GST: High Court Holds Recovery Action Invalid for Failure to Serve Notice Under Section 79(1)(c) of CGST Act

The Petitioner, M/s. Galaxy International filed a petition challenging the notice dated 09.07.2024 issued under Section 79(1)(c) of the CGST Act. The notice was for the recovery of Rs 30.19 crores, allegedly owed by another entity, M/s. Durga Madhab Panda (Urneed Online Retail).

Section 79(1)(c) gives authority to the GST tax officer to issue a notice to the person who owes money to the defaulter. As per Section 79(1)(c), “5. Section 79 of the CGST Act, 2017 is concerned with the recovery of tax. Section 79 (1) (c) (i) provides that the proper officer may, by a notice in writing, require any other person from whom money is due or may become due to such person or who holds or may subsequently hold money for or on account of such person, to pay to the Government either forthwith upon the money becoming due or being held, or within the time specified in the notice not being before the money becomes due or is held, so much of the money as is sufficient to pay the amount due from such person or the whole of the money when it is equal to or less than that amount.”

However, the impugned notice was not issued to the petitioner but was addressed to the Branch Manager of a Bank at Gurugram. The petitioner claims that the petitioner does not have any bank account at Gurugram, and the bank account mentioned in the order is with the Mulund Branch.

Petitioner’s Argument

• The petitioner claimed that it does not owe money to Durga Madhab Panda.
• The petitioner does not have any bank account in Gurugram, where the notice was issued. Also, the bank account mentioned in the order was the Mulund Branch.
• The notice was never served on the petitioner, so the petitioner was not given a fair chance to explain their side.

Bombay HC Decision

The High Court of Bombay referred to the judgement passed in the case of S.J.R. Prime Corporation Pvt. Ltd. Vs. Superintendent of Central Tax, Bengaluru 1, in which the notice was directly sent to the bank and not to a person, who they believed owed money to a person in default. Here, the court noted that this was a violation of the mandatory procedure prescribed under the CGST Act. The law requires that a notice should first be sent to the person or company from whom the authority wants to recover money, not directly to the bank. In the mentioned case, the order was quashed.

Therefore, the High Court quashed and set aside the notice dated 9 July 2024. The tax authority is allowed to issue a fresh notice with proper legal steps. Galaxy International confirmed that the correct address of the company is the one shown in the cause title of this petition.