Mudra Compass

If you receive a GST demand order, you have the option to either appeal the order or pay the demanded amount. However, GST officials have the authority to request payment before the stipulated time period of three months if they believe it is necessary for the “interest of revenue.” Unfortunately, this provision has been misused by some GST field officers. To curb this misuse, the Central Board of Indirect Taxes & Customs (CBIC) has issued new clarification guidelines. These guidelines mandate that GST field officers must obtain prior approval from a higher authority before initiating any demand recovery actions.

How will the guideline on demand recovery proceedings work?

According to a circular issued by the CBIC on May 30, 2024, some GST field officers have initiated GST demand recovery proceedings in the “interest of revenue” before the stipulated time period, even in cases where it was not specifically required.

To prevent unnecessary harassment of taxpayers, the CBIC has issued new instruction guidelines. These guidelines specify that GST field officers must follow a set procedure before initiating the demand recovery process within three months from the date of the GST demand notice service.

Under these guidelines, the CBIC has emphasized that a GST proper officer must provide justification to a higher authority, such as the jurisdictional principal commissioner or commissioner of central tax, for initiating GST demand recovery proceedings before the stipulated response time given to a registered person.

The jurisdictional principal commissioner or commissioner of central tax will then review the reasons and justifications provided by the GST proper officer and must be convinced of their validity before approving the early initiation of demand recovery proceedings.

What did CBIC say about reasons that constitute ‘interest of revenue’?

According to the circular, several reasons can justify actions taken in the ‘interest of revenue.’ These include:

• The taxable person is likely to close business operations in the near future,
• There is a possibility of default by the taxable person due to deteriorating financial conditions,
• Impending insolvency, or
• The likely initiation of proceedings under the Insolvency and Bankruptcy Act, among other reasons.

“Reasons to believe for apprehension of risk to revenue should be grounded in credible evidence, which should be documented as much as possible. It is implicit that directives for early payment of the confirmed demand should not be issued mechanically. Such directives must be issued only in cases where safeguarding the interest of revenue is necessary due to specific apprehensions or circumstances in the given case,” stated the CBIC in the circular dated May 30, 2024.

What do the new guidelines say about GST demand orders?

According to the CBIC order dated May 30, 2024, the guidelines outline the procedure and hierarchy to be followed if a taxpayer is asked to pay a pending GST demand before the three-month period:

• Recovery proceedings under section 79 (1) of the CGST Act must be conducted by the jurisdictional deputy or assistant commissioner of Central tax.
• However, if it is deemed necessary to initiate recovery proceedings for an amount payable by a taxable person before the completion of three months in the interest of revenue, the jurisdictional deputy or assistant commissioner must present the case to the jurisdictional principal commissioner or commissioner of central tax, along with the reasons/justifications for such an action.
• The jurisdictional principal commissioner or commissioner of central tax will then examine the provided reasons/justifications. If they are satisfied that it is expedient in the interest of revenue to request the taxable person to pay the amount before the three-month period concludes, they will document their reasons in writing.
• After recording these reasons in writing, they may issue directions to the assistant or deputy commissioner to commence the recovery process under section 79.

The CBIC circular further states that the jurisdictional principal commissioner or commissioner of central tax must provide specific reasons for requesting the taxable person to make an early payment of the said amount. These reasons should clearly outline the circumstances that necessitate such early action.

How do these new guidelines impact you?

According to experts, these new guidelines are beneficial for taxpayers who previously faced difficulties when GST officials demanded payment of the GST demand amount before the three-month period had elapsed.

Conclusion

The new guidelines by CBIC mark a significant step towards ensuring fair and transparent GST demand recovery proceedings, safeguarding taxpayers from unwarranted harassment and undue pressure.