Regulations for GST Demand and Recovery: Chapter 18 of CGST Rules

This article examines Chapter 18 of the Central Goods and Services Tax (CGST) Rules, which outlines procedures for demands and recovery under GST.

Recent Updates on GST Demands and Recovery

Key developments impacting GST demands and recovery include:

• Show Cause Notices (SCN) Deadlines: The final date for issuing Show Cause Notices under Section 74 (for FY 2019-20) and Section 73 (for FY 2021-22) is September 30, 2025. This indicates a potential increase in the number of notices issued to businesses.
• Tax Recovery Time Extensions (March 31, 2023): The tax recovery deadlines for insufficient or unpaid tax and incorrect Input Tax Credit (ITC) utilization were extended:
  • For FY 2017-18: Until December 31, 2023
  • For FY 2018-19: Until March 31, 2024
  • For FY 2019-20: Until June 30, 2024
• GST Dues for Corporate Debtors under IBC (December 26, 2022): Circular 187/19/2022-GST clarified the handling of GST dues for taxpayers under the Insolvency and Bankruptcy Code (IBC). Dues can be adjusted through appellate orders or IBC adjudication. The GST Commissioner must issue FORM DRC-25 to confirm any reduction in pending GST recovery from a corporate debtor.
• Fraudulent Tax Claims and ITC (December 21, 2021): Amendments allow officers to issue Section 74 notices to multiple individuals for tax shortfalls or fraudulent ITC claims. Confiscation and seizure of goods or vehicles are permissible even after proceedings against all responsible parties are concluded.
• Union Budget 2021 Outcomes (February 1, 2021):
  • Seizure and confiscation of goods and conveyances in transit are now distinct from tax recovery proceedings under Section 74.
  • Self-assessed tax under Section 75 of the CGST Act also encompasses outward supplies reported in GSTR-1 (Section 37) but omitted from GSTR-3B (Section 39).

Notice and Order for Demand of Amounts Payable Under the Act

1. The appropriate officer shall electronically send a summary of the notice with the:

• (a) notice under sub-section (1) of section 73 or sub-section (1) of section 74 or sub-section (2) of section 76, in FORM GST DRC-01,
• (b) statement under sub-section (3) of section 73 or sub-section (3) of section 74, in FORM GST DRC-02, detailing the payable amount.

2. If a person liable for tax pays the tax and interest (as per sub-section (5) of section 73) or tax, interest, and penalty (as per sub-section (5) of section 74) before receiving the notice or statement, they must inform the officer in FORM GST DRC-03. The officer will then issue an acknowledgement in FORM GST DRC–04, confirming the payment.
3. Should the person liable for tax settle the tax and interest (under sub-section (8) of section 73) or tax, interest, and penalty (under sub-section (8) of section 74) within thirty days of receiving a notice under sub-rule (1), they must notify the officer using FORM GST DRC-03. The officer will then issue an order in FORM GST DRC-05, officially closing the proceedings for that specific notice.
4. Any representation mentioned in sub-section (9) of section 73 or sub-section (9) of section 74 or sub-section (3) of section 76 should be submitted in FORM GST DRC-06.
5. An electronic summary of the order issued under sub-section (9) of section 73 or sub-section (9) of section 74 or sub-section (3) of section 76 will be uploaded in FORM GST DRC-07. This summary will specify the exact tax, interest, and penalty due from the taxable person.
6. The order referred to in sub-rule (5) will serve as the official notice for recovery.
7. Rectifications to the order, as per section 161, will be made by the appropriate officer in FORM GST DRC-08.

Recovery by Deduction From Any Money Owed

If a defaulter fails to pay any amount due to the Government under the Act or its rules, the proper officer may, using FORM GST DRC-09, instruct a specified officer to deduct the outstanding sum from any money owed to the defaulter, in accordance with clause (a) of sub-section (1) of section 79. Explanation: For this rule, a "specified officer" refers to an officer from the Central Government, a State Government, a Union Territory Government, a local authority, or a Board, Corporation, or company fully or partially owned or controlled by any of these governmental entities.

Recovery by Sale of Goods Under the Control of Proper Officer

1. If an amount due from a defaulter needs to be recovered by selling their goods, as per clause (b) of sub-section (1) of section 79, the proper officer will create an inventory and estimate the market value of these goods. They will only sell enough goods to cover the payable amount and the administrative costs of the recovery process.
2. These goods will be sold via auction, which may include e-auction. A notice in FORM GST DRC-10 will be issued, clearly listing the goods for sale and the reason for the sale.
3. The deadline for bid submission or the auction date must not be less than fifteen days from the date the notice mentioned in sub-rule (2) is issued. However, if the goods are perishable, hazardous, or if storage costs are likely to exceed their value, the proper officer may sell them immediately.
4. The proper officer may set a pre-bid deposit amount, to be paid as specified, for bidders to qualify for the auction. This deposit may be refunded to unsuccessful bidders or forfeited if the successful bidder fails to pay the full amount.
5. The proper officer will issue a notice in FORM GST DRC-11 to the successful bidder, requiring full payment within fifteen days of the auction date. Upon receiving the full bid amount, the officer will transfer possession of the goods to the successful bidder and issue a certificate in FORM GST DRC-12.
6. If the defaulter pays the outstanding amount, including any recovery expenses, before the notice under sub-rule (2) is issued, the proper officer will cancel the auction process and release the goods.
7. The proper officer will cancel the auction and initiate a re-auction if no bids are received, or if the auction is deemed non-competitive due to insufficient participation or low bids.

Recovery From a Third Person

1. The proper officer may issue a notice in FORM GST DRC-13 to a person mentioned in clause (c) of sub-section (1) of section 79 (referred to as "the third person" in this rule), instructing them to deposit the specified amount.
2. When the third person pays the amount stated in the notice issued under sub-rule (1), the proper officer will issue a certificate in FORM GST DRC-14 to them, confirming the discharge of the liability.

Recovery through Execution of a Decree, etc.

If an amount is owed to the defaulter from the execution of a civil court decree for money payment or sale in mortgage/charge enforcement, the proper officer will send a request in FORM GST DRC-15 to the court. Subject to the Code of Civil Procedure, 1908 (5 of 1908), the court will execute the attached decree and credit the net proceeds towards settling the recoverable amount.

Recovery by Sale of Movable or Immovable Property

1. The proper officer will list the defaulter's movable and immovable properties, estimate their market value, and issue an attachment or distraint order along with a sale notice in FORM GST DRC-16. This order prohibits any transactions involving the property necessary for recovering the outstanding amount. However, the attachment of debts not secured by negotiable instruments, shares in corporations, or other movable property not held by the defaulter (excluding property held by courts) will follow the procedure in rule 151.
2. A copy of the attachment or distraint order will be sent to the relevant Revenue Authority, Transport Authority, or any other authority to place an encumbrance on the property. This encumbrance will only be removed upon written instructions from the proper officer.
3. If the property subject to attachment or distraint under sub-rule (1) is:

• (a) an immovable property, the attachment or distraint order will be affixed to the property and remain there until the sale is confirmed;
• (b) a movable property, the proper officer will seize it according to Chapter XIV of the Act, and custody will be taken either by the proper officer or an authorized official.

4. The attached or distrained property will be sold via auction, including e-auction. A notice in FORM GST DRC-17 will be issued, clearly indicating the property to be sold and the purpose of the sale.
5. Despite other provisions in this Chapter, if the property for sale is a negotiable instrument or a corporate share, the proper officer may sell it through a broker instead of a public auction. The broker will deposit the sale proceeds, minus their commission, with the Government to cover the recovery amount and pay any remaining balance to the owner.
6. The proper officer may specify a pre-bid deposit amount, to be submitted as directed, for bidders to qualify for the auction. This deposit may be refunded to unsuccessful bidders or forfeited if the successful bidder fails to pay the full amount.
7. The final day for bid submission or the auction date must not be less than fifteen days from the date the notice under sub-rule (4) is issued. However, if goods are perishable, hazardous, or storage costs are likely to exceed their value, the proper officer may sell them immediately.
8. If any claim or objection is raised against the attachment or distraint of property, asserting it is not liable for such action, the proper officer will investigate. The sale may be postponed for a suitable period.
9. The person making the claim or objection must provide evidence proving their interest in, or possession of, the property under attachment or distraint on the date the order under sub-rule (1) was issued.
10. If the investigation satisfies the proper officer that the property, for the reasons stated in the claim or objection, was not in the defaulter's possession on the said date, or was in their possession not as their own property but on behalf of or in trust for another, or partly on their own account and partly for another, the proper officer will issue an order releasing the property, entirely or partially, from attachment or distraint.
11. If the proper officer is satisfied that the property was, on the said date, in the defaulter's possession as their own property and not for any other person, or was held by another person in trust for the defaulter, or occupied by a tenant paying rent to the defaulter, the claim will be rejected, and the auction sale process will proceed.
12. The proper officer will issue a notice in FORM GST DRC-11 to the successful bidder, requiring payment within fifteen days of the notice date. After payment, a certificate in FORM GST DRC-12 will be issued, detailing the property, transfer date, bidder information, and paid amount. Upon issuance, rights, title, and interest in the property are transferred to the bidder. If multiple persons submit the highest bid and one is a co-owner, that co-owner is deemed the successful bidder.
13. Any amount, including stamp duty, tax, or fees, due for the transfer of property specified in sub-rule (12) must be paid to the Government by the person acquiring title.
14. If the defaulter pays the outstanding amount, including recovery expenses, before the notice under sub-rule (4) is issued, the proper officer will cancel the auction and release the goods.
15. The proper officer will cancel the process and conduct a re-auction if no bids are received, or if the auction is deemed non-competitive due to inadequate participation or low bids.

GST Recovery from Corporate Debtors under IBC

Circular 187/19/2022-GST provides guidelines for reducing statutory GST dues for taxpayers under the Insolvency and Bankruptcy Code (IBC). Key points from the Circular include:

1. GST dues are classified as 'operational debts' for prioritizing recoveries from a corporate debtor (taxpayer).
2. GST officers are authorized to file claims with the National Company Law Tribunal (NCLT).
3. No new demand notice is required for the revised recoverable GST amount.
4. Dues may be decreased by appellate orders, revisions, or other proceedings against the taxpayer, such as adjudication under the IBC (e.g., approval of a resolution plan by the NCLT).
5. The GST Commissioner must issue FORM DRC-25 to formally notify such reductions in GST amounts pending recovery from the corporate debtor.

Prohibition Against Bidding or Purchase by Officer

No officer or other individual involved in the sale process under this Chapter shall, directly or indirectly, bid for, acquire, or attempt to acquire any interest in the property being sold.

Prohibition Against Sale on Holidays

Sales conducted under the rules of this chapter are prohibited on Sundays, other government-recognized general holidays, or any day declared a holiday by the Government for the sale area.

Assistance by Police

The proper officer may request necessary assistance from the officer-in-charge of the jurisdictional police station. The said officer-in-charge must then assign a sufficient number of police officers to provide this assistance.

Attachment of Debts and Shares, etc.

1. A debt not secured by a negotiable instrument, a share in a corporation, or other movable property not in the defaulter's possession (excluding property held by a court) will be attached by a written order in FORM GST DRC-16. This order prohibits:

• (a) for a debt, the creditor from collecting and the debtor from paying until further orders from the proper officer;
• (b) for a share, the registered owner from transferring it or receiving dividends;
• (c) for other movable property, the person in possession from handing it over to the defaulter.

2. A copy of this order will be prominently displayed at the proper officer's office. Another copy will be sent to the debtor (for debts), to the corporation's registered address (for shares), and to the person in possession (for other movable property).
3. A debtor prohibited under clause (a) of sub-rule (1) may pay their debt directly to the proper officer. This payment will be considered as having been made to the defaulter.

Attachment of Property in Custody of Courts or Public Officer

If the property to be attached is held by a court or a Public Officer, the proper officer will send the attachment order to that court or officer. This request asks that the property, along with any accruing interest or dividends, be held until the payable amount is recovered.

Attachment of Interest in Partnership

1. If the property to be attached is a defaulter's interest as a partner in partnership property, the proper officer may issue an order. This order charges the partner's share in the partnership property and profits with the payment of the certificate's outstanding amount. The same or a subsequent order may appoint a receiver for the partner's share of profits (declared or accruing) and any other money due to them from the partnership. It may also direct accounts and inquiries and order the sale of such interest or any other necessary action.
2. Other partners are permitted to redeem the charged interest or, if a sale is directed, to purchase it at any time.

Disposal of Proceeds of Sale of Goods and Movable or Immovable Property

Amounts realized from the sale of goods, movable, or immovable property to recover dues from a defaulter will be distributed as follows:

1. First, they will cover the administrative costs of the recovery process.
2. Next, they will be applied against the amount to be recovered.
3. Subsequently, they will cover any other outstanding amounts due from the defaulter under the Act, the Integrated Goods and Services Tax Act, 2017, the Union Territory Goods and Services Tax Act, 2017, or any State Goods and Services Tax Act, 2017, and their respective rules.
4. Any remaining balance will be paid to the defaulter.

Recovery Through Land Revenue Authority

If an amount is to be recovered according to clause (e) of sub-section (1) of section 79, the proper officer will send a certificate in FORM GST DRC-18 to the Collector, Deputy Commissioner of the district, or any authorized officer. This instructs them to recover the specified amount from the individual concerned, treating it as an arrear of land revenue.

Recovery Through Court

If an amount is to be recovered as if it were a fine imposed under the Code of Criminal Procedure, 1973, the proper officer will apply to the appropriate Magistrate in FORM GST DRC-19, following clause (f) of sub-section (1) of section 79. This application requests the Magistrate to recover the specified amount from the concerned person as if it were a fine imposed by them.

Recovery From Surety

If any person has guaranteed the amount owed by the defaulter, proceedings under this Chapter may be initiated against them as if they were the defaulter themselves.

Payment of Tax and Other Amounts in Instalments

1. A taxable person may electronically file an application in FORM GST DRC-20 to request an extension for paying taxes or other amounts due under the Act, or to arrange payment in installments, as per section 80. The Commissioner will then request a report from the jurisdictional officer regarding the taxable person's financial capacity to pay.
2. After reviewing the taxable person's request and the jurisdictional officer's report, the Commissioner may issue an order in FORM GST DRC-21. This order can grant the taxable person additional time for payment and/or allow them to pay the amount in monthly installments, up to a maximum of twenty-four, as deemed appropriate.
3. The installment facility mentioned in sub-rule (2) will not be granted if:

• (a) the taxable person has already defaulted on any payment under the Act, the Integrated Goods and Services Tax Act, 2017, the Union Territory Goods and Services Tax Act, 2017, or any State Goods and Services Tax Act, 2017, and a recovery process is ongoing;
• (b) the taxable person was not allowed to make installment payments in the previous financial year under the Act, the Integrated Goods and Services Tax Act, 2017, the Union Territory Goods and Services Tax Act, 2017, or any State Goods and Services Tax Act, 2017;
• (c) the amount for which installment facility is requested is less than twenty-five thousand rupees.

Provisional Attachment of Property

1. If the Commissioner decides to attach any property, including a bank account, according to section 83, an order in FORM GST DRC-22 will be issued. This order will specify the details of the attached property.
2. The Commissioner will send a copy of the attachment order to the relevant Revenue Authority, Transport Authority, or any similar authority to place an encumbrance on the movable or immovable property. This encumbrance will only be lifted upon written instructions from the Commissioner.
3. If the attached property is perishable or hazardous, and the taxable person pays an amount equal to its market price or the amount that is or may become payable (whichever is lower), the property will be immediately released via an order in FORM GST DRC-23, upon proof of payment.
4. If the taxable person fails to pay the amount specified in sub-rule (3) for perishable or hazardous property, the Commissioner may dispose of such property. The proceeds will then be adjusted against any tax, interest, penalty, fee, or other amount owed by the taxable person.
5. Any person whose property is attached may, within seven days of the attachment under sub-rule (1), file an objection stating that the property was not or is not liable for attachment. The Commissioner, after giving the objector an opportunity to be heard, may release the property with an order in FORM GST DRC-23.
6. The Commissioner may also release attached property by issuing an order in FORM GST DRC-23 if satisfied that the property was not, or is no longer, subject to attachment.

Recovery from Company in Liquidation

If a company is undergoing liquidation as specified in section 88, the Commissioner will notify the liquidator in FORM GST DRC-24 regarding the recovery of any tax, interest, penalty, or other amount due under the Act.

Continuation of Certain Recovery Proceedings

An order for the reduction or enhancement of any demand under section 84 will be issued in FORM GST DRC-25.