In a major relief for taxpayers, the Bombay High Court has held that a GST recovery notice issued under Section 79 of the CGST Act, 2017, directly to a bank without prior notice to the assessee, is invalid and unenforceable.

This decision ensures that authorities cannot skip due process while attempting to recover outstanding tax dues, and reinforces the importance of following natural justice principles under India’s indirect tax regime.

What Happened in the Case?

The petitioner, Galaxy International, approached the Bombay High Court challenging a GST recovery notice dated July 9, 2024. Surprisingly, this notice wasn’t issued to the company itself — instead, it was sent directly to the branch manager of a bank in Gurugram, requesting recovery of alleged tax dues related to another entity, M/s Durga Madhab Panda.

Galaxy International argued:

  • They had no account in the said branch.

  • They were never served any prior notice under GST law.

  • They had no relation to the defaulting taxpayer in question.

Court’s Observation: Due Process Must Be Followed

A division bench comprising Justice M.S. Sonak and Justice Jitendra Jain ruled in favour of the petitioner. The Court emphasized that under Section 79(1)(c) of the CGST Act, recovery from third parties (like banks) is only valid if:

  1. A proper notice is first served to the taxpayer (assessee).

  2. The taxpayer is given an opportunity to respond or clarify.

  3. The officer is satisfied that recovery is justified.

The Court stated:

“A notice had to be served upon the petitioner so that the petitioner would have an opportunity of proving… that no amount was due and payable.”

Since Galaxy International was never served such a notice, the recovery action violated legal procedure, and was therefore set aside.

Understanding Section 79 of CGST Act

Section 79 gives GST authorities the power to recover unpaid dues by issuing notices to third parties who:

  • Owe money to the defaulter, or

  • Hold money on behalf of the defaulter.

This could include banks, clients, vendors, etc. However, this power cannot be misused — the law clearly requires that the defaulting taxpayer must be informed first and given a chance to respond.

Similar Ruling Referenced: Karnataka High Court

To support its decision, the Bombay High Court cited a similar case from the Karnataka High Court —
S.J.R. Prime Corporation Pvt. Ltd. v. Superintendent of Central Tax.

In that case, GST authorities issued a DRC-13 notice to the State Bank of India, resulting in the freezing of the company’s account. The Court found this action illegal and arbitrary, because the taxpayer was not informed beforehand.

The Karnataka High Court quashed the notice and reminded the tax department that natural justice cannot be bypassed in the name of recovery.

Key Takeaways for Taxpayers

  • Recovery without notice is not allowed.

  • Banks or third parties should verify proper notice before acting.

  • Taxpayers should respond promptly to any notices received.

  • If you face unjust recovery or freezing of accounts, you can approach the High Court.

Final Words

This ruling is a significant step toward protecting the rights of taxpayers under the GST framework. It reinforces the message that fair procedure is not optional—it is a legal requirement.

Tax recovery must be done transparently, and affected parties must be given a fair chance to present their case. Skipping these steps makes the action legally invalid and subject to judicial review.

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