MODES OF RECOVERY UNDER GST LAW (PART-1)

[Dr. Sanjiv Agarwal]

Section 79 of CGST Act, 2017 provides for various modes of recovery of amount payable under the GST law. It provides the manner in which recovery proceedings can be carried out under the Act.

Modes of recovery

On finding out that any person has not paid any amount payable under the Act or the rules, proper officer may proceed to recover the amount by any of the following modes:

1. Deduction out of money owed to the defaulter 
2. Detaining and selling the goods belonging to defaulter
3. Recovery from any other person who owes money to the defaulter
4. Collection by detention of any movable or immovable property belonging to defaulter
5. Recovery through district collector
6. Recovery through magistrate
7. Recovery through execution of bond or instrument

Modes of recovery through various sources

Section 79 of CGST Act, 2017 read with relevant rules provides for the recovery through following modes:

(a) Deduction out of any money owed to defaulter

• Some money which is being owed by the Government to defaulter should exist;
• Any amount payable can be deducted out of the said amount due to defaulter;
• Deduction can be done by the proper officer himself or he may authorize any other specified officer to do so.
• The proper officer shall specify the amount so deducted in form GST DRC- 09 as prescribed under Rule 143 of CGST Rules, 2017

(b) Detention and selling of the goods belonging to defaulter

• Goods which are under the control of the proper officer or other specified officer should exist.
• Goods should belong to the person who is liable to pay any amount
• Goods may be detained and sold by the proper officer or such other specified officer as authorized by the proper officer.
• The amount payable by defaulter shall be recovered out of the realization.
• In terms of Rule 144 of CGST Rules, 2017, the goods should be sold through a process of auction including e-auction, for which a notice should be issued in FORM GST DRC-10 indicating the goods to be sold and the purpose of sale. If the goods are perishable or hazardous in nature or the expenses of storing them is likely to exceed the value of such goods, then proper officer may sell them before 15 days.
• Proper officer has to issue a notice to the successful bidder in FORM GST DRC-11 requiring him to make the payment within a period of fifteen days from the date of auction. On payment of the full bid amount, the possession of the said goods shall be transferred to the successful bidder and a certificate in FORM GST DRC-12 shall be issued.
• In case the defaulter pays the amount under recovery, including any expenses incurred on process of recovery, before the issue of notice issued in FORM GST DRC-10 (Notice of Auction) then the proper officer shall cancel the process of auction and release the goods.

(c) Recovery from other persons who owes money to defaulter

• This will apply where any other person -

• has to pay money to the defaulter;
• is likely to  pay money to the defaulter;
• holds money for or on account of the defaulter;
• may subsequently hold money for or on account of the defaulter.

• Proper officer may issue notice in writing in Form GST DRC-13 to such other person to pay to the credit of the Government forthwith upon the money becoming due or being held, or at or within the time specified in the notice not being before the money becomes due or is held.

• The following amounts shall be directed to be paid in the notice–

• Where the amount due/held by such other person is more than amount due by the defaulter – to the extent of amount due by the defaulter;
• Where the amount due/held by such other person is equal to or less than amount due by defaulter - whole of money due/held.

• Such other persons to whom such notice is issued is bound to comply with such notice.
• In cases where such notice is issued to a post office, banking company or an insurer, they are required to comply with the same without insisting on production of any passbook, deposit receipt, policy or any other document for the purpose of any entry, endorsement or the like, though that might be the normal practice.
• If such person to whom such notice is issued, fails to comply with the notice, he shall be treated as defaulter to the extent of the amount mentioned in the notice and all other consequences under the law shall follow;
• Where the third person makes the payment of the amount specified in the notice in FORM GST DRC-13, then the proper officer is required to issue a certificate in FORM GST DRC-14 to the third person clearly indicating the details of the liability so discharged.
• Such notice may be amended or revoked or time may be extended for making any payment;
• The payment made by such other person in accordance with the notice issued, shall be deemed to have made the payment on behalf of such defaulter and the amount credited to the government shall be deemed to constitute the discharge of liability of such defaulter to the extent of the payment made. As a result, no civil suit or other proceedings could be filed or initiated by the defaulter on the notice, who has complied with this provision.
• If such person makes the payment to defaulter instead of crediting the amount to the government, then such other person shall be personally liable to the Government to the extent of the amount due by the defaulter or amount discharged to the defaulter whichever is lower.
• Such person shall not be personally liable, if he is able to prove to the proper officer issuing the notice that

• money demanded or any part thereof was not due to the person in default or

• at the time of service of the notice he did not hold any money for or on account of the person in default,
• money was not demanded from him; or
• any part of the money demanded is not likely to become due to such other person or
• any part of the money will not likely be held for or on account of such person.

(d) From detention of any movable or immovable property

• A proper officer in accordance with the Rule 147 of the CGST Rules framed for this purpose, may on authorisation by competent authority, interalia, do the following:

• prepare a list of movable and immovable property belonging to the defaulter,
• estimate their value as per the prevalent market price and
• issue attachment order or distrain and a notice for sale in FORM GST DRC-16 prohibiting any transaction with regard to such movable and immovable property as may be required for the recovery of the amount due.
• Such property attached or distrained shall be sold through auction, including e-auction, for which a notice shall be issued in FORM GST DRC- 17 clearly indicating the property to be sold and the purpose of sale.

• Such detention of any movable or immovable property belonging to defaulter will be done till the amount payable is paid.

• If any part of the amount payable or cost of distress or keeping the property is not paid within 30 days from such distress, the proper officer may sell the property and with the proceeds he may adjust towards:

• amount payable; or
• costs including the cost of sale remaining unpaid;

• After such adjustment, the remaining surplus, if any, shall be returned to the defaulter.

(e) Recovery of dues with help of District Collector (DC)

• Proper officer may prepare a certificate signed by him specifying the amount due from the defaulter.
• Such certificate will be sent to the District Collector of the District in FORM GST DRC-18 in where the defaulter.

• owns any property; or
• resides; or
• carries on his business.

• The District Collector on receipt of such certificate shall proceed to recover from such defaulter the amount specified in the certificate as if such amount is arrears of land revenue.

(f) Recovery of dues with help of Magistrate:

• This provision has overriding effect over Code of Criminal Procedure (CrPC).
• In this case, the proper officer may file an application to the appropriate Magistrate.
• The Magistrate to whom application (in FORM GST DRC- 19) is made, shall proceed to recover from the defaulter the amount specified in the application as if it is fine imposed by such Magistrate.

(g) Recovery of dues by execution of decree

      Rule 146 of CGST Rules, 2017 provides for recovery through execution of decree.

• Amount should be payable to the defaulter
• In execution of decree of civil court for

1. Payment of money,
2. Sale in enforcement

• Proper officer to send request to court in writing
• Attached decree to be executed
• Net proceeds for settlement of amount recoverable to be credited to Government account.

(h)  Recovery of dues from company under liquidation

Rule 160 of CGST Rules, 2017 provides for recovery of dues from company in liquidation as follows:

• The amount to be recovered should be from company under liquidation as per section 88 of CGST Act, 2017.
• Commissioner to notify the liquidator for any amount due

Recovery of penalty from sale (Rule 144A)

Rule 144A has been inserted w.e.f. 01.01.2022 vide Notification No. 40/2021-CT darted 20.12.2021 to provide for manner of recovery of penalty by sale of goods or conveyance detained or seized by the tax authorities while in transit. This rule stipulates that in the event of owner of goods or transporter of goods failing to pay the amount of penalty levied under section 129(1) of CGST Act, 2017 within 15 days of the communication of the order, the proper officer shall effect sale or disposal of the goods or conveyance detained or seized after preparing an inventory of the sale and determining the estimated market value of the subject goods or conveyance.

• It may be noted that section 129 is an over-riding provision providing for detention, seizure and release of goods and conveyance in transit.
• It further provides for levy of penalty but only after issuing a notice of seven days and providing opportunity of being heard. The goods shall be released only after payment of penalty.
• These goods shall be disposed off through a process of auction including e-auction. Rule 144A provides the manner of auction, timelines for billing, declaration of successful bidder, payment of bid amount and transfer of ownership to the successful bidder.
• Rule 144 A does not apply in respect of perishable goods and goods of hazardous nature.