RECOVERY OF AMOUNTS UNDER THE GST LAW.

Taxing statutes incorporate the provisions for recovery of tax and other amounts due to the Government. Taxes are collected for public good. Recovery of tax amounts without delay ensures the Government with the required funds for providing public services. Recovery of arrears constitutes a crucial function of the Tax Department. Generally recovery of dues commences with the assessment proceedings and when the tax payer defaults. When can it be considered that the taxable person has defaulted? Section 78 of the CGST Act, 2017 provides that any amount payable by a taxable person in pursuance of an order passed under the said Act shall be paid by such person within a period of three months from the date of service of such order. On failure of such payment, recovery proceedings shall be initiated. However, as per the Proviso thereunder, where the proper officer considers it expedient in the interest of revenue, he may for reasons to be recorded in writing, require such taxable person to make such payment within such period less than a period of three months as may be specified by him. ‘Expedient’ according to Cambridge Dictionary, means ‘helpful or useful in a particular situation, but sometimes not morally acceptable’. Period of 3 months can be reduced only when it is expedient in the interest of revenue for reasons to be recorded in writing. Due to such conditions attached, action of the proper officer would be questionable on facts. Burden lies on the proper officer to substantiate his action. FORM GST DRC-07 is the summary of the order issued under section 52 or section 62 or section 63 or section 64 or section 73 or section 74 or section 74A or section 75 or section 76 or section 122 or section 123 or section 124 or section 125 or section 127 or section 129 or section 130 as per Rule 142 (5) of the CGST Rules, 2017. It specifies the amount of tax, interest and penalty as the case may be, payable by the person concerned. Under sub rule (6) of rule 142, FORM GST DRC-07 shall be treated as the Notice for recovery.

Where the taxable person filed an appeal under Section 107 of the CGST Act, 2017 and pays 10% of the disputed tax under sub-section 6 (b), the recovery proceedings for the balance amount including interest and penalty shall be deemed to be stayed, vide sub-section (7). However in the case of appeal filed against an order under sub-section (3) of section 129, amount equal to 25% of the penalty has to be paid, vide Proviso under sub-section (6). Where only penalty order has been passed without involving any demand of tax, a sum equal to 10% of the penalty has to be paid while filing appeal (sub-section (6)--vide Finance Act, 2025). Unless interim protection has been granted, mere filing of writ petition before the honourable High Court cannot prevent the proper officer from initiating recovery proceedings.

Tax Officers are armed with several modes of recovery. The CGST Act, 2017 and the S (UT) GST Acts, 2017 contain several provisions for recovering the amounts due under the respective Acts. For the sake of convenience, we deal hereunder with the provisions from the CGST Act, 2017 and the CGST Rules, 2017.

section 79 in Chapter XV (Demands and recovery) deals with ‘recovery of ‘tax’. However the sub-sections thereunder provide for recovery of the ‘amount’ payable by a person to the Government under the provisions of the Act or the Rules made thereunder. (See section 2 (84) for the definition of ‘person’). Sub-section (1) empowers the proper officer to proceed to recover the amount by one or more of the modes specified by the following clauses from the ‘person’ (defaulter):-

Deduction from the refunds to be made:- (a) Proper Officer or any other specified officer required by the proper officer may deduct the amount due from any money owing to the person. This has to be understood as deduction from the refunds to be made to the person.

Note: ‘Specified Officer’ is defined in the Explanation under Rule 143 of the Rules. Specified Officer is to be sent a letter in Form GST DRC-09 by the proper officer for the purpose of recovery.

Detaining and selling the goods of the person:- (b) Proper Officer or any other specified officer, who is required to recover the amount payable may detain and sell any goods belonging to the person, if such goods are under his control or under the control of the specified officer. Having control over the goods is important.

Note: Detailed procedure for selling the goods has been provided in Rule 144 of the Rules. Relevant forms are GST DRC-10, 11 and 12.

Rule 144A prescribes payment of penalty imposed under sub-section (1) of section 129 within fifteen days from the date of receipt of the copy of the order passed under sub-section (3) of section 129. Also prescribes the procedure for sale of goods or conveyance, in the event of failure to pay the penalty.

Recovery from the third party:- (c) Provides for issue of garnishee notice to a third party in writing from whom money is due or may become due or who holds or may subsequently hold money for or on account of the person to pay within the time specified in the notice, the amount due. Money payable shall be so much of it as is sufficient to pay the amount due. Amount cannot be recovered before the money becomes due or is held. If the person receiving the notice fails to make the payment, he shall be deemed to be a person in respect of the amount specified. Officer issuing notice can amend or revoke or extend the time for making payment. Detailed conditions from sub clause (i) to (vii) thereunder may be seen.

Note: Corresponding Rule 145 and the relevant forms are GST DRC-13 and 14.

Distraining and selling the movable or immovable property of the person:- (d) Proper officer may, as per the relevant rules, distrain any movable or immovable property belonging to or under the control of the person and detain the same until the amount payable is paid. If the amount due or cost of the distress or keeping of the property remains unpaid for a period of 30 days next after any such distress, he may sell the said property and adjust the sale proceeds including the costs of sale against the dues payable. Any surplus amount has to be refunded to the person.

Note: Detailed procedure may be seen in Rule 147 (movable and immovable property) and in Rule 151 (debts and shares). Notice for attachment and sale of immovable property /movable goods/shares under section 79 is in Form GST DRC -16. Notice for Auction of Immovable/Movable Property under section 79(1) (d) is in Form DRC-17.

Recovery under the Revenue Recovery Act:- (e) Provides for sending a certificate by the proper officer to the Collector of the district in which the person owns any property or resides or carries on his business or to any other officer, authorized by the Government for recovering the dues payable as if it were an arrear of land revenue.

Note: Rule 155 provides for procedure for recovery through land revenue authority. Certificate of action under clause (e) of sub-section (1) section 79 is in Form GST DRC-18.

Filing complaint before a Court:- (f) Notwithstanding anything contained in the CR.P.C., 1973, Proper Officer may file an application before the appropriate Magistrate with a prayer to recover from the person the amounts due as if it were a fine imposed by him.

Note: rule 156 prescribed Form GST DRC-19 as Application to the Magistrate for Recovery as Fine.

Encashing the Bond:- Sub-section (2)-- Where any bond or other instrument executed under the Actor any rules or regulations made thereunder provides that any amount due under such instrument may be recovered, it can be so recovered without prejudice to any other mode of recovery.

Rule 146:- Recovery through execution of a decree, etc:- Where any amount is payable to the defaulter in the execution of a decree of a civil court for the payment of money or for sale in the enforcement of a mortgage or charge, the proper officer shall send a request in Form GST DRC-15 to the said court and the court shall, subject to the provisions of the CR.P.C., 1908, execute the attached decree and credit the net proceeds for settlement of the amount recoverable.

Rule 157: Recovery from surety:- Where any person has become surety for the amount due by the defaulter, he may be proceeded against under Chapter XVIII of the Rules.

State/UT Officers to recover CGST:- Sub-section (3)—The Proper Officers of State Tax or Union Territory Tax may recover any amount of tax, interest or penalty under the CGST Act or the rules made thereunder, as if it were an arrear of State tax or UT tax and shall credit the amount so recovered to the account of the Central Government. Identical provision can be seen in the State and UT GST Acts, empowering the officers of Central Tax.

Proportionate credit:- Sub-section (4)—Where the amount recovered under sub-section (3) is less than the amount due to the Central Government and State Government, the amount to be credited to the account of the respective Governments shall be in proportion to the amount due to each such Government.

As per the Explanation under section 79, for the purposes of section 79, the word ‘person’ shall include ‘distinct persons’ as referred to in sub-section (4) or, as the case may be, sub-section (5) of section 25.

Section 81:- Transfer of property to be void in certain cases:- Any charge created on or parts with the property belonging to a person, after any amount has become due with the intention of defrauding the Government revenue, such charge or transfer shall be void as against any claim in respect of any tax or any other sum payable by the said person. However such charge or transfer shall not be void if it is made for adequate consideration, in good faith and without notice of the pendency of such proceedings under the Act or without notice of such tax or other sum payable by the said person, or with the previous permission of the proper officer, vide Proviso.

Section 82:- Tax to be first charge on property:- Tax, interest or penalty payable by a person to the Government shall be a first charge on the property of such taxable person or such person, notwithstanding anything to the contrary contained in any law for the time being in force, save as otherwise provided in the Insolvency and Bankruptcy Code, 2016.

Section 83:- Provisional attachment to protect revenue in certain cases:- Subject to certain conditions, for protecting the interest of the Government revenue, provisional attachment of any property, including bank account is permissible. Rule 159 prescribes the order of provisional attachment in FORM GST DRC-22. Against such attachment, the concerned person may file his objection in FORM GST DRC-22A. If satisfied, Commissioner may release such property from attachment by issuing an order in FORM GST DRC-23.

Section 80—Payment of tax and other amount in instalments:- Commissioner, on an application, is empowered to extend the time for payment or allow payment of any amount due under the Act, other than the amount due as per the liability self-assessed in any return by such person in monthly instalments not exceeding 24, subject to payment of interest under section 50 and subject to conditions and limitations as may be prescribed. However default in payment of any one instalment on the due date shall result in the whole outstanding balance payable without any further notice. Rule 158 prescribes FORM GST DRC-20 for application seeking extension of time. Order for acceptance/rejection of application for deferred payment / payment in instalments is issued in FORM GST DRC-21.

Rule 152 provides for attachment of property in custody of courts or public officer. Proper Officer has to send the order of attachment to such court or officer requesting that such property, and any interest or dividend becoming payable thereon, may be held till the recovery of the amount payable.

Rule 153 provides for attachment of interest in partnership.

Liability in case of company in liquidation is specified in Section 88. Rule 160 provides for recovery from the Company in liquidation. The Commissioner shall notify the liquidator for the recovery of any amount representing tax, interest, penalty or any other amount due in FORM GST DRC-24.

Rule 161 provides for continuation of recovery proceedings, where there is change in the amounts, due to enhancement or reduction on account of appeal order or revision proceedings. For this purpose intimation in FORM GST DRC-25 has to be issued to the person.

NOTE:- See section 2 (91) for the definition of ‘proper officer’. ‘Proper officer’ mentioned in the above provisions is not always the jurisdictional assessing officer. For discharging various functions, different ‘proper officers’ are assigned the functions, provision-wise. Please see the relevant Notification under the CGST Act, 2017 as well the Notification from your State/UT.

Following case law may be usefully referred to:-

Where proper officer had issued notice for recovery of amounts in terms of section 79 (1) (c) (i) of the TNGST Act, 2017, he has discretion to extend time for making payment under section 79 (1) (c) (iv) of the said Act - ACP Business Enterprises (P.) Ltd. v. Secretary to Government - [2024 (2) TMI 289 - MADRAS HIGH COURT]

In Seema Gupta v Principal Commissioner of GST and others (2024 (6) TMI 1152. Honourable Delhi High Court held that a provisional attachment of a bank account under section 83 of the CGST Act, 2017 ceases to be effective after one year, if no new attachment order is issued.

In M/s. Radha krishan Industries v State of Himachal Pradesh and others (2021 (4) TMI 837), honourable Supreme Court ruled that the power to order a provisional attachment of the property of the taxable person including a bank account is draconian in nature and the conditions which are prescribed by the statute for a valid exercise of the power must be strictly fulfilled.

In Janaseva Sahakari Bank Ltd v State of Maharashtra (2024 (8) TMI 1201), honourable Bombay High Court held that secured creditor is having preference over the GST dues. Please go through full text of the judgment for understanding the specific facts.

State Tax Officer v Rainbow Papers Limited (2022 (9) TMI 317 - Supreme Court). Judgment by the Honourable Supreme Court relating to section 48 of the Gujarat VAT Act, 2003.

Relevant circulars:-

1. Instruction No. 1/2024-GST dated 30.5.2024-CBIC (interest of revenue)

2. Circular No. 224/18/2024-GST dated 11.7.2024 (Guidelines for recovery of outstanding dues, in cases wherein first appeal has been disposed of, till Appellate Tribunal comes into operation.)

3. Circular No. 1081/02/2022-CX dated 19.1.2022—Master circular on recovery and write off of arrears of revenue.

4. Circular No. 134/04/2020-GST dated 23rd March, 2020—Corporate Insolvency Resolution process.

5. Circular No. 187/19/2022-GST dated 27.12.2022-- Treatment of statutory dues under the GST law in respect of the taxpayers for whom the proceedings have been finalised under Insolvency and Bankruptcy Code, 2016.

--00--