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In order to safeguard Govt. revenue, necessary provisions have been incorporated in the GST Act. Similarly, for the TP, aggrieved by adverse Orders passed, necessary Appeal provisions have been made in the Act to enable the TP to prefer an appeal against the Orders so passed before the concerned Appellate Authorities. Also, in order to avoid filing of frivolous appeals, a requirement of pre-depositing certain percentage of the disputed tax amount before filing appeal, has also been incorporated. Further, in order to do away with the necessity of filing separate stay application, while filing appeal, for the balance amounts payable as per the adverse Order, necessary provision has also been made in the Appeal provisions wherein the balance amount so payable has been deemed to be stayed.

In the above context, the focus of this article is to analyse the said provisions and the Courts interpretation in the matter with respect to the quantum of recovery that can be made when recovery proceedings are initiated under Section 78 of the GST Act or Provisional attachment (Section 83) / Blocking of ITC (Rule 86A) process is initiated, with reference to the Appeal provisions.

RECOVERY PROCEEDINGS – As per the provision of Section 78 of the Act, recovery proceedings shall be initiated in case the TP fails to make the payment due within 3 months of service of an Order passed under the Act. In exceptional circumstances, where the proper officer considers it expedient to initiate recovery proceedings even before the period of 3 months is over, the proviso clause to the said Section gives the power to do so, in which case he has to record the reasons for doing so in writing.

PROVISIONAL ATTACHMENT – In terms of Section 83 of the GST Act, after the initiation of proceedings against a TP- be it, in the course of assessment, search & seizure operations or during the course of initiating demand and recovery proceedings, if the jurisdictional Commissioner is of the opinion that for the purpose of protecting the interest of the Govt revenue, it is necessary so to do, he can order the provisional attachment of any property including bank accounts belonging to the TP or any person who retains the benefit of a transaction as specified in sub-section (1A) of Section 122.

Attachment of Bank account is the most common methodology adopted by the department to safeguard the Govt. revenue.

BLOCKING OF ITC– Though, not a recovery proceeding but a provision to secure interest of revenue, as held by Karnataka HC in the case of K-9 Enterprises, Section 49(4) r/w Rule 86A gives the department the power to block debit of an amount equivalent to the wrongfully availed credit (situations as prescribed in Rule 86A) in ECRL for discharge of any liability under Section 49 or for claim of any refund of any unutilised amount.

APPEAL PROVISIONS – If an appeal is preferred before the Appellate Authority under the provision of Section 107(1), in terms of sub-section (6), no appeal shall be filed unless the admitted dues are paid in full and 10% of the disputed tax amount is pre-deposited, subject to a maximum of Rs.25cr.

Similarly, if an appeal is preferred before an Appellate Tribunal, there is a parallel provision in Section 112(8) which requires pre-deposit of 20% of the disputed tax amount in addition to the amount already paid in terms of Section 107(6).

Section 107(7) and 112(9) of the Act also emphasises that once the amount of pre-deposit as payable under Section 107(6) / 112(8) is paid, the recovery proceedings for the balance amount shall be deemed to be stayed till the disposal of the appeal.

ANALYSIS OF THE ABOVE PROVISIONS – From the above recovery and safeguarding provisions, it could be seen that action can be initiated for recovery of the amounts due, whereas if an appeal is preferred against the Order passed under the Act, either 10% and/ or 20% of the disputed tax amount is only required to be pre-deposited, which raises the question as to whether the recovery proceedings should also be restricted to 10% and/ or 20% of the disputed tax amount, as the case may be, particularly when the provisions of Section 107(7) and 112 (9) deems the balance amount payable as stayed till the disposal of the appeal.

From the Appeal provisions, it could be seen that an appeal can be preferred within the maximum allowable period of 4 months or 6 months of the date of communication of the order, depending on the authority before whom the appeal has been preferred. Whereas, as per the provision of Section 78 of the Act, the recovery proceedings can be initiated after the period of 3 months ( or even before that period) of the date of service of the order. So, there can occur two situations- One where recovery proceeding is initiated before the appeal has been filed or second where it has been initiated after the appeal period is over during which no appeal has been filed. There can also be situations, wherein departmental officers in their pro-revenue zeal initiate recovery proceedings even after appeal has been filed.

Now let’s see how the Courts have interpreted such provisions in relation to the question posed-

A) In a case before the Patna HC (SITA PANDEY), Assessment Order dt. 14.12.22 was passed demanding tax dues of about Rs.38 lakh + Int of Rs.32 Lakh and Penalty of Rs.3.8 lakh, totalling to Rs.73.66 Lakh, and directed to be paid on or before 14.3.23. Appeal filed on payment of 10% pre-deposit. Appeal rejected on 27.3.23. Recovery Notice dt.28.3.23 issued, whereby Rs.69.88 lakh was sought to be recovered from four banks, which was challenged before HC.

Recovery Proceedings and Appeal Provisions

In the said case, Court, vide Order dated 23.8.23, opined as under-

“Sub-section (8) of Section 112 makes it mandatory for an appeal to be instituted; that the appellant pays in full the amount of tax, interest, fine, fee and penalty arising from the impugned order as admitted by him and a sum equal to twenty per cent of the remaining amount of tax in dispute, in addition to the amount paid under section 107(6). Hence, the admitted amount of tax and other dues have to be satisfied along with twenty per cent of the tax in dispute; in addition to the ten per cent paid under section 107 (6). On such payment being made, not only is the instituted appeal maintainable; under sub-section (9) of Section 112, there is a deemed stay of the recovery proceedings for the balance amount till the disposal of the appeal. Hence, when a proper appeal is instituted before the Appellate Tribunal, with the payments as required for maintaining the appeal, then there is a statutory embargo from making any recovery based on the assessment order or the first appellate order.

Section 78 has the nominal heading “Initiation of recovery proceedings” and requires a taxable person to satisfy an order passed under the BGST Act by paying up the amounts due within a period of three months from the date of service of such order. The proviso enables the proper officer in expedient situations, in the interest of revenue, for reasons recorded in writing, to require the taxable person to make such payment within such period, less than a period of three months, as may be specified by him. In the present case, admittedly there is no notice issued specifying the time within three months, within which time the assessee was supposed to pay the amounts as per the order.

The Legislature had, in the event of an appeal filed to the Tribunal, only intended twenty percent of the tax dues alone to be paid; on which payment the entire demand was liable to be stayed till the disposal of the appeal. However, admitted tax; interest, fine and penalty also have to be satisfied. Hence even if coercive action could have been taken the tax officer should have confined it to the twenty percent of the total amounts assessed, in addition to the ten percent paid at the first appellate stage and any admitted tax, if remaining unpaid. The tax officer had definitely erred, that too egregiously, to the extent of his action being termed high-handed, in surreptitiously making the recovery of the entire amounts due as tax, interest and penalty, even contrary to the legislative mandate. As we found, the reasons stated are unconvincing and clearly untenable and the approaching closure of the financial year end can only be a motivation to enhance the individual targets assigned by the higher authorities.

As we observed, the Assessing Authority in the scheme of the enactment could not have made recovery of the entire amount. Section 112 provides for twenty per cent of the tax amount due, in addition to the ten per cent amount paid at the first appellate stage, for maintaining a second appeal before the Appellate Tribunal. On such payment being made under section 112(8), there is also a requirement that the further recovery proceedings would be stayed. Hence, when an Appellate Authority was not constituted even when the Assessing Officer acted under the proviso to Section 78 what could have been recovered is only twenty per cent of the tax amount due in addition to that paid up to institute a first appeal.”

In the said case it could be seen that recovery notice was issued the very next date of the rejection of the first appeal, even before the TP could take a decision of whether to prefer an appeal or not. The amount remaining after that required for maintaining an appeal was ordered to be refunded along with 12% interest and incidentally, a cost of Rs.5000/- was ordered to be recovered from the concerned officer who passed the order in complete derogation of the statutory provisions and established principles of law.

Similarly, recently, in another case before the Patna Bench (National Insurance Co. Ltd.), despite 20% amount being pre-deposited, demand was issued on 5.1.23. Apprehending coercive action, WP was filed on 6.1.23. The tax authorities, presumably, in retaliation recovered the entire balance remaining payable, under section 79 on 7.1.23. Relying on the ratio of the above decision, the entire amount recovered on 7.1.23 was ordered to be refunded and in this case too, cost of Rs.5000/- was imposed on the concerned officer.

B) In another case before the Gujarat HC (STALLION ENERGY P LTD), Adjudication Order was passed on 2.3.22 demanding total dues of Rs.56 lac. Thereafter, order of provisional attachment of property was passed on 16.6.22 under Section 83. As against the dues, Rs.46 lac recovered from Bank account of petitioner. Appeal preferred on 4.7.22 against Order dated 2.3.22 pre-depositing 10% of tax amt. Urged in WP to refund the balance amt of Rs.42 lakh as Rs.46 Lakh already withdrawn.

Court in the said case without going into the merits of the case, dismissed the WP vide Order dated 15.6.23, on the ground that ‘if the appeal filed is allowed by the Appl Authority, it is always open for the petitioner to make such request before Appl Authority that direction be issued to respondents to refund the amount’.

In other words, it could atleast be said that the Court has not rejected the claim for refund so made by the petitioner.

C) In a case before Punjab & Haryana Court (K J INTERNATIONAL), ITC amounting to Rs.1.12 cr was blocked vide Orders dated 10.8.23 & 25.8.23. SCN issued on 25.9.23 solely on the scrutiny of 8 suppliers mentioned in the said notices and no investigation has been done with respect to petitioner. Contention of petitioner that they have the remedy of filing an appeal after the adjudicating order is passed and even if he is required to file an appeal, he is to deposit only 10% of the penalty amount assessed. Hence, in this backdrop, the account of the petitioner cannot be blocked beyond 10% of the penalty amount assessed.

Vide Order dt.6.10.23, the WP was allowed setting aside the Orders dated 10.8.23 & 25.8.23 and the account of the petitioner was ordered to be unblocked forthwith after retaining 10% of the penalty amount assessed which would fulfill the condition of pre-deposit of 10%.

D) In another case before Madras HC (JEY TECH MOULDS DIES), since supplier failed to make payment of GST, proceedings initiated against the petitioner and passed an order. Further, Bank account also freezed. Representation made to defreeze the account and also agreed to deposit the pending ITC. Appeal also preferred before the Appellate Authority paying Rs.83,000/- as pre-deposit.

Vide Order dt. 30.11.23, the Court opined that if the petitioner paid 10% of the outstanding tax dues along with penalty, the respondent proceedings will be automatically stayed. The said legal position was also confirmed by the learned counsel for the respondents. In such view of the matter, it was held that since the petitioner had paid a sum of Rs. 83,000/-, the respondent is supposed to have de-freeze the bank account of the petitioner as per Section 107 of the Act.


From the above interpretations of the Courts and on a coherent reading of the relevant provisions, it could be inferred that-

♦ Where recovery proceedings have been initiated within the appeal period of the adverse Orders passed, the quantum of recovery cannot be more than the amount of pre-deposit required to be paid.

♦ In the case of revenue safeguarding provisions like Blocking of ITC as per Rule 86A, as could be seen in the case of K J International referred above, the order for blocking of ITC was issued directly before initiation of demand proceedings, which is allowed as per the provision of Rule 86A. Similar action can also be initiated under Section 83. In such cases too, the TP has the remedy of filing appeal against the Adjudication Orders so passed after initiation of demand proceedings in the said cases. Hence in such cases too, recovery proceedings will have to be restricted to the pre-deposit amount.

However, in my personal viewpoint, in cases such as, where the TP has committed a fraud and the department could establish that the TP may defeat the demand and it is expedient to safeguard revenue, then in such exceptional cases, Court may allow blocking of the entire wrongly availed ITC amount in terms of Rule 86A or allow provisional attachment for the entire amount due in terms of Section 83.

♦ In case of Orders passed, where the appeal period has lapsed, department can initiate recovery proceedings against the TP for the entire amount due as per the Order passed, in terms of the said provision of Section 78 or 79 of the Act.

Interestingly, Section 79 begins with the words – ‘WHERE ANY AMOUNT PAYABLE BY A PERSON’, which again leaves scope for litigation and can be a topic for another day.

In the above context, the guidelines issued by the Hon’ble Patna HC in the SITA PANDEY case referred above, in so far as recoveries are concerned, becomes relevant and need to be given due consideration by the Board. The guidelines are as under-

“(1). There shall be no recovery of tax within the time limit for filing an appeal and when a stay application is filed in a properly instituted appeal, before the stay application is disposed of by the Appellate Authority;

(2) Even when the stay application in the appeal is disposed of, the recovery shall be initiated only after a reasonable period so as to enable the assessee to move a higher forum;

(3) However, in cases where the Assessing Officer has reason to believe that the assessee may defeat the demand or that it is expedient in the interest of Revenue, as is provided under the proviso to Section 78, there can be a recovery but with notice to the assessee, which notice shows the reasons for initiating it and specifies the lesser time within which the assessee is directed to satisfy the dues;

(4) Though a bank account could be attached; before withdrawing the amount, reasonable prior notice should be furnished to the assessee to enable the assessee to make a representation or seek recourse to a remedy in law;

(5) We also remind the Tax Authorities, as was done in the UTI Mutual Fund (supra) that the ‘authorities under the tax enactment shall not act as a mere tax gatherer but act as a quasi-judicial authority vested with the public duty of protecting the interest of the Revenue while at the same time balancing the need to mitigate the hardship to the assessee’ (sic-UTI Mutual Fund).”

It will be a great relief to the TP and avoid unnecessary litigations bringing in more clarity, if Board issues suitable guidelines on the above lines.

Author Bio

I joined Central Excise department as an Inspector in March 1987 and took voluntary retirement from service, while working as a Superintendent (GST), on 4th Jan 2022. Presently working as a freelancing Consultant, mostly related to GST issues. View Full Profile

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April 2024