Understanding GST Payment in Installments and Related Recovery Measures

The Goods and Services Tax (GST) framework includes specific provisions that enable taxpayers to settle their liabilities through installments, subject to official approval. This article explores the details of making GST payments in installments and outlines other critical recovery mechanisms.

Payment of GST in Installments (CGST Section 80)

If a taxpayer finds it challenging to remit their total GST obligations, including tax, interest, or penalties, as a single payment or by the due date, they can submit an application to the Commissioner requesting permission for installment payments. This request should be made using Form DRC-20, providing details of the outstanding amount, justification for the installment plan, and any supporting documentation for financial hardship.

The Commissioner, in turn, can approve the payment extension or installment plan via Form DRC-21. All approvals or rejections must be communicated in writing with clear reasons.

However, certain conditions prevent a taxpayer from utilizing this installment option:

• If the GST dues are already subject to ongoing recovery actions.
• If installment payment was not permitted in the previous financial year.
• If the total GST amount owed is less than Rs. 25,000.

Key considerations for taxpayers making payments in installments include:

• Installments must be paid every month.
• A maximum of 24 installments is permitted, extending the payment period up to two years.
• An annual interest rate of 18% is applicable and must be paid with each installment.
• Timely payment of all installments is crucial. A single default will immediately revoke the installment arrangement, making the entire outstanding balance due. No further notice will be issued in such cases.

For instance, if an individual is approved to pay Rs. 12,000 in 12 monthly installments starting in April, and defaults on the June 30th payment, the remaining Rs. 10,000 immediately becomes due on July 1st.

It is important to note that this installment facility does not apply to self-assessed tax liabilities, which must be paid in full. This option is exclusively available for liabilities determined by tax authorities through processes like provisional/final assessments, scrutiny, or audits.

Property Transfers May Be Voided for Unpaid GST (CGST Section 81)

To recover outstanding GST amounts, authorities are empowered to seize a defaulter's assets. Some defaulters may attempt to evade payment by placing a charge on or transferring their property (e.g., through sale, mortgage, or exchange) once the tax liability is established. Such transfers, if intended to defraud the government, can be declared void.

However, a property transfer will remain valid under specific circumstances:

• The transfer occurred for sufficient monetary consideration.
• The transfer was executed in good faith, without any intent to defraud.
• The taxpayer had not yet received any official notice concerning pending tax obligations or ongoing proceedings.
• Prior approval from the appropriate officer was secured before the transfer.

Consider an example where an individual, facing Rs. 10 lakhs in GST dues from February 2025, sold their apartment for Rs. 50 lakhs in May 2025, having advertised it in January 2025. This transfer would be considered valid due to adequate consideration. Conversely, if the same individual received a demand notice in April 2025 and subsequently gifted their apartment to a family member, this transfer could be voided as it suggests an intention to defraud.

Tax as the Primary Claim on Property (CGST Section 82)

According to GST recovery statutes, any unpaid tax amount, along with associated interest and penalties, establishes a primary claim or 'first charge' on the taxable person's property. This claim takes precedence over all other laws, with the sole exception of the Insolvency and Bankruptcy Code, 2016 (as periodically amended).

For instance, if a defaulter has a Rs. 10,000 GST tax liability and a Rs. 250,000 bank loan, possessing an asset (e.g., a car) valued at Rs. 50,000, the GST tax will be recovered first. The remaining Rs. 40,000 from the asset's value would then be available to the bank. This principle is common across India's tax legislation. Historically, the Supreme Court ruled that statutory dues only take priority over secured creditors if explicitly stated in the specific law. To address this, major tax laws, including the GST Act, now include provisions granting tax dues a first charge.

Provisional Property Attachment for Revenue Protection (CGST Section 83)

When the Commissioner believes that government revenue is at risk, they possess the authority to provisionally attach any property belonging to a defaulter, or a person identified under CGST Section 122(1A) (e.g., for failing to register specific manufacturing machinery). This temporary attachment is applied in scenarios involving pending cases such as:

• Assessments for taxpayers who have not filed their returns (Chapter XII).
• Assessments for unregistered individuals determined to be liable for registration (Chapter XII).
• Summary assessments (Chapter XII).
• Inspections, searches, and seizures (Chapter XIV).
• Demand and recovery actions, both in cases of fraud and non-fraud (Chapter XV).

It is important to note that 'property' in this context includes bank accounts, and a provisional attachment remains valid for a period of one year. This measure serves as a temporary safeguard during the pursuit of a final judgment, often implemented when there is a strong suspicion that a defaulter might abscond. It places the property under the custody of GST authorities, restricting the owner's ability to remove or dispose of it.

Recovery Protocols During Appeals and Revisions

When a taxpayer contests a demand notice through an appeal or revision, the outcome can lead to two main scenarios:

a) Increase in Due Amount

If the appeal results in an increase in the originally demanded amount, the Commissioner will issue a new demand notice specifically for the additional sum. The initial amount remains covered by the preceding notice. For example, if an initial demand of Rs. 10,000 is appealed and subsequently raised to Rs. 12,000, a new notice will only be issued for the Rs. 2,000 difference.

b) Decrease in Due Amount

Should the appeal lead to a reduction in the outstanding amount, no new notice is issued. The Commissioner will notify the taxpayer of the revised, lower amount and also inform the authority handling the recovery proceedings. The recovery process will then proceed based on this reduced figure. For instance, if an original demand of Rs. 10,000 is reduced to Rs. 8,000 on appeal, the existing proceedings will continue with the adjusted amount without a new notice.