CBIC’s Tax Recovery Update: What Businesses Must Know!

The Central Board of Indirect Taxes and Customs (CBIC) has issued new guidelines to its field units regarding tax demand recovery from businesses.

In a communication dated May 31st, the apex body has instructed tax officers to abstain from initiating recovery actions within three months of issuing a tax notice, as per Section 78 of the CGST Act. This allows businesses ample time to address the tax demands or pursue legal options.

Nevertheless, CBIC has granted the flexibility for field units to commence recovery proceedings earlier in exceptional cases where there’s a credible threat to revenue interests. These circumstances may include imminent business closure, deteriorating financial health of the taxable entity, or the likelihood of insolvency.

The CBIC has stressed the necessity for any decision to expedite recovery to be backed by substantial evidence and not merely routine practice. Field officers are mandated to conduct a thorough assessment of the business’s status, financial condition, and credibility before initiating early payment demands.

This initiative follows concerns raised over the indiscriminate use of the ‘exceptional circumstances’ clause by tax officers, prompting businesses to seek legal intervention to halt recovery processes.

Recognizing the need to balance revenue protection with facilitating a business-friendly environment, CBIC aims to ensure a fair application of tax laws under the GST regime. Tax experts have lauded this move as a positive stride toward maintaining fairness and promoting a conducive atmosphere for businesses.