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Issuance of recovery notices under GST by the Department have become very common now a days. Many taxpayers have received such notices for recovery of tax dues just after passing of Order by the adjudicating officers and thus, creating a havoc among taxpayers who are generally in process of filing an Appeal against the Order. This article provides a detailed analysis of the legal framework governing GST recovery proceedings, the recent guidelines issued by the Central Board of Indirect Taxes and Customs (CBIC), and practical advice for taxpayers facing such notices.

It is noteworthy that section 78 of CGST Act 2017 (hereinafter referred to as Act), states that any amount payable by a taxable person in pursuance of an order passed under the Act, shall be paid within three months, failing which recovery proceedings shall be initiated. Further, proviso to sec 78 of the Act prescribes that the recovery proceedings may be expedited, for reasons to be recorded in writing, within 3 months. Furthermore, sec 79 of the Act specifies the modes of recovery of Government dues.

Thus, the department has been entrusted with power to recover of tax in terms of sec 78 and 79 of the Act. However, the matter of concern is that the industry is flooded with notices issued in a mechanical manner, asking to clear the liabilities created as per the order passed under GST, well before the aforesaid timelines, resulting into harassment for the taxpayers.

It is to crucial to note in this regard that the CBIC, vide instruction no. 01/2024-GST, dated 30th may, 2024 has issued guidelines for GST Demand Recovery Proceedings by the Department. It directs the department to stick to the timelines prescribed under the Act and follow the standard procedure. A synopsis of the instant instruction has been provided below for your kind perusal.

1. That the proper officers will initiate with the recovery proceedings from the tax payers only after the expiry of three months from the date of service of such order issued to the said tax payers.

2. That the proper officer for the aforesaid recovery under Section 79 of the CGST Act should be a jurisdictional Deputy or Assistant Commissioner of Central Tax.

3. It is also clarified by CBIC that in the exceptional case of recovery of tax (within three months of the serving of the notice), the reason for doing so must be recorded in writing. In such cases, the jurisdictional Dy./Asst. Commissioner shall place the matter before the jurisdictional Principal Commissioner/ Commissioner of Central Tax who shall examine the reason/justification and if satisfied issue direction accordingly.

4. Copy of such direction mentioning that the such recovery should be done expediently, providing specific reason(s) for asking the taxable person for early payment, clearly outlining the circumstances prompting such early actions, such as – declining financial condition of the tax payer or impending insolvency/bankruptcy etc. should be based on credible evidence(s).

Inference of the instruction:

> The validity of the notice should be checked by looking at the authority issuing such notice.

> In case of notice issued for early payment within 3 months of Order, whether the reasons/justifications are mentioned in the notice or not, must be looked into.

> Whether or not the directions issued by jurisdictional Pr. Commissioner authorizing such early actions are backed by credible evidences, should be analyzed.

Authors Remarks:

> The Registered person (RTP) under GST has been granted a time period of 3 months to file an appeal against any order/direction passed under GST on payment of pre-deposit @10% as per sec 107 of the Act. Further, a condonation of 1 month has also been prescribed for RTP if there is any sufficient cause on the part of RTP. Hence, any recovery notice issued within the appealable period should be replied accordingly to keep the proceedings in abeyance till the Appellate authority passes its order.

> Further, the RTP aggrieved by the Order of appellate authority has also a statutory right to appeal before GST Tribunal which has not yet formed. Hence, in order to keep the recovery proceedings in abeyance, the department may be intimated accordingly of such intention to file appeal before GST Tribunal.

The Hon’ble Patna HC has also ruled that an Assessee must get statutory benefit of stay on recovery in absence of GST Tribunal. It was held that “where the Tribunal was not yet constituted so that assessee could avail appellate remedy, subject to deposit of 20 percent of remaining amount of tax in dispute, in addition to amount deposited earlier under section 107(6), assessee must be extended statutory benefit of stay.”

Thus, a suitable course of action in terms of statutory avenues granted by the Act shall act as a shield against any unjustified recovery by the department.

Author Bio

Founder of CA Firm in 2009 which has grown from strength to strength, serving more than 50 clients. All India 19th rank in CA finals. Worked for 3 years in D.B. Desai & associates. Headed indirect taxation at Berger paints for 3 years before coming into practice. View Full Profile

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