The Central Board of Indirect Taxes and Customs (CBIC) has recently issued Instruction No. 01/2024-GST dated May 30, 2024, outlining guidelines for the initiation of recovery proceedings under the Central Goods and Services Tax Act, 2017 (CGST Act). These guidelines underscore the importance of adhering to the specified timeframes for initiating such proceedings.

According to Section 78 of the CGST Act, if a taxable person fails to pay any amount within three months of the service of the order, the proper officer is mandated to initiate recovery proceedings. However, there exists a provision wherein, in certain circumstances deemed vital for revenue protection, the proper officer may require payment within a timeframe shorter than three months, provided reasons are recorded in writing.

The CBIC has observed instances where recovery proceedings are being initiated before the stipulated three-month period, without proper justification from the proper officer. To ensure consistency and adherence to the law across field formations, the CBIC, exercising its authority under Section 168 of the CGST Act, issues the following instructions for cases necessitating early initiation of recovery proceedings in the interest of revenue.

As per Circular No. 3/3/2017-GST dated July 5, 2017, recovery under Section 79 of the CGST Act is the responsibility of the jurisdictional Deputy or Assistant Commissioner of Central Tax, whereas the proper officer under the proviso to Section 78 is the jurisdictional Principal Commissioner/Commissioner of Central Tax.

In cases where early initiation of recovery proceedings is deemed necessary, the jurisdictional Deputy or Assistant Commissioner of Central Tax must present the matter to the jurisdictional Principal Commissioner/Commissioner of Central Tax, along with detailed reasons or justifications for such action. The Principal Commissioner/Commissioner will assess these reasons and, if satisfied with the need for early payment, may issue written directions to the taxable person, specifying the shortened timeframe for payment. Copies of these directions should be provided to the jurisdictional Deputy or Assistant Commissioner for their records.

It’s imperative that the Principal Commissioner/Commissioner outlines specific reasons prompting the early action, such as the risk to revenue due to potential business closure, financial instability, or impending insolvency of the taxable person. These reasons should be substantiated by credible evidence. Moreover, the financial health and credibility of the taxable person must be duly considered, striking a balance between revenue protection and facilitating business operations.

If the taxable person fails to comply with the specified payment timeframe, the jurisdictional Deputy or Assistant Commissioner of Central Tax shall proceed with recovery proceedings as per the procedure outlined in Section 79(1) of the CGST Act.