Recovery Notice (DRC-13) quashed; Automatic Stay triggers upon filing Appeal with Pre-deposit

Issue

Whether recovery proceedings initiated via Form DRC-13 (Notice to Bank/Third Party) can continue or must be withdrawn once the taxpayer files a statutory appeal under Section 107 and pays the mandatory 10% pre-deposit.

Facts

The Demand: The petitioner suffered two demand orders in October 2022.
The Recovery Action: On 23.07.2025, the Department issued a notice in Form DRC-13 to the petitioner’s bank under Section 79, attaching the account to recover the dues.
The Bank’s Response: The bank froze the account and issued a Demand Draft (DD) for the amount, but the DD was not yet encashed by the Department.
The Appeal: One day later, on 24.07.2025, the petitioner filed statutory appeals against the orders and deposited the mandatory 10% pre-deposit.
The Conflict: The petitioner argued that once the appeal is filed and pre-deposit is paid, the balance recovery is legally stayed. The State acknowledged that post-pre-deposit, no further recovery is warranted pending the appeal.

Decision

Statutory Stay: The High Court recognized that under Section 107(6) and (7), once the appellant pays the admitted tax and 10% of the disputed tax, the recovery proceedings for the balance amount are deemed to be stayed automatically.
Loss of Efficacy: Although the DRC-13 was issued a day before the appeal was filed, it lost its efficacy and relevance the moment the pre-deposit conditions were met. Continuing recovery after that point is illegal.
Directions:
- The impugned communication (DRC-13) dated 23.07.2025 was quashed and set aside.
- The Department was directed to return the Demand Draft to the petitioner.
- The Bank was directed to de-freeze the petitioner’s account immediately.

Key Takeaways

The Power of Pre-deposit: Paying the 10% pre-deposit is not just an entry ticket to the Appellate Authority; it is a shield against recovery. It legally forbids the Department from touching the remaining 90% of the disputed amount until the appeal is decided.

DRC-13 Reversal: If your bank account was attached before you could file the appeal, filing the appeal immediately with the pre-deposit forces the Department to withdraw the attachment. The stay applies retrospectively to pending recovery actions that haven’t been fully realized (i.e., money not yet credited to Govt account).

HIGH COURT OF HIMACHAL PRADESH

Samrat Marble Granite and Tiles

Union of India^*

Vivek Singh Thakur and Romesh Verma, JJ.

CWP No.17045 of 2025

NOVEMBER 24, 2025

Amit Aggarwal, Rajeev Sharma and Shamul Kaushal, Advs. for the Petitioner. Bharat Bhushan, Sr. Panel Counsel, Sushant Keprate, Addl. Adv. General, Aditya Sood and Praveen Sharma, Advs. for the Respondent.

ORDER

Vivek Singh Thakur, J.- Grievance of the petitioner in the present case is that, after suffering orders dated 13.10.2022 (Annexure P-2) and 14.10.2022 (Annexure P-3) passed by the Assistant Commissioner, State Taxes and Excise, the petitioner preferred two appeals under Section 107 of Central Goods and Services Tax Act, 2017 (in short, ‘CGST Act’). The requisite pre-deposit under Section 107(6) of the CGST Act has also been deposited by petitioner before the Appellate Authority. However, despite this, respondents have issued the impugned DRC-13 (recovery notice) dated 23.07.2025 (Annexure P-4) by invoking the provisions of Rule 145(1) of the Central Goods and Services Tax Rules, 2017 (in short, ‘CGST Rules’), read with Section 79(1)(c) of the CGST Act, to the Branch Manager, Punjab National Bank, VPO Dhanas, Chandigarh, directing the Bank to pay the amount which is under challenge in the appeals to the Government, and as a result, the petitioner’s account has been freezed by the Bank.

2. In response, learned Additional Advocate General has placed on record instructions dated 22.11.2025 received from Assistant Commissioner of State Taxes and Excise, Paonta, Circle-II, Himachal Pradesh, whereby it has been stated that impugned communication dated 23.07.2025 (Annexure P-4) was issued prior to filing of the appeals by the petitioner, as the petitioner’s appeals were preferred on 24.07.2025 and the amount with the Appellate Authority was also deposited on the same day. It is further submitted that the demand draft issued by Punjab National Bank, in furtherance of the aforesaid impugned communication, for enabling respondent No.3 to realize the additional demand, has not been encashed, and that after receiving information regarding filing of the appeals along with pre-requisite deposit of 10% of the demanded amount, no such action is warranted against the petitioner, subject to the final outcome of the appeals.

3. In view of aforesaid facts and circumstances, especially the instructions placed on record by learned Additional Advocate General, the impugned communication dated 23.07.2025 (Annexure P-4) has lost its efficacy and relevancy, and accordingly, the same is quashed and set aside. Resultantly, the demand draft handed over by respondent No.4-Bank to respondent No.3 shall be returned by respondent No.3 to the petitioner on or before 08.12.2025, and the account of the petitioner shall be de-freezed. It is clarified that quashing of the impugned communication is confined to aforesaid facts and circumstances and we have not adjudicated the merits of the additional demand raised by the respondent-authority and disputed by the petitioner, and the said issue shall be adjudicated by the Competent Authority as provided under the CGST Act.

4. The petition is disposed of in above terms, so also the pending application(s), if any.