Recovery of Tax Explained – Section 79 of GST

Timely payment of tax is one of the core obligations of any taxpayer under the GST regime. But what happens when a registered person fails to pay the tax dues? Section 79 of the CGST Act, 2017 provides a comprehensive framework for the recovery of unpaid tax, interest, penalty, or any other amount due to the Government.

This blog offers a detailed explanation of Section 79 of the CGST Act, its recovery mechanisms, and its practical implications for taxpayers and authorities.

What is Section 79 of the CGST Act?

Section 79 empowers the proper officer to recover any amount payable to the Government under the CGST Act or rules made thereunder. If the taxpayer defaults on payment, the officer can initiate recovery through various means prescribed in the section.

The section outlines multiple modes of recovery that may be adopted singularly or jointly, depending on the case.

Modes of Recovery Under Section 79(1)

1. Deduction from Amounts Payable (Clause a)

The proper officer may:

• Deduct the payable amount from any money owed to the defaulter that is under the officer’s or any other specified officer’s control.

Example: If a refund is due to the defaulter, it can be adjusted against outstanding dues.

2. Recovery by Sale of Goods (Clause b)

The officer may:

• Detain and sell any goods of the defaulter that are under the control of the proper officer or another specified officer.

Purpose: This mode ensures that tax dues are recovered by liquidating the taxpayer’s movable assets.

3. Recovery from Third Parties (Clause c)

This is one of the most expansive recovery provisions:

Key Aspects:

• The officer can issue a written notice to any third party (such as a debtor, bank, post office, or insurer) holding or owing money to the defaulter.

• The recipient of the notice must pay the specified amount directly to the Government.

• If the notice is ignored, the third party is treated as a defaulter, attracting legal consequences.

Safeguard:

• The third party can submit proof that no money was due or held at the time of notice, thereby escaping liability.

This clause is particularly powerful as it expands the recovery net by involving entities indirectly connected to the taxpayer.

4. Distress and Sale of Property (Clause d)

The officer can:

• Distrain (i.e., seize) movable or immovable property belonging to or controlled by the defaulter.

• Detain it for 30 days.

• If dues remain unpaid, sell the property to recover tax dues and associated costs.

Note: Any surplus after sale must be returned to the taxpayer.

5. Recovery Through District Collector (Clause e)

The proper officer can:

• Prepare a certificate specifying the due amount.

• Send it to the District Collector or a Government-authorised officer.

• The Collector proceeds to recover the amount as if it were an arrear of land revenue.

This provision leverages the state’s administrative machinery for effective recovery.

6. Recovery Through a Magistrate (Clause f)

The officer may:

• File an application before a Magistrate.

• The Magistrate then recovers the amount as if it were a court-imposed fine.

This route allows recovery via the judicial system, giving it further legal backing.

Section 79(2): Recovery Under Bonds and Instruments

If any bond or instrument under the Act provides for tax recovery, the amount can be recovered using any of the modes under sub-section (1). This does not restrict the Government from using other legal remedies.

Section 79(3): Recovery by State or UT Tax Officer

If the dues remain unpaid, a State Tax or Union Territory Tax officer may recover the amount as an arrear of State or UT tax. This allows coordinated action by different tax wings.

Section 79(4): Apportionment of Recovery Amount

When tax recovery is made jointly for both the Central Government and the State Government, and the amount recovered is less than the total dues, the recovered amount is shared in proportion to the dues of each Government.

Explanation: Meaning of ‘Person’

The term ‘person’ under this section includes distinct persons as referred to in:

• Section 25(4)

• Section 25(5)

This means the recovery provisions also apply across different GST registrations of the same legal entity in different states or as different verticals.

Effective Date and Amendment

• Enforced from: 1st July 2017.

• Amendment: The explanation for the inclusion of ‘distinct persons’ was added by the Central Goods and Services Tax (Amendment) Act, 2018, effective from 1st February 2019.

Practical Implications for Taxpayers

• Non-payment of GST dues can trigger any or all of the recovery methods under Section 79.

• Third-party businesses (like banks, customers, etc.) may be directed to divert payments to the Government.

• Assets and refunds may be seized or withheld.

• Recovery through Collectors or Magistrates gives the process strong legal enforceability.

Taxpayers should maintain timely compliance to avoid facing these stringent recovery actions.

Conclusion

Section 79 of the CGST Act acts as a strong deterrent against tax evasion and non-compliance. It gives significant powers to the tax authorities to ensure that all dues are recovered in a timely and lawful manner.

With multiple recovery modes available, including deductions, seizure, third-party notices, distress sale, and judicial remedies, this provision ensures that the GST system remains robust and accountable.

For businesses, the key takeaway is simple: ensure timely payment of taxes and maintain clean records to avoid harsh recovery actions under Section 79.