GST Recovery Under Section 75(12): Why Wrongful ITC Allegations Demand Adjudication First

Overview

A significant ruling by the Andhra Pradesh High Court has drawn a firm boundary around the scope of Section 75(12) of the Central Goods and Services Tax Act, 2017 ("CGST Act"). In M/s. Sona Enterprises v. Assistant Commissioner of Central Tax & Anr., the Court unequivocally held that coercive recovery proceedings initiated without completing the mandatory adjudicatory process — particularly in cases involving alleged wrongful utilisation of Input Tax Credit ("ITC") — are legally unsustainable and must be set aside.

This ruling carries far-reaching implications for assessees facing summary recovery actions by GST authorities without the benefit of adjudication, notice, or an opportunity of hearing.

Background and Facts of the Case

M/s. Sona Enterprises (hereinafter "the Petitioner") is a sole proprietorship carrying on trading operations in iron and steel scrap. A significant portion of its business involves procurement of scrap from Indian Railways — a transaction on which GST becomes payable by the Petitioner under the reverse charge mechanism (RCM). Crucially, under the RCM framework, tax is required to be discharged strictly through cash payment and cannot be offset using accumulated ITC balances.

The Assistant Commissioner of Central Tax & Anr. (hereinafter "the Respondent") issued a series of notices and commenced recovery proceedings under Section 79(1)(c) of the CGST Act. The basis for these proceedings was an allegation that the Petitioner had wrongfully utilised ITC as reflected in its GSTR-3B returns filed for the period spanning July 2017 to March 2021. Without passing any adjudicatory order, the Respondent proceeded to recover interest amounts by directly attaching the Petitioner's bank account.

The Petitioner's Grievance

The Petitioner's primary objection was straightforward — no adjudication had preceded the coercive recovery action. Specifically:

  • No adjudicatory order was passed quantifying the alleged interest liability
  • No breakdown or calculation of interest was communicated to the Petitioner
  • The entire recovery was executed without completing the statutory process of adjudication
  • The direct attachment of the bank account amounted to coercive action in violation of the statutory scheme

The Revenue's Justification

The Respondent sought to defend the recovery proceedings on the ground that the underlying tax liability was an "admitted liability" — reflected as it was in the Petitioner's own GSTR-3B filings. The Revenue argued that late payment of such amounts would automatically attract Section 75(12) of the CGST Act, which, by its own language, operates notwithstanding Section 73 or Section 74. Accordingly, the Revenue maintained that no formal adjudication was required before initiating recovery.

Whether recovery proceedings under Section 75(12) read with Section 79 of the CGST Act can be validly initiated without adjudication, where the Revenue's case rests on an allegation of wrongful utilisation of Input Tax Credit?

The Court's Analysis and Decision

The Hon'ble Andhra Pradesh High Court, in Writ Petition No. 15151/2023, delivered a detailed ruling addressing the exact boundaries within which Section 75(12) can be legitimately deployed.

Statutory Scheme Mandates Prior Adjudication

The Court began by reaffirming the fundamental architecture of the CGST Act's demand-and-recovery framework. Under this framework: