Case Background
The petitioner is a proprietorship firm engaged in works contract services for the Government of Bihar, mainly construction of buildings. The firm is registered under GST in the Jehanabad Circle.
For the tax period March 2020, the petitioner filed its GSTR-3B return on 07.12.2020. In that return, it claimed Input Tax Credit (ITC) of Rs. 24,45,934/- under Central Goods and Services Tax (CGST) and Rs. 24,45,934/- under State Goods and Services Tax (SGST), totalling Rs. 48,91,868/-.
On 22.12.2020, the Assistant Commissioner of State Tax issued an intimation in Form GST DRC-01A under Section 73(5) of the CGST/BGST Act, 2017. Thereafter, on 31.12.2020, a show cause notice in Reference No. ZD101220030391G was issued, alleging that the March 2020 return had been filed beyond the time limit prescribed by Section 16(4) of the CGST/BGST Act, 2017, and calling upon the petitioner to show cause why the ITC of Rs. 48,91,868/- should not be disallowed and recovered.
The petitioner replied that he had been suffering from Covid-19 infection with acute fever and was kept in complete isolation for 21 days during the relevant period. Because of this, he could not file GSTR-3B within the statutory time. This explanation, however, was rejected.
On 09.02.2021, by order having Reference No. ZD1002210074748, the Assistant Commissioner of State Tax, Jehanabad, determined a total liability of Rs. 55,64,402/-, including tax, penalty and interest, and directed that recovery proceedings be initiated if payment was not made.
The petitioner filed an appeal before the Additional Commissioner of State Tax (Appeals), Magadh Division, Gaya, in Appeal Case No. JB/GST-45/2020-21. On 30.11.2022, the Appellate Authority dismissed the appeal, upholding the order dated 09.02.2021 and holding that in view of Section 16(4) of the BGST Act, 2017, it had no power to extend the time for filing the return and ITC claim.
After dismissal of the appeal, no demand notice was issued to the petitioner personally. Instead, on 28.12.2022, within 28 days of the appellate order, the Department directly wrote to the petitioner’s employer, Bihar State Building Construction Corporation Limited (Respondent No. 4), and recovered Rs. 50,75,214/- from the petitioner’s beneficiary account (PLA-238) on 02.01.2023.
The petitioner then approached the Patna High Court through this writ petition, challenging the appellate and original orders, the show cause notice, and the recovery, and also seeking refund of the recovered amount with penal interest.
What the Court Examined and Decided
The Patna High Court, sitting in a Division Bench, examined two core aspects: first, the impact of a new statutory provision on the petitioner’s claim of ITC; and second, the legality of the recovery carried out from the petitioner’s bills within a short time after the appellate order.
On the ITC issue, the petitioner relied on sub-section (5) of Section 16 of the CGST/BGST Act, 2017. This provision was inserted by the Finance (No. 2) Act, 2024 with retrospective effect from 01.07.2017, notified by Notification No. 17/2024 (S.O. 4253(E)) – Central Tax, dated 27.09.2024.
The Court reproduced Section 16(5), which starts with a non-obstante clause overriding Section 16(4). It provides that for invoices or debit notes pertaining to financial years 2017-18 to 2020-21, a registered person shall be entitled to take ITC in any return under Section 39 filed up to 30.11.2021.
The Bench noted that this new sub-section extended the time for claiming ITC for the specified years and allowed ITC where returns were filed up to 30 November 2021. Importantly, the Appellate Authority’s order dated 30.11.2022 was passed before the insertion of Section 16(5). Therefore, the Appellate Authority did not have the benefit of considering this retrospective change in law.
In view of this legislative development, the State’s counsel fairly accepted that the matter deserved reconsideration by the Appellate Authority. The Court agreed and held that the appellate order required to be revisited in light of Section 16(5).
Accordingly, the Court set aside the impugned order of the Additional Commissioner of State Tax (Appeals) (Annexure P-1) and the consequential recovery related to the ITC disallowance. The case was remanded to the Appellate Authority for fresh consideration, this time taking into account Section 16(5) of the CGST/BGST Act, 2017.
The Court then turned to the recovery issue. The petitioner pointed out that the appeal was dismissed on 30.11.2022, no post-appeal notice was issued to him, and yet, the Department wrote directly to his employer and recovered the money on 02.01.2023. This, he argued, violated Section 78 of the CGST/BGST Act, 2017, which requires a three-month period from the date of service of the order before initiating recovery, unless reasons are recorded in writing for earlier recovery.
The petitioner relied on a judgment of a Coordinate Bench of the Patna High Court in Sita Pandey v. State of Bihar and Others, reported in (2024) 128 GSTR 137 : 2023 SCC OnLine Pat 2827. In that case, recovery had been made the day after dismissal of the appeal. The Bench there had held that such recovery violated Section 78, applied the guidelines from UTI Mutual Fund v. Income-Tax Officer and Others, (2012) 345 ITR 71 (Bom) : 2012 SCC OnLine Bom 390, and ordered refund of the amount with conditions.
In the present case, the State argued that the notice to the employer was issued under Section 79 of the CGST/BGST Act, 2017, which provides various modes for recovery, including garnishee proceedings. The Bench therefore examined Sections 78 and 79 together.
The Court reproduced Section 78, which clearly states that any amount payable under an order must be paid within three months from the date of service of such order, failing which recovery proceedings shall be initiated. The proviso permits shorter time only where the proper officer, for reasons recorded in writing, finds it expedient in the interest of revenue.
The Court then reproduced Section 79 in detail, which sets out different modes of recovery such as deducting from money under control of the officer, detaining and selling goods, issuing garnishee notices to persons who owe or may owe money to the taxpayer, attachment and sale of property, recovery as arrears of land revenue, or treating the amount as a fine recoverable by a Magistrate.
On a conjoint reading, the Court held that Section 79 can be used only once the taxpayer fails to pay within the period contemplated by Section 78. Section 79 does not give standalone power to ignore the three-month grace period; rather, it prescribes the modes of recovery after the conditions under Section 78 are satisfied.
The Court concluded that the Recovery Officer was required to wait for three months from the date of service of the appellate order before resorting to any of the modes in Section 79, unless reasons were recorded in writing for earlier recovery. In this case, recovery from the petitioner’s employer within about a month of the appellate order, and without showing any recorded reasons, was held to be in haste and contrary to the statute.
During the hearing, the State Counsel initially attempted to defend the recovery. However, when the Bench asked him to assist the Court in correctly interpreting Sections 78 and 79, he fairly conceded that both provisions, read together, required the Taxing Authority to wait for three months after service of the order before initiating recovery proceedings, save in exceptional cases duly recorded in writing.
The Court relied on the earlier decision in Sita Pandey, where the Coordinate Bench had also referred to the Constitution Bench judgment in Mohinder Singh Gill and Another v. Chief Election Commissioner, New Delhi and Others, (1978) 1 SCC 405, to stress the importance of fair hearing and proper exercise of statutory powers, and had adopted the recovery guidelines from UTI Mutual Fund.
In Sita Pandey, the Bench had issued a set of guidelines: no recovery during the appeal time limit and pending stay application; reasonable time after stay rejection to enable approaching a higher forum; early recovery only with notice and recorded reasons; and prior reasonable notice before withdrawing from bank accounts. The present Bench held that this case was covered by the same principles.
The Court also quoted the Supreme Court in R.S. Joshi, Sales Tax Officer, Gujarat v. Ajit Mills Limited, (1977) 40 STC 497 : (1977) 4 SCC 98, warning against “valiant tax executives” forgetting their quasi-judicial role and acting merely as tax gatherers, emphasising that such deviance risks the validity of their orders.
On facts, the Bench found that Rs. 50,75,214/- had been recovered from the petitioner’s bill routed through Respondent No. 4 in clear violation of Section 78, and in disregard of the judicial guidelines. The recovery was declared illegal.
The Court directed the respondents to refund Rs. 50,75,214/- within two weeks from the date of judgment, failing which interest at 12% per annum would apply. Additionally, considering that the amount had been held by the State since 02.01.2023 for over two years and four months, and that the State could not unjustly enrich itself through such unlawful recoveries, the Court ordered payment of simple interest at 6% per annum on the recovered amount from the date of recovery till the date of refund, to be paid within the same two-week period.
The Court noted that the petitioner had already deposited 10% of the tax dues before the Appellate Authority and that amount was still lying there. It did not disturb this deposit. The Assistant Commissioner, State Tax, Jehanabad Circle had tendered an unconditional apology in paragraph 32 of the counter affidavit; the Court accepted the apology and refrained from imposing costs.
The writ petition was allowed to the extent of setting aside the appellate order and consequential recovery, remanding the ITC dispute to the Appellate Authority, and directing refund with interest as detailed above.
Why This Judgment Matters
This judgment is significant for contractors and small businesses dealing with GST authorities in Bihar and beyond. It sends a clear message that tax officers cannot ignore the statutory waiting period before recovery and cannot directly divert payments from government employers without following Section 78.
The Patna High Court’s decision protects taxpayers from sudden, surprise recoveries that can cripple their cash flow, especially when they may be planning to pursue further remedies. It confirms that the three-month window after an order is not a formality but a legal right, unless properly curtailed with recorded reasons in exceptional cases.
The judgment also highlights the impact of the retrospective insertion of Section 16(5) of the CGST/BGST Act, 2017. Taxpayers whose ITC for financial years 2017-18 to 2020-21 was denied only for late filing may now have their claims reconsidered if their returns were filed by 30.11.2021. Appellate authorities are obliged to re-examine such cases in light of this change.
For laypersons, the case shows that even when the tax department has strong powers, those powers are controlled by time limits, procedures, and fairness requirements. If those are violated, courts can order refund with interest and remind officers of their quasi-judicial responsibilities.
Legal Issues and Answers
- Issue: Whether the petitioner’s claim for ITC for March 2020, filed after the original time under Section 16(4), could still be considered in view of the later insertion of Section 16(5) of the CGST/BGST Act, 2017.
Answer: The Court held that Section 16(5), inserted with retrospective effect and extending time for ITC claims up to 30.11.2021, had not been considered by the Appellate Authority. The appellate order was therefore set aside and the matter remanded for fresh consideration in light of Section 16(5). - Issue: Whether the recovery of Rs. 50,75,214/- from the petitioner’s bills within about a month of the appellate order, by writing directly to the employer, was lawful under Sections 78 and 79 of the CGST/BGST Act, 2017.
Answer: No. The Court held that the Recovery Officer was bound to wait three months from the date of service of the order before initiating recovery, unless reasons were recorded in writing for earlier recovery. Section 79 only provides modes of recovery and must be read with Section 78. The recovery was held to be in haste and in violation of statutory provisions and prior judicial guidelines, and refund with interest was ordered.
Cases Cited by the Court
- Sita Pandey v. State of Bihar and Others, (2024) 128 GSTR 137 : 2023 SCC OnLine Pat 2827
- UTI Mutual Fund v. Income-Tax Officer and Others, (2012) 345 ITR 71 (Bom) : 2012 SCC OnLine Bom 390
- R.S. Joshi, Sales Tax Officer, Gujarat v. Ajit Mills Limited, (1977) 40 STC 497 : (1977) 4 SCC 98
- Mohinder Singh Gill and Another v. Chief Election Commissioner, New Delhi and Others, (1978) 1 SCC 405
Case Details
Case Number: Civil Writ Jurisdiction Case No. 17860 of 2024
Case Title: Kaushlendra Kumar v. The State of Bihar & Others
Coram: Hon’ble Mr. Justice Rajeev Ranjan Prasad; Hon’ble Mr. Justice Ashok Kumar Pandey
Citation: 2025(3) PLJR 125
Date of Judgment: 01.05.2025 (Uploading Date: 02.05.2025)
Advocates:
For the Petitioner: Mr. Akshansh Ankit, Advocate; Mr. Rudra Pratap Singh, Advocate; Mr. Aditya Prakash, Advocate; Mr. Prakash Kumar, Advocate
For Respondent Nos. 1 to 3: Mr. Vikash Kumar, SC-11
For Respondent No. 4: Ms. Rushali, Advocate
Nature of the Case: Writ petition under Article 226 challenging GST assessment, appellate order, show cause notice, and recovery proceedings, with prayer for refund of recovered amount.
Link to Judgement ; https://patnahighcourt.gov.in/viewjudgment/MTUjMTc4NjAjMjAyNCMxI04=-Yjvlr–ak1–pWqj4=
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