Facts of the Case

The petitioner, M/s Kesoram Industries Ltd, Cement Division (Basantnagar, Peddapalli), a public limited company manufacturing 'Birla Shakti' cement, had delayed payment of GST dues owing to financial crisis but paid the tax along with self-computed interest at 18% under Section 50. Respondent No.3 issued a letter dated 19.06.2023 demanding interest of Rs.1,28,97,355/- for delayed GSTR-3B filings from July 2017 to January 2023, asking the petitioner to reconcile and pay within seven days to avoid Section 79 recovery. The petitioner sought time, disputed the quantum by letter dated 25.07.2023, and requested that interest be recomputed from the due date of GSTR-3B filing to the date of deposit in the Electronic Cash Ledger rather than the date of actual filing. Without addressing this dispute or affording any hearing, the respondent issued garnishee proceedings in Form GST DRC-13 to the petitioner's bankers (HDFC Bank and Axis Bank) on 25.07.2023 and 28.07.2023 respectively, directing recovery of Rs.1,28,97,344/- each, causing the banks to freeze the petitioner's accounts on a 'No Debit' basis.

Issues Involved

  1. Whether garnishee proceedings under Section 79(1)(c) can be issued to recover disputed interest without first issuing a show cause notice and adjudication under Section 73.
  2. Whether the garnishee notices, which also purported to recover a late fee component under Section 47(2), were sustainable.

Petitioner's Arguments

  • The petitioner argued that the garnishee proceedings were issued while the interest liability was genuinely disputed, without any notice under Section 73 and without a personal hearing, making them bad in law.
  • It was submitted that Section 79 pertains only to recovery of an amount that has already become 'payable' under the Act — i.e., following adjudication or self-assessment — and cannot be invoked to directly enforce a disputed demand; Rule 145 read with Section 79(1)(c) presupposes an order under Section 73 or 74 (or an admitted liability) before Form DRC-13 can issue.
  • It was further argued that no late fee is prescribed under Section 47(2) for this purpose, making that portion of the demand perverse and void ab initio, and that amounts already lying in the petitioner's electronic credit ledger should be treated as amounts effectively with the Government.

Respondent's Arguments

  • The Department contended that amounts lying in the credit ledger, not yet transferred to the cash ledger, do not amount to payment to Government, and that the petitioner was liable to pay 18% interest for admitted delay in tax payment.
  • It was submitted that CGST Rules were validly framed from the inception of the Act, so the argument that no rules existed under Section 50(2) was factually incorrect.

Court Order / Findings

  • The Court examined Sections 50(1), 73(1) and 79(1)(c) and held that, on the admitted facts, the respondent authorities had not issued any notice under Section 73(1) to the petitioner calling for explanation before straightaway proceeding to garnishee proceedings under Section 79.
  • The Court held that the respondent authorities are required to issue a notice seeking the assessee's response/clarification on non-payment or delayed payment of interest before resorting to garnishee proceedings under Section 79(1), and that issuing garnishee notices directly, bypassing Section 73(1), is in clear violation of principles of natural justice.
  • The impugned garnishee proceedings dated 25.07.2023 and 28.07.2023 were accordingly held bad in law and set aside.
  • Liberty was reserved to the respondent authorities to issue a fresh notice under Section 73(1), afford an opportunity of hearing, and proceed thereafter in accordance with law.
  • The writ petition was allowed with no order as to costs.

Important Clarification

  • Garnishee/recovery proceedings under Section 79(1)(c) presuppose an amount that has already become 'payable' — through adjudication under Section 73/74 or an admitted liability — and cannot be used as a shortcut to enforce a disputed interest demand without first affording the assessee notice and a hearing.
  • Where interest liability on delayed GST payment is genuinely disputed, the proper officer must first proceed under Section 73(1) before invoking coercive bank-account recovery.

Sections Involved

  • Section 50, Central Goods and Services Tax Act, 2017 – interest on delayed payment of tax.
  • Section 73, Central Goods and Services Tax Act, 2017 – determination of tax/interest not paid, requiring notice and adjudication.
  • Section 79(1)(c), Central Goods and Services Tax Act, 2017 – garnishee mode of recovery from a third party (here, the petitioner's bankers), held not available without prior adjudication of a disputed liability.

Decision – In Favour of

The decision is in favour of the Assessee — the garnishee proceedings were quashed for want of prior notice and hearing, though the Department retains liberty to re-proceed under Section 73(1).

Case Details

Court: High Court for the State of Telangana at Hyderabad
Case No.: WP No.23431 of 2023
Coram: Justice P. Sam Koshy and Justice Laxmi Narayana Alishetty
Date of Order: 20.09.2023

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