Judicial Clarity on GST Recovery: Chhattisgarh HC Upholds Deduction from Electronic Credit Ledger (ECRL) Under Section 79(1)(a)

 

In a significant ruling that reinforces the tax department’s powers in recovering defaulted GST dues, the Chhattisgarh High Court has upheld the validity of deducting a confirmed tax demand directly from a taxpayer’s Electronic Credit Ledger (ECRL).

The decision, delivered in the case of Shivam Metallurgicals Pvt. Ltd. vs. Assistant Commissioner of State GST, clarified the scope and application of Section 79(1)(a) of the Central Goods and Services Tax (CGST) Act, 2017. The court established that once a GST demand has been determined and the taxpayer fails to pay within the stipulated time, the tax officer is justified in initiating recovery from funds under their control, which includes the balance in the ECRL.

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The Factual Background and Core Issue

The case arose after an assessment order was passed against Shivam Metallurgicals Pvt. Ltd., creating a confirmed demand of ₹10,32,672. The taxpayer was granted 30 days to pay the amount, as per the standard procedure under the GST Act.

However, the company neither paid the demanded amount within the 30-day period nor obtained any stay order from a higher authority against the demand. Consequently, the GST Department proceeded to recover a portion of the dues (₹2,87,914) by deducting it directly from the company's Electronic Credit Ledger.

The petitioner challenged this recovery action, arguing that:

1. The recovery was unauthorized and violated the principles of natural justice.
2. The Department could not effect the recovery without initiating a separate, formal recovery proceeding specifically for the deduction from the ECRL.
3. The deduction was invalid because the company had subsequently filed an application for rectification and intended to file an appeal.

The Court's Ruling on Section 79(1)(a)

The Chhattisgarh High Court meticulously examined Section 79(1)(a) of the CGST Act, 2017, which outlines the modes of recovery when an amount payable by a person to the government is not paid:

Section 79(1)(a) states that the proper officer may deduct or may require any other specified officer to deduct the amount so payable from any money owing to such person which may be under the control of the proper officer or such other specified officer.

The court made the following definitive observations:

• ECRL falls under 'Money Owing' and 'Control of Proper Officer': The balance available in the Electronic Credit Ledger, which represents the accumulated Input Tax Credit (ITC), is clearly deemed "money owing to such person" that is "under the control of the proper officer" (or the GST system).
• No Separate Proceeding Required: Once the tax liability is confirmed through a formal assessment order, and the prescribed time limit for payment has expired, the tax officer does not need to issue a fresh notice or initiate a separate recovery proceeding under Section 79. The default itself triggers the recovery mechanism.
• Legality of Deduction: Since the company failed to pay the confirmed demand within the stipulated time and had not obtained a stay order, the Department's action of deducting the dues from the available ECRL balance under the authority of Section 79(1)(a) was deemed legally justified and correct.

Conclusion and Takeaway for Taxpayers

The High Court ultimately dismissed the writ petition, finding no illegality or procedural error in the recovery action. It clarified that any subsequent attempt by the petitioner to rectify the order or file an appeal did not invalidate the recovery that had already taken place, as it was effected before any stay was granted.

The key takeaway for GST taxpayers from this ruling is clear:

• A confirmed GST demand must be treated seriously and paid promptly.
• Failure to secure a formal stay order against a demand within the stipulated payment period leaves the taxpayer's ECRL—and other assets—vulnerable to immediate recovery actions under the robust provisions of Section 79.

This judgment affirms the tax department's ability to utilize the Electronic Credit Ledger as a primary and swift tool for recovering established tax arrears, ensuring the protection of government revenue.