Recovery of Interest on Delayed Tax Payment Quashed for Failure to Issue Form GST DRC-01D
Issue
Whether the GST department can directly initiate recovery proceedings (such as attaching a bank account via Form GST DRC-13) for short payment of interest on delayed tax, without first following the mandatory procedure of issuing an intimation in Form GST DRC-01D and affording the taxpayer an opportunity to be heard.
Facts
The Petitioner: Bombay Art, a registered taxpayer (likely a partnership or proprietorship based on context).
The Demand: The department issued a notice alleging short payment of interest on delayed payment of tax (self-assessed in returns).
The Recovery Action: Without further adjudication or specific statutory notice (DRC-01D), the department issued a notice in Form GST DRC-13 to the petitioner’s bank. This notice directed the bank to hold a lien/attach an amount of ₹23.17 lakh from the petitioner’s accounts.
Payment under Protest: Following the coercive attachment, the petitioner paid ₹7.5 lakh under protest.
Petitioner’s Plea: The petitioner challenged the action in the Gujarat High Court, arguing that no recovery proceeding could be contemplated under Section 79 without first providing an opportunity for a hearing and considering their submissions regarding the liability.
Decision
The Gujarat High Court ruled in favour of the assessee and quashed the impugned recovery notice (DRC-13).
Mandatory Procedure (Rule 142B): Relying on its recent ruling in Reliance Formulation (P.) Ltd., the Court held that recovery of interest on self-assessed tax under Section 79 is not automatic. It must be preceded by the specific procedure prescribed under Rule 142B of the CGST Rules.
Form GST DRC-01D: The proper officer is statutorily required to issue an intimation in Form GST DRC-01D for any amount (tax or interest) recoverable under Section 79 due to differences in self-assessment or interest delays.
Natural Justice: The issuance of DRC-01D must be followed by an opportunity for the taxpayer to file a reply and, if requested, a personal hearing. Direct recovery without this step violates principles of natural justice.
Partial Payment Irrelevant: The fact t3hat the petitioner paid ₹7.5 lakh under protest did not cure the initial 4procedural illegality of bypassing the adjudication process.
Directions: The department was directed to initiate proceedings afresh by adopting the proper procedure (issuing DRC-01D) and allowing the petitioner to contest the demand.
Key Takeaways
No Direct Recovery for Interest: Tax authorities cannot jump straight to bank attachment (Section 79) for interest dues. They must follow the “Intimation $\rightarrow$ Reply $\rightarrow$ Order” route.
Form GST DRC-01D is the Key: This specific form is the statutory trigger for recovering unpaid self-assessed liability or interest thereon (Rule 88C/142B). A generic letter or advisory is insufficient to ground coercive recovery.
Right to be Heard: Even for “automatic” liabilities like interest under Section 50, the taxpayer has a right to explain calculation errors or dispute the delay before money is taken from their bank account.
Precedents: The judgment solidifies the ratio of Rajkamal Builder and Reliance Formulation, making it clear that procedural shortcuts in recovery will not be tolerated by the courts.