The Jharkhand High Court bench has held that Upon deposit of 10% of the disputed tax amount during pendency of appeals preferred by the petitioner, recovery of any remaining balance is deemed to have to been stayed automatically and the impugned Garnishee proceeding therefore, cannot be given effect to and has become infructuous.
GARNISHEE NOTICE
As per Black’s Law Dictionary, Garnishee means One garnished; a person against whom process of garnishment is issued. One who has money or property in his possession belonging to a defendant or who owes the defendant a debt, which money, property or debt is attached. A person who owes a debt to a judgement debtor, or a person other than the judgement debtor who has property in his possession or custody in which a judgement debtor has interest.
| Case Title | Sri Ram Construction vs Union of India |
| Court | Jharkhand High Court, Ranchi |
| Honourable Judges | J. Aparesh Kumar Singh and J. Deepak Roshan |
| Citation | W.P (T) No. 3402 of 2020 |
| Judgement Date | 09-Jun-2022 |
| Council for Petitioner | Sumeet Gadodia Ranjeet Kushwaha Aanya |
| Council for CGST | Amit Kumar |
FACTS OF THE CASE:
Petitioner Challenge to garnishee notice issued to the Petitioner’s Bankers for alleged recovery of GST dues.
CGST Department declaring that determination of the alleged dues towards Central Goods and Services Tax pertaining to the period July, 2017 to March, 2019 amounting to Rs. 4,28,86,464/- only on the basis of GSTR-1 Statement. Garnishee notice was issued to the Petitioner’s Bankers for alleged recovery of Government dues amounting to Rs. 4,28.86,464/-. Petitioner in this Writ challenged the impugned Garnishee Notice send to his Banker.
Petitioner filed Writ contending that determination of the alleged dues towards Central Goods and Services Tax pertaining to the period July, 2017 to March, 2019 amounting to Rs. 4,28,86,464/- only based on GSTR-1 Statement, without giving the benefit of Input Tax Credit (for short “ITC”) admissible to the Petitioner, as claimed by it in GSTR-3B Statement, is wholly arbitrary, illegal and contrary to the scheme of the CGST Act. Petitioner has a credit of ITC to the tune of Rs. 3,04,15,359/-. Petitioner admits tax liability of Rs. 1,14,53,646.91/-. Petitioner on his own bonafide has deposited Rs. 15 lacs towards aforesaid tax dues.
Learned counsel for the Department does not dispute that upon filing of appeal and deposit of 10% of the disputed tax amount, recovery of any balance amount shall remain stayed till the appeal is decided. He also does not dispute that in such an event, Garnishee notice arising out of the adjudication order cannot be given effect to.
COURT HELD:
Upon deposit of 10% of the disputed tax amount during pendency of two appeals preferred by the petitioner, recovery of any remaining balance is deemed to have to been stayed in view of Section 107 Sub-section (6) and (7) of CGST Act, 2017. The impugned Garnishee proceeding therefore, cannot be given effect to and in fact has become infructuous.
ANALYSIS OF THE JUDGEMENT:
While filing the appeal Petitioner deposited 10% of the disputed tax amount and therefore as per Scheme of GST (Sec. 107 (6) & (7)) the remaining balance amount is automatically stayed.
SELECTED CASES OF GST LAWS:
Similar decisions were made in GST Laws in these cases:
| Case Details | Judgement |
| NG Gadhiya vs The State of Jharkhand Writ Petition (Tax) No. 319 of 2021 Judgement dated 25.03.2022 Jharkhand High Court | • Department issued Demand Summary Order in Form DRC-07. • Petitioner filed Appeal against the order. • Department issued Garnishee Notice in Form DRC-13 as per Section 79 to Debtor of the Petitioner demanding money. • High Court held once a predeposit has been made in Sec. 107 recovery is stayed automatically. |
| Unity Infraprojects Limited vs The State of Jharkhand Writ Petition (Tax) No. 985 of 2022 Judgement dated 14.03.2022 Jharkhand High Court | – Upon scrutiny of the petitioner’s return for the period April 2018 to March 2019 certain discrepancies / mismatch were noticed in Form GST ASMT-10. – Petitioner furnished a reply in Form GST ASMT-11 taking a number of pleas through the annexed reply. -However, an intimation of tax payable under Section 73(5)/74(5 was issued in Form GST DRC- 01A • The Department then further proceeded to issue garnishee notice in Form GST DRC-13 upon the petitioner’s Bank asking it to part the sum to the Government forthwith in terms of Section 79(1)(c). • Petitioner disputed the Garnishee Notice by contending that Interest is being collected through this notice without adjudication of Interest. • Department seeks time to file counter affidavit. • HC held, no coercive steps to be taken against petitioner. |
| RK Transport Private Limited vs The Union of India Writ Petition (Tax) No. 1404 of 2020 Judgement dated 16.02.2022 Jharkhand High Court | • Interest on the alleged ground of delay in furnishing GSTR-3B return for the period July 2017 to December 2019 has been levied by the impugned letter. • Petitioner challenges this letter on the ground that without any adjudication proceeding under Section 73 or 74 of the CGST Act which has not been done admittedly in this case, liability cannot be crystallised. • Garnishee Notice send to Ban quashed by the High Court. |
SELECTED CASES OF INDIRECT TAX REGIME:
Various High Court decisions in erstwhile IDT and VAT Laws are as follows:
| Case Details | Judgement |
| Food Corporation of India vs Union of India Special Civil Application No. 3051 of 2016 Judgement dated 16.06.2016 Gujarat High Court Service Tax Case | • No garnishee proceedings against service recipient if it didn’t owe anything to service provider. • In this case since FCI did not owe anything to Service Provider, no garnishee proceedings can be initiated against FCI. |
| Gopala Builders vs Director General of Central Excise Intelligence Special Civil Application No. 8704 of 2015 Judgement dated 01.10.2015 Gujarat High Court Service Tax Case | • On search, department found several irregularities in payment of service tax. • Department, unilaterally, worked out liability and without any notice/ adjudication, initiated garnishee proceedings for recovery from assessee’s debtors. • Court held recovery can be made only when final adjudication has been done after quantifying amount due and payable by assessee; when no notice has been issued, department cannot, illegally, resort to garnishee proceedings for recovery from debtors to spoil assessee’s reputation. |
| Wipro Limited vs State of Gujarat R/Special Civil Application No. 11190 of 2021 Judgement dated 09.03.2022 Gujarat High Court Gujarat VAT’2003 | • Assessment Order was passed by Gujarat VAT Department. Assessee filed Appeal against the Order. During Pendency of the Order Department send attachment notice to Bank U/s 44 of Gujarat VAT’2003 • Section 44 of GVAT’2003: (1) Notwithstanding anything contained in any law or contract to the contrary, the Commissioner may at any time or from time to time , by notice in writing, a copy of which shall be forwarded to the dealer at his last known address, require, – (a) any person from whom any amount of monies is due, or may become due, to a dealer on whom notice has been served under sub-section (1), or (b) any person who holds or may subsequently hold monies for or on account of such dealer, to pay the Commissioner, either forthwith upon the monies becoming due or being held or within the time specified in the notice (but not before the monies becomes due or is held as aforesaid) so much of the monies as is sufficient to pay the amount due by the dealer in respect of the arrears of tax, penalty or interest under this Act, or the whole of the money when it is equal to or less than that amount. Explanation.- For the purposes of this subsection, the amount of monies due to a dealer from, or monies held for or on account of a dealer by any person, shall be calculated by the Commissioner after deducting there from such claims, if any, lawfully subsisting, as may have fallen due for payment by such dealer to such person. • Provisions of Section 44 of the Act are in nature of garnishee proceedings and can be invoked against any person from whom any amount is due or may become due to a dealer. In absence of any debtor-creditor relationship, Department could not have asked bank to debit accounts of writ applicant and credit a particular amount as specified in notices to treasury of State Government. |
| Swapan Electricals vs Union of India Writ Petition (Tax) No. 3 of 2015 Judgement dated 11.05.2015 Jharkhand High Court Service Tax Case | • Where earlier adjudication order has been set aside and matter adjudicated afresh, garnishee notices for recovery from assessee’s debtors (service recipient and bank, etc.) based upon earlier adjudication order, cannot be sustained. |
| Constant Engineering Private Limited vs Additional Commissioner of Service Tax Special Civil Application No. 17912 of 2014 Judgement dated 28.01.2015 Gujarat High Court Service Tax Case | During pendency of adjudication of show-cause notice, department initiated recovery proceedings by way of garnishee proceedings against assessee’s customers and bankers. • Assessee argued that recovery cannot be initiated during pendency of adjudication. • Court held, Prima facie, when demand of tax is yet to be adjudicated, it cannot be said as tax payable, for which recovery powers of section 87 may be available. • Henceforth, the operation of the impugned recovery orders shall remain stayed and suspended with the further observation that the amount already recovered pursuant to the orders shall be subject to the final quantification of the demand of the tax, if any. |
CONCLUSION
After going through all these cases I would like to summarize as follows:
✓ Show Cause Notice followed by Adjudication of Demand is must before the issue of Garnishee Notice.
✓ If Order is appealed and pre-deposit is made while filing appeal the recovery is automatically stayed.
✓ Banks were not classified as Debtors in few VAT Laws therefore amount could not be recovered from the Banker in those states but in GST Laws money could be recovered from the Bankers too.
Hope you like the analysis. If you like me to cover any other area, please share the details. I will try to compile something.
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