2025 (4) TMI 1151 - HC - GST

Supreme Court Strikes Down Unlawful Recovery of Rs. 50,330 from Taxpayers' Electronic Ledgers Under GST Section 112(8)

SC ruled that recovery of Rs. 50,330/- from taxpayers' electronic ledgers was unlawful after mandatory pre-deposit was made under Section 112(8) of GST ... Recovery of amounts from the petitioners' electronic cash and credit ledgers after the petitioners had deposited the mandatory pre-deposit under Section 112(8) of the Central/West Bengal Goods and Services Tax Act, 2017 - HELD THAT:- Having regard to the provisions contained in Section 112 (8) of the said Act and the fact that that petitioners’ right to prefer an appeal before the Appellate Tribunal is subsisting which the petitioners could not exercise by reasons of the Appellate Tribunal not being constituted and also noting that the petitioner had deposited 10 per cent of the additional amount of tax in dispute in addition to the amount already deposited while preferring the appeal under Section 107 (6) of the said Act, and with regard to the circular dated 11th September, 2024, instead of seeking response from the respondents whether any amount has already been recovered from the petitioners in the manner as aforesaid, the matter can be disposed of by directing the respondents themselves to consider whether the aforesaid recovery as disclosed by the petitioners through the copy of the electronic liability ledger for the tax period 1st January, 2025 to 11th January, 2025 has been made, and in the event it is found that the respondents have deducted the aforesaid amount in respect of the tax period April, 2022 to March, 2023 to forthwith recredit the same to the respective cash/credit ledger of the petitioners so that the same is reflected in the electronic liability ledger of the petitioners for the month of May, 2025. Conclusion - The recovery of Rs. 50,330/- from the petitioners' electronic cash and credit ledgers is unlawful. The respondents were directed to verify the recovery and re-credit the amounts forthwith. Without going into the merits of the matter, the writ petition stands disposed of. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court in this matter are:Whether the recovery of amounts from the petitioners' electronic cash and credit ledgers after the petitioners had deposited the mandatory pre-deposit under Section 112(8) of the Central/West Bengal Goods and Services Tax Act, 2017 (the 'said Act') and had intimated their intention to file an appeal before the Appellate Tribunal, was lawful and in accordance with the statutory provisions and applicable circulars.Whether the respondents were entitled to proceed with recovery proceedings despite the petitioners having complied with the pre-deposit requirements and the Appellate Tribunal not being operational.The appropriate remedy and directions regarding the alleged unauthorized recovery of amounts aggregating to Rs. 50,330/- from the petitioners' electronic liability ledger.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Legality of Recovery after Pre-Deposit and Intimation of AppealRelevant legal framework and precedents: The matter revolves around the provisions of the Central/West Bengal Goods and Services Tax Act, 2017, specifically Sections 73 (assessment and demand), 107 (appeal to appellate authority), 112 (appeal to Appellate Tribunal), and 143 of the Finance (No. 2) Act, 2024. Section 112(8) mandates a mandatory pre-deposit of 10% of the disputed tax amount for maintaining an appeal before the Appellate Tribunal. Additionally, circulars dated 11th July, 2024 by the Central Board of Direct Taxes and Customs and the corresponding West Bengal Government Circular no. 17/2024 dated 11th September, 2024 provide administrative guidance that no further recovery should be made once the required pre-deposit is made.Court's interpretation and reasoning: The Court noted that the petitioners had initially deposited the pre-deposit of Rs. 35,316/- as required under Section 107(6) for filing an appeal against the order dated 24th November, 2023. Upon dismissal of the appeal by the appellate authority on 24th December, 2024, the petitioners then intimated their intention to file an appeal before the Appellate Tribunal, which was not yet operational. In compliance with Section 112(8), the petitioners made an additional pre-deposit of 10% of the disputed tax amount (Rs. 35,316/-). The Court emphasized that the petitioners had followed the statutory procedure meticulously, including the additional deposit.Key evidence and findings: The petitioners produced a printout of their electronic liability ledger for the period 1st January to 11th January, 2025, showing that despite the deposits, the respondents had recovered Rs. 342/- from the cash ledger and Rs. 49,988/- from the credit ledger, totaling Rs. 50,330/-. This recovery was in respect of the disputed tax period April 2022 to March 2023.Application of law to facts: The Court observed that the recovery was contrary to the statutory provisions and circulars which prohibit further recovery once the mandatory pre-deposit is made and an appeal is pending before the Appellate Tribunal. The fact that the Appellate Tribunal was not yet constituted did not deprive the petitioners of their right to appeal or the protection against recovery during the pendency of such appeal. The Court found the recovery to be 'illegal and arbitrary.'Treatment of competing arguments: The State respondents, through their counsel, acknowledged that ordinarily no further recovery is permissible once the pre-deposit is made, but stated that they had not yet received instructions in the matter. The Court, therefore, did not require a detailed response from the respondents and proceeded on the basis of the established legal position and the petitioners' evidence.Conclusions: The Court concluded that the recovery of Rs. 50,330/- from the petitioners' electronic ledgers was not justified under the law and that the respondents must verify the recovery and restore the amounts if recovered.Issue 2: Appropriate Remedy and Directions Regarding RecoveryRelevant legal framework and precedents: The Court relied on the statutory provisions of the said Act, particularly Section 112(8) and Section 143 of the Finance (No. 2) Act, 2024, and the circulars issued by the Central Board of Direct Taxes and Customs and West Bengal Government.Court's interpretation and reasoning: The Court observed that since the petitioners had complied with the statutory pre-deposit requirements and the appeal before the Appellate Tribunal was subsisting (albeit not exercisable due to non-constitution of the Tribunal), the respondents should not have proceeded with recovery. The Court found it appropriate to direct the respondents to ascertain whether the recovery had indeed been effected and, if so, to immediately re-credit the amounts to the petitioners' respective electronic cash and credit ledgers.Key evidence and findings: The electronic liability ledger printout was the primary evidence demonstrating the recovery. The Court relied on this to issue directions without delving into the substantive merits of the tax demand itself.Application of law to facts: The Court applied the principle that a taxpayer's right to appeal and protection from recovery during the pendency of appeal is a substantive right, which cannot be undermined by premature or unauthorized recovery actions.Treatment of competing arguments: The Court did not entertain detailed submissions from the respondents as the issue was straightforward and governed by clear statutory and circular provisions.Conclusions: The Court disposed of the writ petition with directions to the respondents to verify and, if found recovered, to re-credit the amounts to the petitioners' ledgers so that the electronic liability ledger reflects the correct position by May 2025.3. SIGNIFICANT HOLDINGSThe Court held:'Having regard to the provisions contained in Section 112 (8) of the said Act and the fact that the petitioners' right to prefer an appeal before the Appellate Tribunal is subsisting which the petitioners could not exercise by reasons of the Appellate Tribunal not being constituted and also noting that the petitioner had deposited 10 per cent of the additional amount of tax in dispute in addition to the amount already deposited while preferring the appeal under Section 107 (6) of the said Act, and with regard to the circular dated 11th September, 2024, I am of the view that ... the respondents themselves [should] consider whether the aforesaid recovery ... has been made, and in the event it is found that the respondents have deducted the aforesaid amount ... to forthwith recredit the same to the respective cash/credit ledger of the petitioners so that the same is reflected in the electronic liability ledger of the petitioners for the month of May, 2025.'Core principles established include:The statutory requirement of pre-deposit under Section 112(8) protects a taxpayer from further recovery during the pendency of an appeal before the Appellate Tribunal, even if the Tribunal is not yet operational.Recovery of tax amounts after compliance with pre-deposit requirements and proper intimation of appeal is illegal and arbitrary.The administrative circulars reinforce the statutory protection against recovery once pre-deposit is made.Where unauthorized recovery has occurred, the proper remedy is restoration of the amounts to the taxpayer's electronic ledgers.Final determinations:The recovery of Rs. 50,330/- from the petitioners' electronic cash and credit ledgers was unlawful.The respondents were directed to verify the recovery and re-credit the amounts forthwith.The writ petition was disposed of with these directions, without adjudicating the substantive tax liability issue.