Tax to Be First Charge on Property – Section 82 of GST

In GST, ensuring timely and complete recovery of dues is critical for maintaining the financial health of the exchequer. One of the key provisions that safeguard the interest of the government in this regard is Section 82 of the CGST Act, 2017. This section establishes a statutory charge on the property of a taxable person for unpaid tax, interest, or penalty, giving it priority over most other claims.

This blog explores the meaning, implications, exceptions, and judicial interpretations of Section 82 of the CGST Act.

What is Section 82 of the CGST Act?

Section 82: Tax to be first charge on property states:

“Notwithstanding anything to the contrary contained in any law for the time being in force, save as otherwise provided in the Insolvency and Bankruptcy Code, 2016, any amount payable by a taxable person or any other person on account of tax, interest or penalty which he is liable to pay to the Government shall be a first charge on the property of such taxable person or such person.”

In simple terms, this means that any outstanding tax liability (including interest and penalty) payable under the GST law will take precedence over most other debts or claims. The government has the first right on the property of a defaulter for recovery of dues.

Key Elements of Section 82

To understand the legal significance of this provision, let us break down its main elements:

1. Overriding Effect

The section begins with a non-obstante clause (“Notwithstanding anything to the contrary contained in any law…”). This means it overrides other laws unless explicitly stated otherwise.

2. Scope of Application

It applies to:

• Any taxable person (registered under GST)

• Any other person (who may be liable to pay dues under GST, such as a recipient in certain reverse charge scenarios)

3. Nature of Dues

The dues include:

• Tax

• Interest

• Penalty

These must be payable to the government, and they become a first charge on the property of the liable person.

4. Exception: Insolvency and Bankruptcy Code (IBC), 2016

The only law that has primacy over Section 82 is the Insolvency and Bankruptcy Code, 2016. If the defaulter is undergoing insolvency resolution under the IBC, then Section 82 does not override the provisions of the IBC.

Legal Implications of Section 82

1. Priority Over Other Creditors

Section 82 ensures that the government’s claim for tax dues has priority over other secured and unsecured creditors, including banks and financial institutions. However, this is subject to the provisions of the IBC.

2. Effect on Property Transactions

Buyers of immovable or movable property from a defaulter should exercise caution. If tax dues are pending, the government may attach and auction such property even after the transfer, unless dues are cleared.

3. Recovery Proceedings

GST authorities can initiate recovery proceedings under Section 79 of the CGST Act, and Section 82 strengthens their claim by giving the government’s dues legal priority.

4. Due Diligence by Lenders and Buyers

Lenders and prospective buyers must check for pending GST dues during due diligence, especially when acquiring assets of a business.

Judicial Interpretations

While Section 82 is relatively new under the GST regime, courts have upheld similar provisions under other tax laws. The following observations are noteworthy:

• In UOI v. SAIL, the Supreme Court held that a statutory first charge created by law can override other claims.

• Under GST, courts have also emphasized that due process must be followed before invoking Section 82 and attaching property.

Relationship with Insolvency and Bankruptcy Code (IBC)

As mentioned, the IBC takes precedence over Section 82. The Supreme Court, in the case of Principal Commissioner of Income Tax v. Monnet Ispat and Energy Ltd., held that IBC overrides all other laws in matters of insolvency. Therefore, tax departments cannot enforce Section 82 during the moratorium period or resolution process under the IBC.

Practical Example

Suppose a company defaults on GST payments worth ₹50 lakhs. It also owes ₹1 crore to a bank. If the company’s property is worth ₹1 crore:

• Under normal circumstances (not under IBC), the government can invoke Section 82 and claim the first ₹50 lakhs from the property.

• The bank will have the residual claim, subject to the value of the property.

Compliance Tips for Businesses

1. Clear GST dues promptly to avoid attachment of property.

2. Conduct internal audits to detect and rectify any outstanding liabilities.

3. Ensure proper documentation of tax payments and reconciliations.

4. Be cautious when acquiring assets or entering into partnerships with entities that might have pending tax liabilities.

Conclusion

Section 82 of the CGST Act is a powerful tool in the hands of tax authorities to secure government revenue. It provides a legal mechanism for prioritizing tax dues over other liabilities. Businesses and individuals must be aware of this provision and ensure timely compliance to avoid legal and financial consequences.

Understanding the implications of this section is especially important in the context of asset purchases, financial lending, and insolvency proceedings. By incorporating robust tax governance, businesses can mitigate the risks arising from such statutory provisions.

Need help with GST compliance or recovery notices? Consult us at +91 +9769647582 to safeguard your interests and ensure peace of mind.