A 10% pre-deposit for a GST appeal automatically stays any further recovery action.

A 10% pre-deposit for a GST appeal automatically stays any further recovery action.

Issue

Once a taxpayer has made the mandatory 10% pre-deposit of a disputed tax demand in order to file a statutory appeal under Section 107 of the CGST Act, can the tax authorities legally continue to attach or freeze the taxpayer’s bank accounts to recover the balance disputed amount while the appeal is pending?

Facts

• A taxpayer, against whom a GST demand was raised, decided to challenge the demand by filing an appeal.
• As required by the law, they duly complied with the pre-condition for filing the appeal and deposited 10% of the disputed tax amount as a pre-deposit.
• Despite the taxpayer having fulfilled this condition and filed the appeal, the GST authorities continued to attach or restrain the taxpayer’s funds and bank accounts. Their aim was to recover the remaining 90% of the disputed demand even though the matter was now under appeal.
• The taxpayer challenged this coercive action in the Andhra Pradesh High Court. The High Court ruled in their favour, holding that the attachment was illegal once the pre-deposit was made.
• The Revenue department, not satisfied with the High Court’s judgment, then filed a Special Leave Petition (SLP) in the Supreme Court.

Decision

The Supreme Court dismissed the Revenue Department’s Special Leave Petition (SLP).

• This dismissal by the nation’s highest court effectively upholds and gives its final stamp of approval to the judgment of the Andhra Pradesh High Court.
• The final and binding legal position is that once a taxpayer makes the mandatory 10% pre-deposit as required under Section 107 of the GST Act, a statutory stay on the recovery of the balance disputed amount automatically comes into effect. The department cannot take any further coercive action, such as attaching bank accounts, for that demand while the appeal is pending.

Key Takeways

1. A Pre-deposit Triggers an Automatic Stay: The payment of the 10% pre-deposit is not just a procedural fee to file an appeal; it is the legal trigger for an automatic and statutory stay on the recovery of the remaining 90% of the disputed demand. The taxpayer does not need to file a separate application for this stay.
2. No Further Coercive Action is Permitted: Once the pre-deposit is paid and the appeal is properly filed, the tax department is legally barred from continuing or initiating any coercive recovery measures like freezing bank accounts, attaching other assets, or adjusting refunds against that specific disputed demand.
3. The Purpose of the Pre-Deposit Provision: The pre-deposit provision in the law is a carefully designed balancing act. It ensures that the government’s interest is partially secured by getting a portion of the disputed tax upfront. At the same time, it protects the taxpayer from the undue hardship of having to pay the full disputed amount before their case has been fairly heard by an independent appellate authority.
4. This is Now a Settled and Binding Law: The Supreme Court’s dismissal of the department’s SLP on this issue provides clear and binding certainty for all taxpayers and tax authorities across the country. The law is now unambiguously settled.