CBIC Recovery Guidelines under CGST Act for Early Tax Recovery

The Central Board of Indirect Taxes and Customs (CBIC), through Instruction No. 01/2024-GST dated May 30, 2024, issued comprehensive CBIC recovery guidelines for the initiation of GST recovery proceedings before three months from the date of service of a demand order.

Under the CGST Act, taxpayers are generally provided a period of three months to respond to a demand order before recovery proceedings can begin. The guidelines draw attention to Section 78 and Section 79(1) of the CGST Act, 2017, which prescribe the timelines and methods for initiating recovery.

Section 78 of the CGST Act, 2017

Section 78 states that any amount payable by a taxable person under an order passed as per the CGST Act must be paid within three months from the date of service of such an order. Failing this, GST recovery proceedings shall be initiated as per the CBIC recovery guidelines.

Provided that where the proper officer considers it expedient in the interest of the revenue, he may, for reasons to be recorded in writing, require the said taxable person to make such payment within such period less than a period of three months as may be specified by him.

Section 79(1) of the CGST Act, 2017

Section 79(1) states that, where any amount payable by a person to the government under any of the provisions of this act or the rules made thereunder is not paid, the proper officer shall proceed to recover the amount by one or more of the following modes namely:

•  a) the proper officer may deduct or may require any other specified officer to deduct the amount so payable from any money owing to such person which may be under the control of the   proper officer or such other specified officer
• b) the proper officer may recover or may require any other specified officer to recover the amount so payable by detaining and selling any goods belonging to such person which are under the control of the proper officer or such other specified officer.

Conditions for Initiating GST Recovery Proceedings

On reading the above sections, it is evident that 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.

Only in the exceptional cases where it is necessary in the interest of the revenue the proper officer may require the said taxable person to pay the said amount within a period less than a 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.

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 be recovered by the proper officer as per section 79(1) of the CGST Ac, 2017.

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 even in case 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.

Therefore, in order to ensure uniformity in the implementation of the provisions of the law across the field formations, CBIC issued guidelines for initiation of recovery proceedings before three months from the date of service of demand order.

Exceptional Cases for Tax Recovery Before Three Months

The CBIC recovery guidelines allow initiating recovery proceedings before three months in exceptional circumstances; however, it should not be a mechanical process and must be issued only in cases where interest of revenue is required to be safeguarded due to specific apprehension/circumstances in the said cases.

The Proper officer must have specific reason supported by credible evidence to seek early payment of the demand. These reasons are then examined by the jurisdictional principal commissioner/ Commissioner of central tax.

Only if the commissioner is satisfied that early recovery is necessary to protect revenue interest than only approval will be granted. The commissioner must record the reasons for seeking early payment within a short period in writing.

While issuing any such directions the proper officer must duly consider

• The taxpayer’s financial health.
• Status of business operations.
• Infrastructure and credibility of the taxable person.

Possible reasons for early recovery include:

• Apprehension that the taxpayer might close their business in the near future.
• Taxpayer might dispose of the assets to avoid paying tax.
• Become untraceable to evade tax liability; or
• Initiation of proceedings under Insolvency and Bankruptcy Act, etc.

Reason 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.

Key Takeaways from CBIC Recovery Guidelines

• These CBIC Recovery guidelines aim to strike a balance between efficient revenue collection and taxpayer rights;
• Early recovery should only be pursued in genuine cases backed by credible evidence; and
• Transparency and accountability are emphasized throughout the process.