JUNE 05, 2024

By Vijay Kumar

AS the Nation was waiting eagerly for the elections to be over, the CBIC came out with a beneficial looking Instruction:- INSTRUCTION NO. 01/2024-GST; May 30, 2024 stating:

It has been brought to the notice of the Board that some of the field formations are initiating recovery before the specified period of three months from the date of service of the order, even in the cases where the taxable person has not been specifically required by the proper officer, for reasons to be recorded in writing, for payment of such amount within a period less than the period of three months from the date of service of the order.

Board has highlighted some legal provisions and informed the field that:

1. The general rule for initiating recovery proceedings is that, where any amount payable by a taxable person in pursuance of an order passed under the CGST Act is not paid within a period of three months from the date of service of such order, recovery proceedings shall be initiated by the proper officer only after the expiry of the said period of three months.

2. Only in exceptional cases, where it is necessary in the interest of revenue, the proper officer may require the said taxable person to pay the said amount within a period less than the period of three months from the date of service of the order, as may be specified by him, after recording the reasons for doing so in writing.

3. If the said amount is not paid by the said taxable person within the period specified by the proper officer under the proviso to section 78 of CGST Act or even after the expiry of three months from the date of the service of the order, the same can then be recovered by the proper officer as per provisions of sub-section (1) of section 79 of CGST Act.

Now, it has come to the notice of the Board that some field formations just don't follow the law and are initiating recovery proceedings even before the statutory three months with due and undue disregard for the statute.

So what do they do? Board states:

Therefore, in order to ensure uniformity in the implementation of the provisions of law across the field formations, the Board, in exercise of its powers conferred by section 168 of the CGST Act, hereby issues the following instructions to be followed in cases where it is necessary, in the interest of revenue, to initiate recovery before the period of three months from the date of service of the order.

Note the words, in order to ensure uniformity in the implementation of the provisions of law across the field formations…..

Is the law not required to be implemented uniformly across all field formations? Are some field formations exempted from implementing the law? Should the Board have special powers to instruct its officers to obey the law? When the law enforcement officers don't follow the law, what should you do? So, the Board instructs its officers:

1. While recovery proceedings under sub-section (1) of section 79 of CGST Act are required to be undertaken by the jurisdictional Deputy or Assistant Commissioner of Central Tax, where it is felt that recovery proceedings in respect of an amount payable by a taxable person in pursuance of an order need to be initiated in the interest of revenue before completion of three months from the date of service of the order, the matter needs to be placed by the jurisdictional Deputy or Assistant Commissioner before the jurisdictional Principal Commissioner/Commissioner, along with the reasons/justification for such an action.

2. The jurisdictional Principal Commissioner/Commissioner shall examine the reasons/justification given by the jurisdictional Deputy or Assistant Commissioner at the earliest and if he is satisfied that it is expedient in the interest of revenue to ask the said taxable person to pay the said amount before completion of three months from the date of service of the order, he must record in writing, the reasons as to why the concerned taxable person is required to make payment of such amount within such period, less than a period of three months, as may be specified by him.

3. After recording such reasons in writing, he may issue directions to the concerned taxable person to pay the said amount within the period specified by him in the said directions. Copy of such directions must also be sent to the jurisdictional Deputy or Assistant Commissioner of Central Tax for information.

4. jurisdictional Principal Commissioner/Commissioner of Central Tax should provide the specific reason(s) for asking the taxable person for early payment of the said amount, clearly outlining the circumstances prompting such early action.

5. Such reasons could include high risk to revenue involved in waiting till the completion of the three-month period due to apprehension that the concerned taxable person may close the business operations in near future, or due to possibility of default by the taxable person due to his declining financial conditions or impending insolvency, or likely initiation of proceedings under Insolvency and Bankruptcy Act, etc.

6. Reasons to believe for the apprehension of risk to revenue should be based on credible evidence, which may be kept on record to the extent possible. While issuing any such directions, the proper officer must duly consider the financial health, status of business operations, infrastructure, and credibility of the taxable person, and strike a balance between the interest of the revenue and ease of doing business.

7. It is implicit that such directions for early payment of the confirmed demand should not be issued in a mechanical manner and must be issued only in cases where interest of revenue is required to be safeguarded due to specific apprehension/ circumstances in the said case.

8. Wherever such directions are issued by the jurisdictional Principal Commissioner/ Commissioner of Central Tax as per powers conferred under proviso to section 78 of CGST Act, and where the taxable person fails to make payment of the said amount within the period specified in the said directions, the jurisdictional Deputy or Assistant Commissioner of Central Tax shall proceed to recover the said amount as per the procedure specified in subsection (1) of section 79 of CGST Act.

Is this supposed to be beneficial to the taxpayers? And what happens if the officers continue to disregard the law? The obvious answer is - the taxpayer will be punished. The taxpayer concerned will surely become a concerned taxpayer, if he gets a notice from the Department.

Board further advises that Difficulties, if any, in implementation of these instructions may be informed to the Board. What difficulties could there be in implementing these, except creating some difficulties for the concerned taxpayer?

This issue had already reached several High Courts.

Tvl. Maxtile - W.P .No.10670 of 2024 - Madras High Court.

By this writ petition, the petitioner sought a direction for the release of attachment of the immovable properties. An order dated 30.05.2023 was issued against the petitioner by confirming the tax proposal against which an appeal was filed on 24.08.2023. The petitioner made the requisite pre deposit as per Section 107 of the GST Act. Since the attachment was made earlier on 22.08.2023, the present writ petition was filed seeking release of the attachment.

Counsel for the petitioner pleaded that:

1. Recovery measures should not be undertaken for a period of three months after the order in original is issued so as to enable the taxpayer to file a statutory appeal.

2. The order in original is dated 30.05.2023, and the appeal was lodged within the prescribed three-month period.

3. Since the order of attachment was issued within the said three-month period, such order is not sustainable.

The High Court observed:

It is evident that the petitioner has made the requisite pre deposit of 10% of the disputed tax demand by remitting a sum of Rs.4,94,956/-. Once such pre deposit is made, under sub-section (7) of Section 107, recovery proceedings in respect of the balance amount shall be deemed to be stayed. In this case, without waiting for the statutory period of three months, an attachment was effected of the petitioner's immovable property. Such attachment is contrary to the statutory prescription and cannot be sustained.

In the National Insurance Company Ltd case - 2024-TIOL-146-HC-PATNA-GST, the Patna High Court observed,

We are again faced with the problem of 'valiant tax executives clothed with judicial powers remembering their former capacity at the expense of the latter'

Despite the payment of 20% of the tax in dispute having been made after the first Appellate Authority rejected the appeal, a demand was issued at 05.01.2023. Apprehending coercive action, the petitioner, a public sector undertaking filed the writ petition on 06.01.2023. The tax authorities, presumably, in retaliation recovered the entire balance remaining payable, under Section 79 of the Central Goods and Services Tax Act, 2017 on 07.01.2023.

The High Court directed the entire amounts recovered, be refunded to the assessee within a period of two weeks and also imposed a cost of Rs. 5000/- on the Officer, who issued the demand.

Election results are out - let us hope we will have more governance than government. Can the GST Council model be adapted for the cabinet?

Until next week