GARNISHEE PROCEEDINGS UNDER GST LAWS

[Mr. M. GOVINDARAJAN]

A garnishee order is a common form of enforcing a judgment debt against a creditor to recover money. Put simply, the court directs a third party that owes money to the judgment debtor to instead pay the judgment creditor.  The procedure of garnishee proceeding is also found place under the provisions of GST laws. 

Section 79 of the CGST Act, 2017 provides the procedure the procedure of recovery of tax.  Section  79(1) provides that where any amount payable by a person to the Government under any of the provisions of this Act or the rules made there under is not paid, the proper officer shall proceed to recover the amount by one or more of the following modes,-

• the proper officer may deduct or may require any other specified officer to deduct the amount so payable from any money owing to such person which may be under the control of the proper officer or such other specified officer;
• the proper officer may recover or may require any other specified officer to recover the amount so payable by detaining and selling any goods belonging to such person which are under the control of the proper officer or such other specified officer;
•  the proper officer may, by a notice in writing, require any other person from whom money is due or may become due to such person or who holds or may subsequently hold money for or on account of such person, to pay to the Government either forthwith upon the money becoming due or being held, or within the time specified in the notice not being before the money becomes due or is held, so much of the money as is sufficient to pay the amount due from such person or the whole of the money when it is equal to or less than that amount-

• every person to whom the notice is issued shall be bound to comply with such notice, and in particular, where any such notice is issued to a post office, banking company or an insurer, it shall not be necessary to produce any pass book, deposit receipt, policy or any other document for the purpose of any entry, endorsement or the like being made before payment is made, notwithstanding any rule, practice or requirement to the contrary;
• in case the person to whom a notice has been issued, fails to make the payment in pursuance thereof to the Government, he shall be deemed to be a defaulter in respect of the amount specified in the notice and all the consequences of this Act or the rules made there under shall follow;
• the officer issuing a notice may, at any time, amend or revoke such notice or extend the time for making any payment in pursuance of the notice;
• any person making any payment in compliance with a notice issued shall be deemed to have made the payment under the authority of the person in default and such payment being credited to the Government shall be deemed to constitute a good and sufficient discharge of the liability of such person to the person in default to the extent of the amount specified in the receipt; any person discharging any liability to the person in default after service on him of the notice issued shall be personally liable to the Government to the extent of the liability discharged or to the extent of the liability of the person in default for tax, interest and penalty, whichever is less;
• where a person on whom a notice is served proves to the satisfaction of the officer issuing the notice that the money demanded or any part thereof was not due to the person in default or that he did not hold any money for or on account of the person in default, at the time the notice was served on him, nor is the money demanded or any part thereof, likely to become due to the said person or be held for or on account of such person, nothing contained in this section shall be deemed to require the person on whom the notice has been served to pay to the Government any such money or part thereof.

The issue to be discussed in this article is as to the procedure to be adopted by the department while invoking section 79 of the Act in initiating the garnishee proceedings, with reference to decided case law.  The garnishee proceedings cannot be initiated against a third party for the outstanding dues of an assessee unless the dues have been adjudicated in accordance with the provisions of the Act or the rules made there under.

In ‘Mahadeo Construction Co. v. The Union of India, Assistant Commissioner, CGST and Central Excise, Superintendent, CGST’ – 2020 (4) TMI 666 – Jharkhand High Court, the assessee registered under GST Act is to file return Form GSTR – 1 and GSTR – 3B and pay the tax on or before 20^th of the following month.  Due to the glitches of GSTN portal the Government now and then extended the due dates of the returns to be filed.  Similarly for the month of February, 2018 and March, 2018 the due date for filing the said returns was extended to 31.03.2019 as displayed in the GSTN portal.  In the said background, the petitioner filed its monthly return for the month of February, 2018 and March, 2018 within the due date as reflected in GSTN Portal and also paid the tax within the due date.

The petitioner was served with a letter dated 08.03.2019 issued by Superintendent of Goods and Services Tax and Central Excise directing the petitioner to make payment of interest amounting to ₹ 19,59,721/- on the ground of delay in filing of GSTR-3B return for the months of February and March, 2018.   In addition to this demand the Department initiated action against the petitioner by issuing garnishee order to the banker of the petitioner for the recovery of the said amount.  The petitioner challenged the demand of interest as well as the initiation of the garnishee proceedings before the High Court.

The petitioner contended that they have filed the return within the due date as provided in the GSTN portal and therefore no liability to pay interest arises.  The action of the Department in issuing the demand for interest straightaway is illegal and arbitrary.  If the amount of interest is not admitted by an assessee, the same requires determination through an adjudication process to be initiated as per the detailed provisions contained under Section 73 of the CGST Act.   The action of the Department adopting extra legal steps, initiated garnishee proceedings under Section 79 of the CGST Act for recovery of the amount of interest is also no sustainable under law.  The provisions of Section 79 of the CGST Act can be adopted only when ‘any amount payable by a person to the Government under the provisions of the Act and the Rules is not paid’.  The words ‘any amount payable’ is to be interpreted in the context in which it has been used and the amount payable (unless admitted) can only be determined by initiating adjudication process as provided under Section 73 or 74 of the CGST Act.

The petitioner further contended that since the petitioner has not admitted its liability of interest, the said interest liability to be classified as an amount payable under the Act and/or Rules, necessarily requires adjudication process and, in absence thereof, initiation of garnishee proceedings is not sustainable in the eyes of law and even amounts to taking extra legal steps for recovery of the amount from an assessee.

The Department contended that payment of interest as envisaged under Section 50 of the Act is automatic and is to be paid by the defaulter at his own without initiating any adjudication process under Section 73 or 74 of the CGST Act.   The Central Government, through Central Board of Indirect Taxes and Customs, vide Notification No. 76/2018-Central Tax dated 31.12.2018 has waived the levy of late fee for furnishing returns for the months of July, 2017 to September, 2018, if the said returns were furnished between the period 22nd December, 2018 to 31st March, 2019, and the said Notification cannot be interpreted to mean that the last date of filing of GSTR-3B Return has been extended up to 31.03.2019.  The liability for payment of interest is automatic and does not require any adjudication process.

The Department justified the action of initiation of garnishee proceedings under Section 79 of the CGST Act.  The Department contended that since the liability for payment of interest is automatic on delayed payment of tax, the amount of interest is an amount payable under the Act or the Rules and since the assessee, despite notices being issued to it, has failed to discharge the said liability, it was well within the competence of the respondent to initiate garnishee proceedings under Section 79 of the CGST Act by attaching Bank account of the petitioner.

The High Court considered the submissions made by the parties to the writ petition.  The High Court observed that the last date shown in GSTN portal for filing the returns for February 2018 and March 2018 is 31.03.2019 has not been denied by the Department.  Although it was contended that said due date has been reflected on GSTN Portal only because a waiver of Late Fee was notified by the Central Government for delay in filing the Return for the said month up to 31.03.2019, and the due date for filing such return was not extended up to 31.-03.2019, the fact remains that on GSTN Portal, due date for filing monthly return for February and March, 2018 was reflected as 31.03.2019.  The petitioner filed its returns for the said months much prior to the said date. 

The High Court analyzed the provisions of section 39 (filing returns), section 50 (interest) and section 79 (garnishee proceedings).  Section 50 of the Act contains provisions relating to levy of interest on delayed payment of tax. A reading of Section 50(2) itself would reveal that interest payable under Section 50(1) is required to be calculated in such manner, as may be prescribed.  The issue to be decided by the High Court in respect of garnishee proceedings is – ‘Whether recovery proceedings under section 79 of the CGST Act can be initiated for recovery of interest under section 50 of the said Act without initiation and completion of the adjudication proceedings under the Act?’

The High Court analyzed the provisions of section 73 of the Act.  Section 73(1) would reveal that if tax has not been paid or has been short paid, a notice is required to be served by the Proper Officer on the assessee not only requiring him to show cause as to why tax be not recovered from it, but also specifying in the notice the interest payable under Section 50 also to be recovered along with penalty.  Thus, if there is a short payment of tax or non- payment of tax, a notice is required to be issued even for recovery of interest under Section 50 of the CGST Act.

The High Court observed that the liability of interest under Section 50 of the CGST Act is not automatic.  The said amount of interest is required to be calculated and intimated to an assessee. If an assessee disputes the liability of interest i.e. either disputes its calculation or even the leviability of interest, then the only option left for the Assessing Officer is to initiate proceedings either under Section 73 or 74 of the Act for adjudication of the liability of interest.  Section 79 of the CGST Act empowers the authorities to initiate garnishee proceedings for recovery of tax where ‘any amount payable by a person to the Government under any of the provisions of the Act and Rules made there under is not paid’.   It has already held that though the liability of interest is automatic, but the same is required to be adjudicated in the event an assessee disputes the computation or very leviability of interest, by initiation of adjudication proceedings under Section 73 or 74 of the CGST Act, till such adjudication is completed by the Proper Officer, the amount of interest cannot be termed as an amount payable under the Act or the Rules. Thus, without initiation of any adjudication proceedings, no recovery proceeding under Section 79 of the Act can be initiated for recovery of the interest amount.

Accordingly, the impugned order dated 08.03.2019 issued by Respondent No.3 (Superintendent, Daltonganj Range) was quashed/set aside and, further, garnishee notice contained in the Order dated 22.05.2019 issued under Section 79 of the CGST Act to the Banker of the petitioner for recovery of interest amount of ₹ 19,59,721/- is also, hereby, quashed/set aside by the High Court.

Thus if the assessee disputes the interest amount the Proper Officer cannot issue demand notice for the payment of interest or initiate garnishee proceedings under section 79 of the Act on the bankers of the assessee but the proper officer is to adjudicate the amount as the law requires that the interest is to be calculated on considering the objections raised by the assessee in this regard.

Discussions to this article

[OmPrakash jain]

To supplement the above article, kindly also go through the case law Valerius Industries v. Union of India (Guj) 2019 (9) TMI 618 - GUJARAT HIGH COURT, wherein Provisional Attachment of Bank accounts quashed & Blockage of ITC was released.