GST Recovery Misapplied: Andhra Pradesh HC Orders Re-credit of ₹16.48 Lakh to Petitioners Mistakenly Linked to Defaulting Company [Read Order]
Observing that the petitioners had no link with the defaulting company, the Court directed the authorities to re-credit the recovered amounts within seven days
GST Recovery
GST Recovery
In a recent decision, the Andhra Pradesh High Court granted interim relief in a GST recovery dispute where funds were wrongly recovered from parties unconnected to the defaulting company.
The petitioners approached the Andhra Pradesh High Court challenging an order in which the respondents proposed to recover alleged GST dues amounting to Rs. 9.66 crore. The petitioners contended that the recovery notice (DRC-7A) referred to MM Cylinders Private Limited, whereas they were associated with GDR Cylinders Private Limited.
The second petitioner was a former director of the first petitioner, but neither had any connection with MM Cylinders Pvt. Ltd. Despite this, the respondents adjusted Rs. 14.57 lakh of Input Tax Credit (ITC) from the first petitioner. Additionally, Rs. 12.55 lakh was recovered from the second petitioner’s personal bank account, and Rs. 3.92 lakh was recovered from an ex-director, B. Uma Rani, associated with the first petitioner.
The second petitioner was scheduled to travel abroad for studies, and the freezing of the bank account caused significant inconvenience. The petitioners contended that such recovery from unconnected parties was improper and requested interim relief.
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The petitioners argued that they were not connected with MM Cylinders Pvt. Ltd., and recovery against them was legally impermissible. They further submitted that the adjustment of ITC from the first petitioner and the recovery of personal funds from the second petitioner and the ex-director were unauthorised and arbitrary.
The petitioners emphasised that the freezing of bank accounts caused undue hardship, particularly given the second petitioner’s impending travel abroad. Consequently, they sought a stay of the recovery proceedings and a re-credit of amounts already adjusted or recovered.
The Government Pleader for Commercial Taxes, on the other hand, submitted that the proceedings under Section 79(c) of the GST Act were valid and that alternative remedies were available under Section 107, which the petitioners could invoke.
While the respondents’ submissions highlighted procedural remedies, the Court focused on the immediate financial impact on the petitioners, given the amounts already frozen and transferred, and the lack of connection between the petitioners and MM Cylinders Pvt. Ltd.
Considering these submissions, the Court observed that the first petitioner and associated parties were not connected to MM Cylinders Pvt. Ltd., and therefore, recovery against them was unauthorised.
The granted interim relief stayed the operation of the notice issued to the bank. It directed the respondents to re-credit Rs. 12.55 lakh to the second petitioner and Rs. 3.92 lakh to the ex-director’s account within seven working days.
Regarding the ITC amount of Rs. 14.57 lakh adjusted from the first petitioner, the Court required the respondents to file their counters before taking further action.
The Division bench of Justice Harinath N and Dr Justice Y Lakshmana Rao underscored that recovery actions under GST must be strictly directed at the correct legal entity and that procedural errors can lead to undue hardship.
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