Recovery of CGST before appeal period expiry is a mistake; refund with interest ordered under relevant statute

The HC held that recovery of CGST before the expiry of the appeal filing period was made by mistake. The respondent was directed to rectify the error and refund or reverse the amount to the petitioners' account, along with applicable interest under the statute. The refund must be completed by 26.07.2025. The petition was disposed of accordingly.

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ISSUES:

Whether recovery of CGST demand before expiry of the three-month period for filing an appeal under Section 107 of the CGST Act is permissible without recording reasons.Whether recovery of more than 10% of the tax liability fixed under a Section 74 CGST Act order without compliance with procedural safeguards violates the petitioner's rights.Whether an amount recovered inadvertently by the tax authorities must be refunded or reversed to the account from which it was taken.Whether the amount recovered by mistake can be treated as deposit for the purpose of filing an appeal under Section 107 of the CGST Act.The scope of the Assistant Commissioner's power to rectify mistakes in recovery under the CGST Act.

RULINGS / HOLDINGS:

The Court held that recovery of demanded CGST before the expiry of the three-month limitation period for filing an appeal under Section 107 of the CGST Act, without recording reasons, is improper and prejudicial to the petitioner's right to assail the demand.The recovery of more than 10% of the tax liability fixed under the order dated 01.05.2025 was effected "without recording any reason," which is contrary to the statutory scheme and thus not justified.The Court recognized that the Assistant Commissioner admitted that the recovery was made "by mistake" and directed that the amount so recovered "has to be refunded/reversed to the account wherefrom it was recovered."The amount recovered inadvertently cannot be treated as an admitted deposit for the purpose of filing an appeal, as the departmental portal did not accept the appeal due to non-recognition of the recovered amount as a deposit, thereby frustrating the petitioner's right to appeal.The Court directed the respondent to take "necessary action for rectification of mistake" and refund/reverse the amount along with interest "as provided/permissible under the Statute" by a specified date, emphasizing the obligation of tax authorities to rectify errors promptly.The Court explicitly refrained from expressing any opinion on the merit of the demand raised under the Section 74 order, clarifying that the demand remains subject to the final outcome of any appeal or statutory remedy filed by the petitioner.

RATIONALE:

The Court applied the statutory framework under the Central Goods and Services Tax (CGST) Act, specifically Sections 74 (determination of tax not paid or short paid) and 107 (appeal to Appellate Authority), which provide a three-month limitation period for filing appeals and require certain procedural safeguards before recovery.The Court emphasized the principle that recovery of tax demands before the expiry of the appeal period must be accompanied by recorded reasons, to protect the taxpayer's right to challenge the demand.The Court relied on the Assistant Commissioner's own admission of inadvertent recovery to justify the direction for refund/reversal, underscoring the doctrine that mistaken recovery should be rectified to prevent injustice.The judgment reflects a doctrinal insistence on procedural fairness in tax recovery processes and the necessity for tax authorities to act in accordance with law, avoiding unnecessary litigation and resource wastage.No dissent or concurring opinion was recorded; the Court exercised caution by not ruling on the substantive correctness of the tax demand, leaving that issue to be determined through statutory remedies.

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