The article “Bridging the Appellate Gap: GST Recovery Protocols After Dismissal of First Appeal” has been authored by Ashu Dalmia, with valuable research and drafting assistance provided by B.A.LL.B. intern Aditi Singh.
Introduction
The appellate mechanism under the Goods and Services Tax (GST) regime is structured to offer multiple opportunities for taxpayers to seek redressal against adverse orders. Governed primarily by Sections 107 and 112 of the Central Goods and Services Tax Act, 2017 (CGST Act), the framework enables appeals first to the Appellate Authority and then to the Appellate Tribunal. However, the prolonged non-operational status of the GST Appellate Tribunals in various states led to a vacuum in appellate redressal after the first appeal. In response to this situation, the Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 224/18/2024-GST dated 11th July 2024. This circular seeks to provide clarity and interim relief to taxpayers by outlining guidelines to manage recovery proceedings in such scenarios. This article comprehensively examines the issues in filing stay of demand and recovery proceeding post first Appellate Authority’s order due to the non-operation of Arbitral Tribunal.
What Do Sections 107 And 112 Say About Your Right to Appeal?
Section 107 of the CGST Act allows any person aggrieved by an order passed by an adjudicating authority to file an appeal before the Appellate Authority. The time limit to file such an appeal is three months from the date of communication of the impugned order. To admit the appeal, the assessee must mandatorily deposit 10% of the disputed tax amount, subject to a monetary ceiling of ₹20 crores, as per Section 107(6). If the Appellate Authority decides against the assessee, the next remedy lies under Section 112, which provides for an appeal before the Appellate Tribunal.
Under Section 112(1), the assessee aggrieved by order of the Appellate Authority may prefer an appeal to the Appellate Tribunal within three months from the date of communication of the order passed by the Appellate Authority as mentioned in Order No. 09 /2019-Central Tax dated 3rd December, 2019. The start of the three months period shall be considered to be the later of the following dates:-
- Date of communication of order; or
- The date on which the President or the State President, as the case may be, of the Appellate Tribunal after its constitution under section 109, enters office.
Is It Fair To Recover Taxes When The Tribunal Isn’t Working?
The non-operational status of the GST Appellate Tribunal has created significant legal and procedural challenges for taxpayers. Firstly, Section 112 of the CGST Act grants a statutory right to file a second appeal, but with the Tribunal not functional in many states, this right remains ineffective. Secondly, coercive recovery actions are often initiated immediately after dismissal of the first appeal under Section 107, despite the taxpayer’s genuine intent to file a second appeal, causing financial distress. Thirdly, prior to CBIC Circular No. 224/18/2024-GST, there was no clarity or uniform mechanism for interim relief, resulting in inconsistent practices and arbitrary actions. Consequently, many taxpayers are forced to file writ petitions before High Courts or the Supreme Court, increasing litigation and burdening the judiciary. Additionally, the Circular’s introduction of a 10% pre-deposit for stay on recovery has led to confusion regarding timelines, calculation basis, procedural requirements, and the stay mechanism, with varying interpretations across jurisdictions. This uncertainty compels taxpayers to carefully navigate compliance obligations amid an undefined timeline for Tribunal functionality.
What’s The Purpose And Guidelines Of CBIC Circular No. 224/18/2024-GST dated 11th July, 2024:
Due to the non-functionality of the Appellate Tribunals in many jurisdictions, taxpayers have been left without a viable appellate remedy, resulting in uncertainty over recovery proceedings. The concern was whether the tax department could initiate coercive recovery even when the assessee intended to exercise their right to appeal under Section 112, but the appellate forum was unavailable.
To fill this vague procedure, the CBIC issued Circular No. 224/18/2024-GST on 11th July 2024. The circular provides a temporary yet vital framework to prevent arbitrary recovery in cases where the first appeal has been dismissed and the second appeal cannot be filed solely due to the non-operational status of the Appellate Tribunal. The circular clarifies that in such cases, no recovery proceedings shall be initiated for a period of three months from the date of the Appellate Authority’s order, provided the assessee intends to appeal before the Tribunal. This protection is in line with the statutory period available for filing an appeal under Section 112.
Moreover, the circular offers an additional layer of protection. If the assessee desires to extend the benefit of recovery protection beyond the initial three-month period, they must
- Deposit an additional 10% of the disputed tax amount. This is over and above the 10% already deposited at the time of the first appeal.
- The taxpayer also needs to file an undertaking/ declaration with the jurisdictional proper officer that he will file appeal against the said order of the appellate authority before the Appellate Tribunal, as and when it comes into operation.
Thus, upon payment of a pre-deposit, no recovery shall be initiated against the assessee until the Appellate Tribunal becomes operational or until the appeal filing period expires. The circular further affirms that such payment would operate as a deemed stay on recovery, offering practical relief to taxpayers caught in the procedural transition.
Illustrative Example:
To better understand the practical implications of the circular, let us consider an example. Suppose a taxpayer is served with a tax demand of ₹1 crore. To file a first appeal under Section 107, the taxpayer deposits ₹10 lakhs, which is 10% of the remaining amount of tax in dispute. If the appeal is dismissed, and the taxpayer wishes to further challenge the order before the Tribunal (once functional), they may pay an additional 10%, i.e., ₹10 lakhs of the remaining amount of tax in dispute. With a total pre-deposit of ₹20 lakhs, the taxpayer becomes entitled to protection against recovery, and no coercive measures can be taken until the Tribunal is in place and the statutory appeal period lapses.
Recent Judgments:
In the landmark case of M/s Patel Beej Bhandar v. State of U.P. & Another, The Allahabad High Court in the order dated 11th September, 2024, where the petitioner challenged coercive recovery initiated by the tax authorities after the dismissal of their first appeal under Section 107 of the CGST Act. Although the assessee intended to file a second appeal before the GST Appellate Tribunal under Section 112, they were unable to do so because the Tribunal was not operational. Despite this, the authorities proceeded with recovery actions for the balance tax amount. The Allahabad High Court, taking cognizance of this procedural lacuna, observed that Section 112 provides a statutory right to file an appeal within three months, and this right cannot be rendered meaningless due to administrative delays in setting up the Tribunal.
The Allahabad High Court held that the initiation of recovery in such circumstances was unjustified and stayed all coercive recovery proceedings. It emphasized that taxpayers should not be penalized for delays beyond their control and that their right to appellate remedy must be preserved.
In Hitachi Energy India Ltd. v. State of Karnataka, The Karnataka High Court in the order dated 19th June, 2024, addressed the issue of recovery proceedings initiated when the assessee was willing but unable to file an appeal due to the non-functioning of the GST Appellate Tribunal. Hitachi Energy had complied with all pre-deposit requirements under Section 107 and expressed clear intent to pursue an appeal under Section 112. Despite this, the Karnataka GST authorities issued recovery notices for the disputed demand.
The Karnataka Court strongly discouraged such coercive actions, holding that recovery in the absence of a functioning appellate forum violates the principles of natural justice. It reiterated that no prejudicial recovery action should be taken against an assessee who has fulfilled the statutory conditions and is awaiting access to the next appellate level. The decision reinforced the view that taxpayers deserve protection during transitional phases of the appellate system and that the administration must act fairly and reasonably in such cases.
In Modtech Tradecom Pvt. Ltd. & Anr. v. State of West Bengal & Ors., The High Court of Calcutta in the order dated 11th April, 2025, when the application was filed for the modification with regard to amendment of section 112(8) of CGST act, 2017 which was introduced by the Finance (No. 2) Act, 2024. The judgment of this case was in the view that as per the section 143 of Finance Act it had revealed that in section 112 of CGST act the word ‘twenty percent’ should be substituted by the word ‘ten percent’. For compilation with the direction of the court with regards to payment an extension period of two weeks from the date of order has been given.
“The court passed an interim order on usual terms as provided in Section 112 of the CGST Act, 2017, the direction for deposit of 20 per cent should be treated as deposit of 10 percent.”
In Joji Mathai Cherian v. The state of tax officer, The High Court of Kerala in the order dated 21st February 2025, had given liberty to the petitioner to prefer an appeal within 30 days of the constitution of the appellate tribunal as contemplated under section 112(1) of CGST act and also if the condition stipulated in section 112(8) of the act is compiled then further recovery can be referred. Furthermore if the petitioner fails to do the same then the benefit of this order will not be available.
The Kerala High Court observed that “this writ petition is disposed of giving liberty to the petitioner to prefer an appeal within 30 days of the constitution of the Appellate Tribunal contemplated under Section 112(1) of the GST Act. It is further directed that if the petitioner deposits the amount of 10% as contemplated under Section 112(8)(b) within 30 days from today, further proceedings for recovery pursuant to Exhibit-P3 and Exhibit-P5 shall be kept in abeyance till the appeal as directed above is disposed of.”
In Renu Prasad v. The Assistant Commissioner of State Tax & Ors. , The High Court of Calcutta in the order dated 29th January 2025, (when the petitioner filed writ petition contesting an appellate order issued on 10-9-2024 by the respondent in which the dispute primarily revolves around recovery of dues. The petitioner argued that in the absence of tribunal the tax recovery should be paused until they could file an appeal by relying on circular issued on 11-7-2024) uphold the Circular No.224/18/2024-GST para 4-6, The court stated that if the petitioner has the prime facie case than there shall be unconditional stay of the demand of the appellate order dated 10th September 2024, for the period of 2 weeks from this date.
The court observed that “the petitioner makes payment of 10% of the balance amount of tax in dispute, in addition to the amount already deposited in terms of Section 107(6) of the said Act, within two weeks from date, the interim order passed herein, shall continue till the disposal of the writ petition or until further order, whichever is earlier.”
These judicial pronouncements are aligned with the CBIC Circular No. 224/18/2024-GST, which provides interim protection to taxpayers by allowing recovery to be deferred upon payment of an additional pre-deposit, thereby ensuring that the absence of a Tribunal does not result in irreparable harm to aggrieved assessees.
Conclusion:
The issuance of Circular No. 224/2024 by the CBIC is a commendable and timely intervention. It effectively addresses the concerns of taxpayers who are aggrieved by appellate orders but are unable to seek further recourse due to the delay in the operationalization of GST Appellate Tribunals. By mandating a 10% of the remaining amount of tax in dispute, if the appeal is dismissed then they may pay an additional 10% of the remaining amount of tax in dispute and as a condition to stay recovery. Assessee must remain vigilant about timelines, documentation, and pre-deposit requirements to ensure uninterrupted protection during this transitional phase. Coupled with judicial pronouncements reinforcing the same principles, the GST framework—though currently in an incomplete appellate phase—has evolved to provide fairer outcomes to taxpayers navigating complex procedural landscapes.
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