S. 79 GST Recovery Notice issued to Bank without Prior Notice to Assessee void: Bombay HC [Read Order]

In a significant ruling concerning GST recovery procedures, the Bombay High Court has held that a recovery notice issued under Section 79 of the Central Goods and Services Tax (CGST) Act, 2017, directly to a bank without prior notice to the assessee, is invalid and liable to be quashed.

The decision of the division bench of Justices M.S. Sonak and Jitendra Jain reiterated the mandatory procedural safeguards for taxpayers under the GST regime. It was noted that, “a notice had to be served upon the petitioner so that the petitioner would have an opportunity of proving to the satisfaction of the officer issuing the notice that no amount was due and payable”.

The petition challenged a Section 79(1)(c) notice dated July 9, 2024, which was addressed not to the petitioner but to the branch manager of a bank’s Gurugram branch. The petitioner contended that it held no account with the said branch and had never been served any prior notice regarding the GST dues allegedly owed by another party, M/s Durga Madhab Panda, who was allegedly the actual defaulter.

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Section 79 of the CGST Act empowers tax authorities to recover outstanding tax by issuing a notice to any person who owes money to the defaulting taxpayer or holds money on their behalf, directing such person to remit the money to the government.

However, the Court noted that this power is contingent on a crucial procedural requirement, the proper officer must first serve a notice on the defaulting taxpayer, affording them an opportunity to contest the demand or prove that no amount is due from the intermediary (such as the bank).

The Court found that in this case, no such notice was served on Galaxy International before the recovery notice was sent to the bank. This failure denied the petitioner its statutory right to be heard and deprived it of the opportunity to demonstrate that it did not owe any amount to the defaulter or that the bank did not hold any funds belonging to the petitioner in relation to the dues.

Drawing on precedents, including a ruling by the Karnataka High Court in S.J.R. Prime Corporation Pvt. Ltd. v. Superintendent of Central Tax, the Bombay High Court ruled that the impugned notice was issued in breach of mandatory procedural safeguards under the CGST Act.

In the Karnataka High Court Case, the petitioner had argued that a notice (GST DRC-13) issued by the respondent to State Bank of India, which resulted in the blocking/freezing of the company's bank account, was illegal, arbitrary, and violated principles of natural justice.

Consequently, the Court quashed and set aside the recovery notice but left open the option for authorities to issue a fresh notice to the petitioner in compliance with proper procedure

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