CBIC issued important guidelines for early initiation of recovery proceedings from taxpayers in exceptional situations before the standard time of three months.

Instruction No. 01/2024-GST

F. No. CBIC- 20016/9/2024-GST/583

30th May 2024

Sub.: Guidelines for initiation of recovery proceedings before three months from the date of service of demand order.

Highlights:

1. As per section 78 & 79, standard time for initiation of recovery proceedings from taxpayer is 3 months from the date of service of demand order.

2. However in exceptional situations, approval for early initiation of recovery proceedings before the standard time of 3 months may be given but it should not be given by officers in a mechanical manner.

3. Proper officer should clearly provide specific reasons for asking the taxpayer for early payment of the demand.

4. Such reasons could include high risk to revenue e.g.

- apprehension on taxpayer that he may close the business in near future,

- possibility of default by taxpayer due to his declining financial conditions or impending insolvency, or likely initiation of proceedings under Insolvency and Bankruptcy Act, etc.

5. Reasons to believe for the apprehension of risk to revenue should be based on credible evidence.

6. 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. Proper officer for general recovery proceedings u/s 79 is the jurisdictional Deputy or Assistant Commissioner of Central Tax.

8. Proper officer for giving approval for early initiation of recovery proceedings is the jurisdictional Principal Commissioner/ Commissioner of Central Tax.

Full Tex Of The Guidelines:

On reading Section 78 & Section 79 of CGST Act, it becomes clear that the general rule for initiating recovery proceedings is that, where any amount payable by a taxable person is not paid within a period of three months, recovery proceedings shall be initiated by the proper officer only after the expiry of the said period of three months from the date of service of order.

And only in exceptional cases, where it is necessary in the interest of revenue, the proper officer may require the taxable person to pay the said amount before three months, after recording the reasons for doing so in writing.

If the said amount is not paid by the taxable person within the period specified by the proper officer u/s 78 of CGST Act or even after the expiry of three months, the same can then be recovered by the proper officer as per provisions of section 79 of CGST Act.

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.

As per Circular No. 3/3/2017- GST dated the 5th July 2017, the proper officer for recovery under Section 79 of the CGST Act is the jurisdictional Deputy or Assistant Commissioner of Central Tax. It is also mentioned that the proper officer under proviso to Section 78 is the jurisdictional Principal Commissioner/ Commissioner of Central Tax.

Therefore, while recovery proceedings u/s 79(1) of CGST Act are required to be undertaken by the jurisdictional Deputy or Assistant Commissioner of Central Tax, however, in the cases, 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 of Central Tax before the jurisdictional Principal Commissioner/ Commissioner of Central Tax, along with the reasons/ justification for such an action.

The jurisdictional Principal Commissioner/ Commissioner of Central Tax 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. 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.

It is further mentioned that 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. 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. 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. 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.

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 sub-section (1) of section 79 of CGST Act.