2025 (10) TMI 961 - HC - GST

Liens under Section 79 unlawfully imposed after tax paid; Section 62(2) deems assessments withdrawn and recovery barred

HC held that liens placed on the petitioner's bank accounts under Section 79 were unlawful. The petitioner, after delayed filing, submitted returns and ... Unlawful recovery orders passed u/s 79 of UPGST Act - creation of a lien and freezing of bank accounts under Section 79 of the Act is permissible or not - part of the summary of demand in respect of the assessment orders passed by Respondent No. 2 which were deemed to have been withdrawn as per the Provision of Section 62(2) of the Act - Petitioner had already filed all requisite returns and paid the due tax which is evident from GSTR 3B - withdrawal of best judgment assessment orders passed u/s 62(1) of the Act - no amount was legally 'payable' by the Petitioner on the date of initiation of recovery - invocation of Section 79 is ultra vires the Act or not - HELD THAT:- There was a delay in filing of the returns and payment of taxes by the petitioner. However, upon receipt of the order u/s 62(1) of the Uttar Pradesh Goods and Services Tax Act, 2017, the petitioner filed his returns and made payment of the dues. In some cases, the return was filed within a period of 60 days and the taxes were paid within a period of 60 days. These entire proceedings took place in the year 2023–2024. Subsequently, liens have been created on the bank account of the petitioner vide orders dated 14.07.2025, 15.09.2025, and 19.09.2025. It is clear that these liens have been created after more than a year of the petitioner having paid his taxes. Furthermore, the deeming fiction under Section 62(2) of the Uttar Pradesh Goods and Services Tax Act, 2017 would apply, and any further demands should have been withdrawn by the authorities. The action of creating a lien on the bank account of the petitioner is extremely harsh and cannot be countenanced - Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether best-judgment assessment orders passed under Section 62(1) become statutorily withdrawn on compliance by the assessee within the period prescribed under Section 62(2), thereby precluding reliance on such orders for coercive recovery. 2. Whether creation of a lien and freezing of bank accounts under Section 79 of the Act is permissible where the taxpayer has subsequently filed the requisite returns and paid tax such that the demand is deemed withdrawn under Section 62(2). 3. Whether the Department may initiate or continue recovery proceedings under Section 79 in respect of amounts that were discharged by the taxpayer after issuance of a best-judgment assessment and, if so, the proper procedure for raising any remaining demands (including interest or penalty). 4. Whether, on the facts of the case, the impugned lien and recovery directions are disproportionate or contrary to the statutory scheme. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Effect of compliance under Section 62(2) on best-judgment assessment under Section 62(1) Legal framework: Section 62(1) empowers best-judgment assessment where returns are not filed; Section 62(2) provides that if the assessee subsequently furnishes returns and pays tax within the period specified, the assessment under Section 62(1) shall be deemed to have been withdrawn. Precedent Treatment: No prior judicial precedents were cited or relied upon in the judgment; the Court proceeded on statutory text and undisputed factual matrix. Interpretation and reasoning: The Court treated Section 62(2) as creating a statutory deeming fiction that negates the continuing existence of a best-judgment assessment once the taxpayer files the return and pays the tax within the prescribed timeframe. Where the statutory condition is fulfilled, the underlying assessment cannot be used as a basis for further coercive steps taken thereafter. Ratio vs. Obiter: Ratio - The Court concluded that compliance with Section 62(2) withdraws the assessment under Section 62(1) and thereby removes its potency for subsequent recovery actions; this is central to the decision. Conclusions: The Court held that the best-judgment assessment orders stood statutorily withdrawn on the taxpayer's filing of returns and payment of tax within the relevant period, precluding reliance on those orders for coercive recovery. Issue 2 - Legality of invoking Section 79 recovery powers after deemed withdrawal under Section 62(2) Legal framework: Section 79 authorizes recovery measures (including attachment of bank accounts) for amounts 'payable' under the Act. The interplay between Sections 62(2) and 79 concerns whether a deemed-withdrawn assessment yields a lawful demand that is 'payable' and hence recoverable. Precedent Treatment: No authorities were cited; the Court applied statutory interpretation to reconcile recovery powers with the deeming provision. Interpretation and reasoning: The Court reasoned that once an assessment is statutorily deemed withdrawn under Section 62(2), there is no extant tax demand arising from that assessment which would constitute an amount 'payable' and legitimately recoverable under Section 79. Therefore, invoking Section 79 on the basis of an assessment deemed withdrawn is ultra vires the statutory scheme and amounts to impermissible coercion. Ratio vs. Obiter: Ratio - It is a binding principle in this decision that recovery under Section 79 cannot be predicated on an assessment deemed withdrawn under Section 62(2). Conclusions: The Court held the creation of lien and freezing of bank accounts pursuant to Section 79, based on the deemed-withdrawn assessments, to be unlawful and directed rescission of the lien and immediate defreezing of the accounts. Issue 3 - Proportionality and timing of recovery steps (practical relief and limits) Legal framework: Section 79 permits coercive recovery but subject to existence of a payable demand; general principles of administrative law require proportionality and lawful basis for measures like bank liens. Precedent Treatment: No prior proportionality authorities were cited; the Court relied on the undisputed chronology and statutory operation of Section 62(2). Interpretation and reasoning: The Court characterized the post-compliance lien (created over a year after tax payment) as 'extremely harsh' and not countenanced where statutory withdrawal had occurred. The remedy directed was confined and prospective: the lien was to be countermanded and the bank directed to unfreeze accounts immediately. However, the Court preserved the Department's right to proceed lawfully if any other demand (e.g., interest or penalty) remained outstanding by issuing a fresh show-cause notice in accordance with law. Ratio vs. Obiter: Ratio - The relief ordering immediate rescission of coercive measures taken after deemed withdrawal, coupled with the requirement that any outstanding demands be raised by fresh procedure, is central to the decision. Conclusions: The Court ordered countermanding of the lien and immediate defreezing of accounts, while permitting the Department to initiate fresh proceedings for any legitimately recoverable amounts following due process. Issue 4 - Scope for recovery of other demands and procedural safeguards Legal framework: Recovery for unpaid taxes, interest, or penalties must be based on a subsisting demand and follow statutory procedure, including issuance of notice and opportunity to be heard where applicable. Precedent Treatment: Not applicable; treated as matter of statutory procedure and administrative fairness. Interpretation and reasoning: The Court clarified that its direction did not immunize the petitioner against legitimate demands not discharged by the taxpayer; rather, it emphasized that the Department must issue a fresh show-cause notice and follow statutory process before invoking recovery mechanisms under Section 79 for any such demands. Ratio vs. Obiter: Ratio - The requirement that any subsequent demands be raised by appropriate notice and procedure before using coercive recovery is a binding component of the order. Conclusions: The Department was left free to raise other demands (including interest or penalty) by issuing a fresh show-cause notice and following law; the Court's relief is limited to rescinding coercive action predicated on assessments deemed withdrawn. Overall Conclusion The Court held that where the taxpayer filed returns and paid the due tax within the period contemplated by Section 62(2), the best-judgment assessments under Section 62(1) stood deemed withdrawn and could not serve as the basis for coercive recovery under Section 79; the lien and freezing of bank accounts instituted after such compliance were quashed and the accounts ordered to be defrozen, subject to the Department's right to pursue any other legitimate demands by following statutory procedure. No prior authority was applied or overruled; the decision rests on statutory interpretation and principles of proportionality and lawful procedure.