A Division Bench of the Patna High Court has imposed a penalty of Rs. 5,000 on officials for arbitrarily conducting a tax recovery in gross violation of Goods and Services Tax regulations.
The Bench of Chief Justice K. Vinod Chandran and Justice Partha Sarthy, has issued clear guidelines. They emphasise that tax authorities should not only enforce tax compliance but also facilitate business and economic activities. They should refrain from acting solely as extortionists, driven by the desire to meet their superiors’ expectations or further personal agendas. The actions in question were deemed high-handed and arbitrary.
The appellant, engaged in providing manpower supply services, including security and cleaning services to various establishments, including government polytechnic institutions, raised a pivotal issue.
It revolved around whether the services offered to government polytechnic institutes qualified for exemption, specifically, if they fell within the category of services provided by or to educational institutions up to the higher secondary school level or equivalent.
The assessee argued that the recovery was carried out in an unjust and capricious manner, particularly in the absence of a constituted Appellate Tribunal. Notifications from both the Central and State Governments had extended the limitation period for commencement, starting from the Tribunal’s constitution.
In such cases, the Court consistently ordered a 20% payment, as stipulated in Section 112(8) of the Bihar Goods and Services Tax Act, 2017, and halted recovery until the Tribunal’s formation and the expiration of the three-month limitation from that date.
The department contended that Section 78 of the BGST Act, along with its proviso, empowered recovery even within the three-month period if deemed expedient for revenue interests. The Recovery Officer recorded reasons in writing, justifying the recovery within statutory bounds.
The court expressed its deep disappointment with the reasons provided by the officer. It questioned the validity of citing imminent bank holidays and the end of the fiscal year as justifications for an expedited recovery under Section 78.
The court questioned how revenue interests would be adversely affected if recovery were delayed for three months, or at the very least, if the assessee were notified before funds were seized from their bank accounts, without their knowledge.
The Division Bench also observed that the Appellate Tribunal under Section 109 of the Central Goods and Services Tax Act has not yet been constituted, and added, “We would not rely at all on the equitable directions issued by this Court in various petitions staying recovery on payment of twenty percent of the balance tax due as provided under Section 112(8). However, it is very evident that even the Central Government and the State Government were conscious of the fact of the Tribunal having not yet been constituted.”
To address these concerns, the court laid down several principles:
No tax recovery shall occur within the appeal filing deadline or when a stay application is pending before the Appellate Authority.
Even after the stay application in the appeal is resolved, recovery should commence only after a reasonable period to allow the assessee to pursue higher legal avenues.
However, in cases where the Assessing Officer has reasonable grounds to suspect that the assessee may evade payment or when it is expedient for revenue interests, recovery may proceed, but only with prior notice to the assessee. This notice should articulate the reasons for initiation and specify a reasonable timeframe for dues settlement.
In cases involving bank accounts, prior notice must be given to the assessee before any funds are withdrawn, granting them an opportunity to present their case or seek legal remedies.
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