2025 (9) TMI 1328 - HC - GST

Deemed stay under Section 107 GST bars authorities from attaching or restraining taxpayer bank funds after 10% pre-deposit

Wingtech Mobile Communications (India) Pvt. Ltd. Versus Deputy Commissioner St I, Tirupati - III Circle, Assistant Commissioner ST, Tirupati - III Circle, The Chief Commissioner Of State Tax, The State Of Andhra Pradesh and HSBC Bank, Chennai

HC held that once the deemed stay under Section 107 of the GST Act arises on payment of the 10% pre-deposit, authorities cannot provisionally attach or ... Provisional attachment of bank account of the petitioner - attachment of fund or in any manner kept under restraint by the authorities, after payment of 10% of the disputed tax has been made, in the course of the filing of the appeal against the order of assessment - HELD THAT:- There are no provision which would permit such a course of action once a deemed stay comes into play, under the provisions of Section 107 of the GST Act - Another factor that needs to be taken into account is the undertaking of the petitioner to retain the refunded amount as well as any further sale proceedings in the bank account of the petitioner till the appeal is disposed of. The undertaking which was sought to be given by the petitioner, was an undertaking not to take out the funds which would be returned to the petitioner. However, to ensure that the interests of the revenue are also safeguarded, it would be appropriate that the petitioner gives an undertaking to the 3rd respondent that the funds which would be refunded to the petitioner, would be kept in the account of the petitioner till the disposal of the appeal, and subsequently, to give another undertaking to the effect that as and when sale proceeds are received, the same will be kept in the account of petitioner in such a manner that the petitioner maintains a minimum balance of Rs. 245 crores, after adjusting the same against the sum of Rs. 24.4 crores which is deemed to have been paid as pre-deposit under Section 107 of the GST Act. The petitioner shall file an undertaking that the petitioner shall maintain all the amounts refunded by the 3rd respondent, out of Rs. 170 crores, which had been recovered from the petitioner under the order dated 19.08.2025, till the disposal of the appeal filed by the petitioner against the order, dated 02.08.2025 - Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether a recovery and attachment effected under Section 79(1)(c) and Section 83 of the AP GST Act can be maintained after payment or deeming of payment of the statutory pre-deposit of 10% under Section 107(6) once an appeal is filed. 2. Whether a recovery notice issued within 90 days (and consequent provisional attachment) prior to the expiry of any statutorily prescribed period for initiating recovery is without jurisdiction or contrary to Section 107(6) of the AP GST Act. 3. Whether authorities can impose a condition requiring retention of a specified minimum balance from future sale proceeds (post-refund) in the taxpayer's bank account until disposal of appeals, and if so, on what basis and limits. 4. Whether the revenue may refuse refund of sums recovered (subject to undertaking) when the assessee offers an undertaking to keep refunded amounts and future sale proceeds in its bank account until disposal of appeal. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Maintenance of attachment/recovery after statutory pre-deposit (Section 107(6)) Legal framework: Section 107(6) provides that payment of the prescribed pre-deposit (10% of disputed tax) results in a deemed stay of recovery for the purposes of prosecuting an appeal against an assessment order. Precedent Treatment: No specific precedents were cited or relied upon in the judgment; the Court proceeded by statutory construction and application of the deeming provision. Interpretation and reasoning: The Court held that once the deemed stay under Section 107(6) comes into play by payment (or by deeming the pre-deposit to have been paid from amounts already recovered), there is no statutory provision permitting continued attachment or restraint of funds in a manner inconsistent with that deeming provision. The Court emphasized that the purpose of the deeming stay is to prevent further recovery measures inconsistent with the pre-deposit. Ratio vs. Obiter: Ratio - Where the statutory pre-deposit requirement under Section 107(6) is complied with (actual payment or deemed payment), authorities lack jurisdiction to continue to keep the assessee's funds under restraint beyond what is necessary to secure the pre-deposit. Conclusion: Attachments or restraints beyond what is consistent with the deemed pre-deposit are impermissible; the recovery already effected may be treated as including the statutory pre-deposit and further restraint must be justified by statute, which was not found here. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Validity of recovery/attachment timing and jurisdictional limits Legal framework: Sections 79 and 83 empower provisional attachment and recovery; Section 107(6) creates a deemed stay on recovery on compliance with pre-deposit; statutory timelines and limits inform the exercise of power. Precedent Treatment: No prior case law was applied; the Court assessed validity by reference to statutory text and interplay of provisions. Interpretation and reasoning: The Court observed that issuing recovery measures inconsistent with the deemed stay under Section 107(6) is beyond jurisdiction. The impugned recovery notice and provisional attachment - insofar as they produced results inconsistent with the statutory effect of the pre-deposit - could not be sustained. The Court noted the factual sequence: provisional attachment, assessment, recovery, and the consequent inability to file an appeal without pre-deposit, which the Court remedied by treating recovered funds as pre-deposit to permit appeal. Ratio vs. Obiter: Ratio - Recovery measures that negate or frustrate the statutory operation of Section 107(6) are not permitted; the authorities must respect the deeming operation once the pre-deposit is paid or deemed paid. Conclusion: The timing and continuation of recovery/attachment in the facts was impermissible to the extent that it defeated the statutory deeming effect of pre-deposit; remedial direction to treat recovered sum as pre-deposit and permit appeal was appropriate. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Authority to require retention of minimum balance from future sale proceeds Legal framework: Authorities may issue directions incidental to safeguarding revenue, but such directions must have statutory or principled basis and cannot nullify the effect of Section 107(6). Precedent Treatment: No authority was cited; Court assessed reasonableness and connection to safeguarding revenue. Interpretation and reasoning: The Court found the imposition of a condition requiring retention of a specified minimum balance (approximately Rs. 130/221/245 crores as described) from future sale proceeds to be arbitrary unless supported by adequate justification. However, balancing the revenue's interest and the assessee's right, the Court permitted conditional refund on provision of undertakings that would ensure sums necessary to secure the disputed demand (after accounting for the deemed pre-deposit) remain available until final adjudication. The Court tailored the requirement by converting the department's open-ended condition into a requirement for a specific undertaking: maintain refunded amounts and keep sale proceeds in the assessee's account to ensure an aggregate minimum balance corresponding to the disputed amount less the pre-deposit amount deemed paid. Ratio vs. Obiter: Ratio - Authorities may, as a matter of balancing interests, require adequate safeguards (such as undertakings to retain funds) but cannot impose arbitrary or open-ended restraints; any such condition must be reasonable, proportionate and tied to securing the disputed demand. Conclusion: The blanket condition originally imposed was impermissible as arbitrary; a more limited, undertaking-based condition (maintain specified balance reflective of the disputed demand after crediting the pre-deposit) is permissible to protect revenue interests while respecting the statutory deeming stay. ISSUE-WISE DETAILED ANALYSIS - Issue 4: Refusal to refund recovered sums absent undertakings Legal framework: Refund and de-attachment are subject to safeguarding the revenue; undertakings and conditions can be sought to secure future recoveries but must be reasonable and legally sustainable. Precedent Treatment: None cited; Court relied on principles of balance and statutory effect of pre-deposit. Interpretation and reasoning: The Court accepted that the department may reasonably require an undertaking to ensure funds remain available pending appeal; it rejected the contention that all refund must be refused if an undertaking is proffered. Instead, it directed that upon furnishing specified undertakings (to keep refunded amounts and subsequent sale proceeds in the account and maintain a quantified minimum balance reflecting the disputed demand less pre-deposit), the department shall release sums after retaining only the statutory pre-deposit portion. Ratio vs. Obiter: Ratio - Refusal to refund recovered amounts is not justified where a reasonable undertaking is offered that secures the revenue's interests; the proper course is conditional release upon receipt of such undertaking. Conclusion: Refund subject to reasonable, specific undertakings is mandated; department to release amounts retained beyond the statutory pre-deposit once undertakings are furnished. CONCLUDING DIRECTIONS (RATIO APPLIED) 1. The Court directed that the assessee shall furnish an undertaking to keep refunded sums (out of amounts recovered) in its bank account until the appeal is disposed of; upon such undertaking the department shall release funds after retaining the 10% pre-deposit. 2. For future sale proceeds referenced in the departmental order, the assessee shall undertake to maintain the sale proceeds in its bank account so as to ensure a quantified minimum balance (fixed in the order) until disposal of the appeal; the figures reflect adjustment for the deemed pre-deposit. 3. No order as to costs; miscellaneous petitions closed.