The Madras High Court, in its recent ruling has clarified that GST ( Goods and Services Tax ) recovery proceedings under Section 78 must be initiated by the Principal Commissioner or commissioner and not by a state tax officer.
Balaiah Venkatesh challenged the recovery of Rs. 10,65,000 from their Federal Bank account, which occurred on May 22, 2024, subsequent to an order in original dated April 3, 2024. The petitioner had filed a statutory appeal on May 21, 2024, within the permissible three-month period, and submitted a refund application on May 28, 2024. However, a bank attachment notice was issued on May 14, 2024, leading to the debiting of the amount before the expiry of the appeal period.
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The counsel argued that according to Section 79 of the GST statutes, recovery can only be initiated after the three-month appeal period has elapsed. Furthermore, recovery action before this period can only be taken under the proviso to Section 78, which mandates that such action be initiated by the jurisdictional Principal Commissioner or Commissioner of Central Tax.
The counsel referred to Instruction No. 1/2024 – GST dated May 30, 2024, issued by the Central Board of Indirect Taxes and Customs (CBIC), which outlined the procedures for initiating recovery under Sections 78 and 79. They contended that the procedures were not followed in this case.
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The Additional Government Pleader, representing the respondents-GST department, argued that the petitioner’s GST registration had been cancelled, which justified the early initiation of recovery measures.
The court noted that Section 78 provides that any amount payable must be settled within three months of the service of the order, failing which recovery proceedings can be initiated. The proviso allows for earlier recovery if deemed expedient in the interest of revenue, provided that such action is justified with written reasons.
Justice Senthilkumar Ramamoorthy found that the recovery action was undertaken by a State Tax Officer, contrary to the requirement that it should be initiated by the Principal Commissioner or Commissioner.
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Additionally, the respondent failed to present any written reasons for the expedited recovery action as mandated by the proviso to Section 78. Consequently, the court deemed the recovery measure unsustainable.
The Madras High Court directed the department to refund the amount of Rs. 10,65,000 to the petitioner, considering the refund application submitted on May 28, 2024.
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