Section 78 GST Recovery Must be by Principal Commissioner not State Tax Officer

Tvl. Balaiah Venkatesh Vs State Tax Officer (Circle) (Madras High Court)

In the case of Tvl. Balaiah Venkatesh Vs State Tax Officer, the Madras High Court addressed a writ petition filed by the petitioner challenging the recovery of Rs.10,65,000 from their bank account. The petitioner argued that recovery actions should not have commenced until after the three-month period allowed for filing a statutory appeal under Section 79 of the CGST Act, 2017. Furthermore, they contended that under Section 78, only the Principal Commissioner or Commissioner of Central Tax has the authority to initiate such recovery proceedings if deemed necessary before the three-month period, which was not followed in this case. The court noted that the recovery action was taken by a State Tax Officer rather than the authorized Principal Commissioner, violating statutory procedures. Consequently, the court ordered the State Tax Officer to refund the recovered amount and ensure compliance with the correct procedures for future actions. The petition was thus disposed of, directing the refund and proper handling of the appeal process in line with statutory requirements.

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

By this writ petition, the petitioner seeks a direction to the respondent to restore the sum of Rs.10,65,000/-, which was recovered from the petitioner’s bank account pursuant to order in original dated 03.04.2024. Upon issuance of the above mentioned order in original, the petitioner presented a statutory appeal on 21.05.2024, which is within the prescribed limitation period of three months. Meanwhile, bank attachment notice dated 14.05.2024 was issued by the respondent herein. Pursuant thereto, a sum of Rs.10,65,000/- was debited from the petitioner’s account in the Federal Bank on 22.05.2024. After submitting application dated 28.05.2024 for refund of such amount, the present writ petition was

2. Learned counsel for the petitioner submits that, in due course, recovery is permissible in terms of Section 79 of applicable GST statutes only upon expiry of the three month period within which the tax payer is entitled to lodge a statutory appeal. As an exception, if recovery is necessary in view of revenue threat, recovery action may be taken under the proviso to Section 78 of applicable GST enactments by the jurisdictional Principal Commissioner / Commissioner of Central Tax. By referring to Instruction No.1/2024 – GST dated 30.05.2024, which was issued by the Central Board of Indirect Taxes and Customs (CBIC), he submits that clear instructions were issued with regard to the manner of initiation of recovery proceedings under Sections 78 and 79. Learned counsel contends that the statutory prescription was contravened in this case.

3. Mr. T.N.C.Kaushik, learned Additional Government Pleader, notice for the respondents. He submits that the petitioner’s registration was cancelled and, therefore, recovery measures were initiated even prior to the expiry of the three month time limit.

4. Section 78 is as under:

“78. Initiation of recovery proceedings Any amount payable by a taxable person in pursuance of an order passed under this Act shall be paid by such person within a period of three months from the date of service of such order failing which recovery proceedings shall be initiated:

PROVIDED that where the proper officer considers it expedient in the interest of revenue, he may, for reasons to be recorded in writing, require the said taxable person to make such payment within such period less than a period of three months as may be specified by him.”

5. The proviso to Section 78 prescribes that the proper officer may initiate recovery proceedings before expiry of three months if it is expedient in the interest of revenue for reasons to be recorded in Learned Additional Government Pleader has been unable to on record any decision in accordance with the proviso to on 78 along with reasons for such decision. In this connection, it is pertinent to notice that jurisdiction has been conferred on the jurisdictional Principal Commissioner / Commissioner as regards CGST. The recovery action, in this case, was taken by the State Tax Officer. For both these reasons, the recovery measure is unsustainable.

6. In these circumstances, W.P.No.17194 of 2024 is disposed of by directing the respondent to refund the sum of Rs.10,65,000/- by considering the petitioner’s application dated 28.05.2024 and disposing of the same within three months from the date of receipt of a copy of this order. No costs.