Facts of the Case:

In this case, petitioner is a dealer engaged in the business of iron and steel scrap, purchasing scrap from Indian Railways. Under the GST laws, such purchases attract tax under the Reverse Charge Mechanism, which mandatorily requires payment in cash, as RCM liability cannot be discharged by utilisation of input tax credit. The petitioner filed its GSTR-3B returns for the period July 2017 to March 2021. On 14.03.2022, the second respondent issued a notice alleging that the petitioner had wrongly availed and utilised ITC amounting to ₹42,82,275/- towards RCM liability for the period April 2019 to March 2021, and called upon the petitioner to pay the said amount through Form DRC-03.

Upon receipt of the notice, the petitioner adjusted the amount through its cash credit ledger by filing DRC-03. However, notwithstanding such payment, the first respondent initiated coercive recovery proceedings under Section 79(1)(c) by issuing garnishee notices to the petitioner’s banker on 18.04.2023, initially for ₹42,82,275/-, later modifying the demand to ₹11,49,041/- after acknowledging partial payments.

Subsequently, the respondents issued further garnishee notices to the banker for recovery of interest amounting to ₹15,23,804/-, allegedly payable on delayed payment of tax. Despite repeated representations by the petitioner stating that the tax liability had already been discharged and disputing the interest demand, the respondents continued recovery proceedings, resulting in the banker remitting the interest amount to the GST authorities.  Significantly, no adjudication order determining the tax or interest liability was passed under Sections 73 or 74 of the GST Act. Aggrieved by the recovery of interest without adjudication. 

Issue:

Whether the GST authorities are entitled to recover interest by invoking Section 79 read with Section 75(12) of the GST Act without passing an adjudication order, in a case involving alleged wrong utilisation of ITC for discharge of RCM liability.

Held that:

The Court observed that the scheme of the GST Act mandates that determination of tax, interest, and penalty, especially in cases involving allegations of suppression, wrong availment, or wrongful utilisation of ITC must be preceded by issuance of notice, grant of opportunity of hearing, and passing of an adjudicatory order under Sections 73 or 74.

The Court rejected the respondents’ reliance on Section 75(12), holding that the said provision applies only in cases where there is a clear admission of self-assessed tax liability disclosed in returns filed under Section 39, which remains unpaid. Allegations of wrong utilisation of ITC, particularly for discharging RCM liability, do not amount to an admitted tax liability and necessarily require adjudication.

It was held that coercive recovery proceedings under Section 79, including garnishee proceedings against the petitioner’s banker, cannot be initiated in the absence of a quantified demand arising from an adjudication order. The Court emphasised that permitting such recovery would defeat the statutory safeguards built into the GST framework and violate principles of natural justice.

The High Court allowed the writ petition and held that the recovery of interest without adjudication was illegal and unsustainable. Accordingly, the High Court set aside the recovery proceedings initiated under Section 79(1)(c). Directed the respondents to refund the interest amount recovered from the petitioner’s banker. 

Case Name: M/s. Sona Enterprises Versus Assistant Commissioner of Central Tax, Central CGST Vishakapatnam, Superintendent of Central Tax, Maharanipeta CGST Range, The State Of Andhra Pradesh, Union of India. dated 19.01.2026

To read the complete judgement 2026 Taxo.online 147