Guidelines for Initiation of Recovery Proceedings Before 3 Months from the Date of Service of Demand Order

Introduction

The Central Board of Indirect Taxes and Customs (‘CBIC’) has issued new guidelines[i] (‘Guidelines’) on 30.05.2024 for the initiation of recovery proceedings before the standard three-month period following the date of service of a demand order under the Central Goods and Services Tax Act, 2017 (‘CGST Act’).

Background

S. 78 of the CGST Act states that any amount payable by a taxable person as per order must be paid within three months from the date of service of the demand order. If not paid, recovery proceedings are to be initiated.

The proviso to s. 78 allows the proper officer (‘PO’) to require payment within a shorter period, less than three months, if expedient in the interest of revenue, with reasons recorded in writing.

Further, s. 79(1) of the CGST Act specifies the modes of recovery if the amount payable is not paid within the specified period.

Highlights

In accordance with ss. 78 and 79 of the CGST Act, the standard time for initiation of recovery proceedings from taxpayers is three months from the date of service of the demand order. However, in exceptional cases, the PO can demand payment within a period shorter than three months, with documented reasons, and not in a mechanical manner. However, in view of the reported issue of some filed formations initiating recovery proceedings before the three-month period without proper justification or written reasons, the introduction of these Guidelines was necessitated.

The Guidelines state that the PO must provide specific reasons to believe based on credible evidence for seeking early payment of demand. Such reasons include high risk to revenue, potential closure of business operations, deteriorating financial conditions, and possible insolvency under the Insolvency and Bankruptcy Act, 2016. The Guidelines also provide that the PO should consider the financial health, status, infrastructure and credibility of the taxpayer in order to balance revenue interests and ease of doing business.

Additionally, the Guidelines clarify that the jurisdictional Deputy or Assistant Commissioner of Central Tax (‘DC/AC’) is responsible for recovery under s. 79 of the CGST Act. If early recovery is deemed necessary, the matter must be escalated to the jurisdictional Principal Commissioner/Commissioner of Central Tax (‘PC/C’), who must review and record reasons as detailed above before issuing directions. Upon satisfaction, the PC/C can issue directions for early payment. A copy of these directions must be sent to the jurisdictional DC/AC for implementation. If the taxpayer fails to comply with the early payment directions, standard recovery proceedings under s. 79(1) of the CGST Act will be initiated.

Conclusion

These Guidelines issued by the CBIC establish essential procedural directives for initiating recovery proceedings under the CGST Act and specifically highlight the exceptional case under which recovery proceedings may commence before the standard period of three months from the date of service of the demand order. It outlines the discretionary authority of the PO to expedite recovery in certain cases, provided they are supported by credible evidence.

These Guidelines reflect the government’s commitment to maintain fairness, transparency, and accountability while optimizing revenue collection. They also acknowledge the practical challenges faced by taxpayers and ensure that directions should not be issued mechanically supported by specific apprehensions or circumstances. By balancing the interests of the revenue collection department with taxpayer considerations, these Guidelines seek to ensure a just and efficient tax administration process.

End Note

[i] INSTRUCTION NO. 1/2024- GST [F. NO. CBIC-20016/9/2024-GST/583]

Authored by Siddharth Jha, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.