No (GST) Tax Recovery within 3 Months of Notice

The GST law mandates that an officer can recover any amount payable to the government under any of the provisions of the CGST Act. Section 78 of the Act specifies the timeline for initiating such recovery proceedings as three months from the day of serving notice.

The central Board of Indirect Taxes and Customs (CBIC) has asked its field formations to not initiate recovery within three months of serving a tax notice.

Only in cases where there is risk of closure of business or an impending insolvency, the field formations can initiate recovery before the mandated period after getting a nod from the jurisdictional principal commissioner, the CBIC said in a letter to all the zonal heads.

It said that 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. “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,” the board said.

The letter was written after the board noted that many tax officers were abusing the exceptional case clause, initiating recovery proceedings before the expiry of the specified three month period, even in routine cases, forcing the companies to move courts to seek stay on the recovery process.This attracted not only adverse comments from the judiciary but in some cases even penalty.

This marks a significant step towards ensuring ease of doing business under GST and fair application of tax laws.

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