GST Department Cannot Recover Interest u/s 79 Without Adjudicatory Process: AP HC Orders Refund to Iron Dealer [Read Order]

In a recent ruling, the Andhra Pradesh High Court held that the Goods and Services Tax (GST) Department cannot initiate coercive recovery proceedings under section 79 of the CGST [Central Goods and Services Tax] Act for interest without first completing the adjudication process.

The writ petition was filed by M/s Sona Enterprises, a sole proprietorship engaged in the business of iron and steel scrap, challenging multiple recovery notices and bank attachment orders issued by the GST authorities under Section 79(1)(c) of the CGST Act, 2017, and the APGST Act, 2017.

The petitioner argued that the interest was recovered without any adjudication, without issuance of a proper notice, and without passing any order determining the manner of computation of interest.

It was argued that Section 75(12), which permits recovery of admitted self-assessed tax without adjudication, had been wrongly invoked, as the alleged misuse of ITC was a disputed issue requiring adjudication under Sections 73 or 74 of the CGST Act.

The respondent, the GST department, argued that the tax liability was admitted and that late payment automatically attracted interest, enabling direct recovery under Section 79 without the need for adjudication.

The dispute arose when the tax department accused the company of misusing tax credits for the period July 2017 to March 2021. Based on this allegation department issued a notice demanding tax and froze its bank account to recover money.

The high court observed that section 75(12) applies only where there is a clear admission of the tax liability in a return filed under sec 39, and not in cases involving wrong utilisation of ITC or dispute liabilities.

The Court held that such disputes must necessarily be examined through the adjudication mechanism prescribed under Sections 73 or 74, and only after such determination can recovery proceedings under Section 79 be initiated.

The bench, Justice R. Raghunandan Rao and Justice T.C.D. Sekhar allowed the writ petition, set aside the bank attachment and recovery proceedings, and directed the GST authority to refund the interest amount recovered from the petitioner's bank account. However, the Court clarified that the authorities would be at liberty to initiate appropriate adjudication proceedings in accordance with law, if so advised.

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