remand or Appeal

• Refund During Remanded Proceedings: Claiming a refund of the DRC-03 payment as a deposit during ongoing proceedings is possible under Mafatlal, especially if the unsigned order is quashed. The taxpayer must file Form GST RFD-01 within a reasonable time after the order is quashed, citing the payment's status as a deposit made under protest. Authorities may resist, arguing the case is unresolved, but judicial precedents support refunds for deposits made under invalid orders. The two-year limit under Section 54 may not apply if the payment is clearly a deposit, but prompt filing is essential to avoid laches.
• Refund After Appeal or Section 128A: If an appeal overturns or reduces the demand, a refund of tax, interest, and penalty paid via DRC-03 can be claimed under Section 54 within two years from the appellate order's date, unless treated as a deposit under Mafatlal. If Section 128A benefits are availed, no refund of interest or penalties is available, but excess tax paid can be refunded if the demand is reduced. The refund application must include:
• DRC-03 payment details and evidence of protest.
• The quashed unsigned order, fresh order, or appellate decision.
• Payment challans and correspondence with authorities.

The refund process is subject to scrutiny, and the proper officer may issue a show-cause notice, requiring a timely response.

Challenges and Considerations

1. Time Limits and Mafatlal: While Mafatlal supports treating payments under protest as deposits exempt from statutory time limits, GST authorities may insist on Section 54's two-year limit. Judicial intervention may be needed to resolve this conflict.
2. Proof of Protest: Clear documentation of protest is critical to classify the payment as a deposit. Without it, authorities may treat it as a voluntary tax payment, subjecting it to Section 54's time limit.
3. Section 128A Limitations: The waiver does not cover refunds of interest or penalties already paid, limiting its utility unless the tax demand is challenged.
4. Ongoing Proceedings: Refunds during remanded proceedings are uncertain, as authorities may defer processing. The Mafatlal principle strengthens the case but requires prompt action.
5. Procedural Compliance: Timely filing of appeals, Section 128A applications, and refund claims is essential. For deposits, avoiding laches is critical to secure judicial relief.
6. Judicial Interpretation: Outcomes depend on case-specific facts and courts' application of Mafatlal to GST, necessitating legal expertise.

Conclusion

A taxpayer who paid tax, interest, and penalty via Form GST DRC-03 after receiving an unsigned order can challenge the order's validity, seek its quashing, and have the case remanded for re-adjudication. By establishing the payment as made "under protest," the taxpayer can treat it as a deposit, potentially bypassing the two-year refund time limit under Section 54, as supported by the Mafatlal Industries case. During remanded proceedings, a refund may be pursued as a deposit, though authorities may defer processing until adjudication concludes. After a fresh order, the taxpayer can file an appeal under Section 107 or apply for Section 128A benefits if applicable, with refunds possible if the demand is overturned or reduced. Prompt action, robust documentation, and legal guidance are crucial to navigate procedural complexities, leverage Mafatlal's principles, and secure a favorable outcome in GST dispute resolution.