Landmark Judicial Pronouncements on Recovery under GST Law: A Balance Between Revenue and Rights

The Goods and Services Tax (GST) regime, since its inception, has undergone significant judicial scrutiny, particularly in the domain of recovery proceedings. While the law bestows substantial power upon revenue authorities to enforce recovery of dues, courts have consistently reiterated that such powers must be exercised in strict conformity with statutory safeguards and constitutional mandates.

In this article, we delve into some of the landmark judgments that have not only clarified the procedural contours of GST recovery but also reinforced the principles of natural justice and taxpayer rights.

1. Chaizup Beverages LLP v. Assistant Commissioner - Madras High Court (2019) 25 GSTL 26

• Key Issue: Whether the department can adjust refunds against a confirmed demand despite the taxpayer having filed an appeal with mandatory pre-deposit.
• Held: The Madras High Court held that once an assessee has filed an appeal and made the mandatory pre-deposit of 10% under Section 107(6) of the CGST Act, the balance demand is deemed to be stayed by statutory implication. Thus, any adjustment of refund on the ground that no explicit stay order was granted is untenable. The court directed the refund to be processed within three weeks.
• Legal Significance: This judgment underscores the deemed stay provision upon pre-deposit and protects taxpayers from arbitrary adjustments during the pendency of an appeal.

2. Penna Cement Industries Ltd. - Andhra Pradesh High Court (2024) 84 GSTL 507

• Key Issue: Whether the department can initiate recovery proceedings even before the statutory period for appeal has expired.
• Held: The High Court held that initiating recovery within the limitation period for filing an appeal (three months) under Section 107 of the CGST Act is premature and legally unsustainable. Since the assessee expressed intent to file an appeal, recovery proceedings could not be justified.
• Legal Significance: The ruling draws a clear line that recovery must wait until the appellate remedy lapses, thus protecting the right to appeal.

3. Tvl. GRB Dairy Foods Pvt. Ltd. - Madras High Court (2020) 32 GSTL 514

• Key Issue: Can recovery be initiated within ten days of issuing an assessment order?
• Held: The court observed that although the department had issued a demand notice within ten days of the order, the law grants the assessee a period of three months to prefer an appeal. Such early initiation of recovery was held to be hasty and violative of statutory rights.
• Author's Note: Both judgments (Penna Cement and GRB Dairy Foods) reflect judicial censure of departmental overreach and reaffirm the taxpayer's entitlement to exhaust legal remedies without premature coercive action.

4. Tvl. Arun Medicals - Madras High Court (2024) 24 CENTAX 59

• Key Issue: Whether uploading a show cause notice (SCN) only on the GST portal constitutes valid service.
• Held: The court held that merely uploading the SCN on the portal without physical or direct service to the assessee, especially when the GST registration stood cancelled, violates the principles of natural justice. Accordingly, the order passed based on such SCN was set aside.
• Legal Significance: The judgment reiterates that procedural fairness in serving notices is fundamental and non-negotiable in recovery proceedings.

5. Prasanna Karunakar Shetty - Bombay High Court (2024) 17 CENTAX 418

• Key Issue: Can recovery proceedings, including bank attachment, be undertaken without a show cause notice or hearing?
• Held: The court held that such action, executed without issuing any SCN or affording a hearing, was in clear violation of Section 14 of the CGST Act and Article 300A of the Constitution (right to property). Consequently, the impugned order attaching the bank account was quashed.
• Legal Significance: This ruling is a strong reaffirmation that recovery without due process offends constitutional protections and is liable to be struck down.

Conclusion

These judicial pronouncements serve as important guardrails against the arbitrary exercise of recovery powers under GST. While revenue collection is vital for fiscal governance, it must be balanced with adherence to legal procedure, fair play, and constitutional safeguards.

Takeaways for Tax Professionals and Assessees

• Filing an appeal with a mandatory pre-deposit operates as a deemed stay on further recovery.
• Recovery cannot be initiated before the statutory appellate window closes.
• Service of notice must be effective, especially when portal-only uploads fail to ensure actual delivery.
• Any action impacting property (e.g., bank attachment) requires prior notice and hearing.

Taxpayers and practitioners must remain vigilant and aware of these precedents to protect their rights and ensure accountability in the administration of GST laws.