Adjustment of tax liability against input tax credit requires admitted liability; recovery set aside and interest refunded.

Adjustment of tax liability against available input tax credit was scrutinised: Section 75(12) mechanism applies only where a registered person has clearly disclosed and thereby admitted a tax liability in returns, permitting recovery without adjudication; absent such admission, misuse of input tax credit permits initiation of adjudicatory proceedings under statutory assessment provisions, after which quantified tax, interest, penalty and late fees may be recovered, and only then coercive steps may follow. The recovery initiated without completion of the adjudicatory process was set aside, and interest amounts recovered from the petitioners banker were directed to be refunded.

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Issues: Whether the revenue can resort to coercive recovery under Section 79(1)(c) of the GST Act, 2017 to collect interest and tax alleged to be unpaid on account of misuse of input tax credit, without first completing an adjudicatory process under Sections 56/73/74 of the GST Act; and whether Section 75(12) permits such recovery in the absence of a clear admission of tax liability in returns filed under Section 39.

Analysis: The statutory scheme requires that tax liabilities and the periods for payment are to be declared by the registered person and, where discrepancies or misuse of input tax credit are alleged, the authorities must initiate adjudicatory proceedings under the relevant provisions (including Sections 56, 73 and 74) and give opportunity of hearing to quantify tax, interest and penalties. Section 75(12) applies where there is an amount of self-assessed tax declared in returns under Section 39 which remains unpaid; it permits recovery under Section 79 where there is a clear admission of liability in the return. Wrong or improper utilisation of input tax credit does not constitute an admitted tax liability that authorises immediate coercive recovery under Section 79 without prior adjudication. The facts showed no prior adjudicatory order quantifying tax or interest; recovery was effected by invoking Section 79(1)(c) and amounts were collected from the petitioner's banker including alleged interest, without such adjudication.

Conclusion: The recovery proceedings initiated under Section 79(1)(c) and the collection of interest from the petitioner's banker are set aside. The respondent authorities are directed to refund the interest payments recovered from the bank. The respondents remain free to initiate appropriate adjudicatory action, if necessary, to determine any claim for interest on delayed payments.

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