WP No.11054 of 2023 (T-RES)

Facts of the Case

Mindlogicx Infratec Limited, a company represented by its Director, was assessed by the Deputy Commissioner of Commercial Taxes (Audit) by an adjudication order dated 03.03.2023, raising a total demand of Rs.2,09,43,366 comprising tax of Rs.52,18,878, interest of Rs.1,52,02,600 and penalty of Rs.5,21,888 for FY 2017-18. Following non-payment, the respondent issued multiple bank-attachment orders under Section 79(1)(c) of the KGST Act, 2017 read with Rule 145(1) of the KGST Rules, attaching the petitioner's receivables not from its own bank account directly but from third parties owing money to it, including Aryabhatta Knowledge University and Sant Gadge Baba Amravati University, effectively freezing payments due to the company from its institutional clients. The petitioner had already paid Rs.50,00,000 in two tranches of Rs.25,00,000 each, and approached the Karnataka High Court seeking to quash the attachment orders and to pay the balance amount due, Rs.1,59,43,267, in instalments.

Issues Involved

  1. Whether the bank-attachment orders issued under Section 79(1)(c) of the KGST Act could be vacated on the petitioner furnishing an undertaking to pay the balance amount in a phased manner.
  2. The terms on which recovery proceedings against a defaulting taxpayer's receivables should be relaxed pending payment.

Petitioner's Arguments

  • The petitioner sought quashing of the attachment orders and offered to pay the balance amount of tax due, Rs.1,59,43,267, in three instalments.
  • An undertaking affidavit was filed by the Director confirming payment of Rs.50,00,000 already made, and committing to pay the remaining Rs.1,59,43,360 within 90 days, i.e., on or before 03.10.2023.

Respondent's Arguments

  • The Additional Government Advocate submitted that the undertaking affidavit must be strictly adhered to, with clear consequences stipulated in the event of default.

Court Order / Findings

  • Taking note of the contents of the undertaking affidavit, the Court vacated the orders of attachment relating to the receivables other than one, while directing that the attachment concerning Sant Gadge Baba Amravati University would continue for 90 days until the undertaken sum of Rs.1,59,43,360 was paid.
  • The Court made clear that no further extension of time would be granted, and that default would expose the deponent to contempt proceedings, besides reserving liberty to the respondents to initiate recovery proceedings on default.
  • It was clarified that the surviving attachment would stand lifted automatically upon payment of the undertaken amount within the stipulated period. The petition was disposed of accordingly.

Important Clarification

  • Courts will readily relax multiple recovery attachments under Section 79(1)(c) where the taxpayer furnishes a credible, time-bound payment undertaking, retaining only a limited security attachment as a fallback rather than freezing every available source of receivables.
  • Such relief is strictly conditional — courts typically build in an automatic default consequence (including exposure to contempt) and expressly preserve the department's liberty to resume recovery if the undertaking is breached.
  • An undertaking affidavit filed by a company's director, once accepted by the court and made part of the order, becomes independently enforceable, exposing the deponent personally to contempt proceedings for non-compliance, over and above the department's ordinary recovery remedies.

Sections Involved

  • Section 79(1)(c), KGST Act, 2017 — empowers the proper officer to recover tax dues by requiring any person owing money to the defaulter to pay it to the Government.
  • Rule 145(1), KGST Rules, 2017 — prescribes the manner of issuing such recovery notices to third parties.

Decision – In Favour of

The outcome was disposed of on negotiated terms rather than a clean win for either side: the petitioner secured release of most attachments against an enforceable payment undertaking, while the Department retained a residual attachment as security until full payment.

Case Details

Court: High Court of Karnataka at Bengaluru
Case Number: WP No.11054 of 2023 (T-RES)
Coram: Hon'ble Mr. Justice S. Sunil Dutt Yadav
Date of Order: 03.07.2023

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