CBIC issued Guidelines on initiation of recovery proceedings before expiry of 3 months from the date of service of order

Due date of issuance of Assessment order under Section 73 has lapsed for FY 2017-18 and FY 2018-19 on 31st December, 2023 and 30th April, 2024 respectively. In the cases where demand is raised through DRC-07, the taxpayer may either prefer an appeal with Commissioner (Appeals) or opt to pay tax determined through demand order. As per Section 78 of CGST Act, the taxpayer is given a time period of 3 months to make payment of an amount determined to be payable by any order under GST.

CBIC has received information that in many cases recovery proceedings have been initiated by the concerned GST officials prior to the time period prescribed under GST Law. Therefore, for uniformity of provisions, CBIC has issued detailed guidelines on initiation of recovery proceedings before the time period prescribed under GST law vide Instructions No. 01/2024-GST dated 30th May, 2024.

1. Legal Provisions with respect to Recovery Proceedings

a. Section 78: Initiation of Recovery Proceedings:

Section 78 of CGST Act, 2017 provides the scenario under which recovery proceedings shall be initiated.
As per Section 78, where any amount payable by the taxable person in pursuance of an order passed under GST Law, such amount shall be paid by the taxpayer within 3 months from the date of service of such order.
However, if the taxpayer fails to pay such an amount then the recovery proceedings shall be initiated against the taxpayer.
Further, as per proviso to Section 78, the proper officer may ask the taxpayer to make the payment within time less than 3 months where the proper officer considers the same expedient in the interest of revenue. Proper officer is required to record the reason for early payment of tax in writing.

b. Section 79: Recovery of tax:

As per Section 79, where the amount payable by a person to the government under GST law is not paid then the proper officer shall recover such amount through one or more modes specified under Section 79(1) of CGST Act.

2. Clarification by the CBIC

CBIC has clarified that:

a. Provisions related to recovery proceedings:

General rule for initiation of recovery proceedings is that where any amount payable by the taxable person in pursuance of an order is not paid within a period of 3 months from date of service of order.
Recovery proceedings shall be initiated only after expiry of 3 months.
However, in exceptional circumstances, where it is necessary to do so in the public interest, the proper officer may require the taxpayer to pay such an amount in a shorter period of time after recording the reasons for the same in writing.
If such amount is not paid within the period of 3 months or time period specified by the proper officer then such amount can be recovered from the taxpayer by the modes specified under section 79(1) of CGST Act.

b. Early recovery proceedings initiated in various cases

Board has been informed that some field formations have initiated the recovery proceedings before the specified time of 3 months.
Such recovery is initiated even in those cases where the proper officer has not asked the taxpayer for earlier payment after recording reasons in writing.

3. Instructions to be followed for initiating early recovery

CBIC has clarified that the proper office is required to follow following instructions where it is necessary, in the interest of the revenue, to initiate recovery before expiry of 3 months:

As per circular No. 3/3/2017-GST dated 5th July, 2017, for recovery under section 79 of CGST Act, the proper officer is Jurisdictional Deputy or Assistant Commissioner of central tax.
It is also mentioned that the proper officer under proviso to Section 78 (i.e., for initiating recovery prior to 3 months) is the jurisdictional Principal Commissioner/ Commissioner of Central tax.
Therefore, recovery proceedings under Section 79(1) of CGST Act are required to be undertaken by a Jurisdictional Deputy or Assistant Commissioner of Central tax.
However, where early recovery is required to be initiated, the matter needs to be placed by the Jurisdictional Deputy or Assistant Commissioner before the jurisdictional Principal Commissioner/ Commissioner of central tax.
The Principal Commissioner or Commissioner shall examine the reasons given by the Deputy or Assistant Commissioner at the earliest.
If he is satisfied then he will ask the taxable person to pay the tax amount within the specified time period, less than 3 months. Further, he must record the reasons in writing for initiation of early recovery.
After recording the reasons, he may issue directions to the concerned taxable person to pay the tax amount within the time specified in the directions.
Copy of such directions shall also be sent to the jurisdictional Deputy or Assistant Commissioner.

4. Possible reasons for invoking early recovery proceedings

CBIC has clarified that:

The principal commissioner or commissioner shall specify the reasons for initiating early payment of tax clearly outlining the circumstances prompting such early action.
Such reasons could include:
- High risk is involved in waiting till the completion of 3 months due to apprehension that the concerned person may lose the business operations in near future.
- Possibility of default due to his declining financial conditions or impending insolvency;
- Likely initiation of proceedings under Insolvency and Bankruptcy act etc.

Reasons to believe should be based on credible evidence which may be kept on record to the extent possible.
While issuing directions, the proper officer should keep in mind:
- Financial Health
- Status of business operations
- Infrastructure
- Credibility of taxable person

Proper officer should take a decision maintaining a balance between the interest of the revenue and ease of doing business.
Such directions should not be issued in a mechanical manner.

5. Recovery proceedings under Section 79(1) of CGST Act

Where directions are issued for early payment of tax and the taxable person fails to make payment of such amount within the time period specified in the directions then the jurisdictional Deputy or Assistant commissioner shall proceed to recover such amount as per the procedure given under Section 79(1) of CGST Act.