🧾 Section 79(1)(c) of CGST Act: Garnishee Notices – A Tool or a Trap?

The GST regime empowers tax authorities with sweeping recovery powers, especially when tax remains unpaid. Among these, Section 79(1)(c) of the CGST Act allows the department to recover dues directly from third parties (like customers or banks) who owe money to the defaulter. This process, akin to a garnishee order, often stirs fear among businesses and sometimes results in unintended harassment.

This blog explores the legal scope, procedural safeguards, and judicial checks on the department’s garnishee powers under Section 79(1)(c), with real case law illustrations.

📘 What Does Section 79(1)(c) Say?

Section 79(1)(c) allows the proper officer to:

Issue a notice to any other person from whom money is due or may become due to the taxpayer, or who holds money on behalf of the taxpayer, requiring that person to pay the amount to the government instead of the taxpayer.

This recovery tool is executed using:

• Form DRC-13 – Notice to third party (garnishee)

• Form DRC-14 – Acknowledgment of payment

⚖️ Key Case Laws: How Courts Have Interpreted Section 79(1)(c)

1️⃣ VVK Textiles vs. State of Tamil Nadu

Court: Madras High Court – Madurai Bench

Date: November 2024

Facts:The GST department issued a DRC-13 notice to VVK Textiles' customers to recover tax dues directly from them. VVK challenged this, stating that their representation against the demand was not considered before issuing garnishee notices.

Held:The High Court held that the department must pass a reasoned order after considering the assessee’s objections. Issuing garnishee orders without following

principles of natural justice amounts to procedural illegality.

Key Takeaway:DRC-13 notices must be preceded by an opportunity of hearing. Taxpayers have the right to defend before their receivables are attached.

2️⃣ MNS Enterprises vs. ADG, DGGI (Chennai)

Year: 2021

Court: Madras High Court

Facts:MNS Enterprises was served with a garnishee notice to its bank, even before the adjudication of the SCN was complete. The department had not passed any final order under Section 73/74.

Held:The Court condemned such actions as coercive and premature. Recovery under Section 79(1)(c) can only be initiated post adjudication, and must be in accordance with Rule 145.

Key Takeaway:Garnishee orders before final determination of liability are not sustainable. The department cannot bypass due process just to secure revenue.

3️⃣ Pradeep Kumar Siddha vs. Union of India

Observation:The Calcutta High Court analyzed the nature of Section 79(1)(c), stating it mirrors garnishee proceedings under the Civil Procedure Code (CPC). The liability of a third party (garnishee) arises only if they actually owe money to the defaulter or hold money on their behalf.

Key Takeaway:The tax officer cannot issue DRC-13 notices

based on assumption. Concrete evidence of a debtor-creditor relationship is essential.

4️⃣ Kesoram Industries Ltd. vs. Commissioner of Central Tax

Court: Calcutta High CourtIssue: Procedural challenge to the issuance of DRC-13.

Held:The court emphasized that garnishee recovery must be in strict compliance with Rule 145, which mandates serving of Form DRC-13 in writing, detailing the dues and the requirement to deposit.

Key Takeaway:Even if a demand exists, non-compliance with proper forms and procedures can render recovery action invalid.

5️⃣ Kalpana Trading Co. vs. UOI (Jharkhand HC)

Facts:A third party was directed to pay dues of another taxpayer without any verification of the business relationship.

Held:The court held that mechanical issuance of DRC-13 without verifying if the garnishee actually owes money violates natural justice.

Key Takeaway:Preliminary inquiry and justification are required before a third party can be burdened with tax dues of another.

🧠 Legal Principles from These Judgments

Principle	Court Interpretation
No adjudication = No recovery	Garnishee notice without a final demand under Sec 73/74 is invalid.
Natural Justice must prevail	Taxpayer should be given a hearing and reasoned order before initiating garnishee.
Evidence, not assumption	Department must prove that the third party actually owes money to the taxpayer.
Rule 145 compliance is mandatory	Proper procedure, format (DRC-13), and grounds must be clearly communicated.

💼 Real-World Application

Say, ABC Pvt Ltd is under investigation, and the department suspects tax evasion. Without waiting for final order, it issues DRC-13 notices to:

• Their bank, asking it to freeze funds.

• Their top customer, instructing them to redirect payments.

ABC challenges this. Based on the case laws above:

• ✅ If there's no final assessment → Illegal

• ✅ If no chance was given to reply → Illegal

• ✅ If the customer denies liability → DRC-13 is unenforceable

✅ What Taxpayers Should Do

1. Immediately respond to DRC-13 notices with facts and legal backing.

2. Seek stay or quashing from High Court if recovery is premature or without SCN.

3. Document customer relationships and transactions to show no liability.

4. Avoid email silence—non-reply can be seen as acceptance.

🔚 Conclusion

Section 79(1)(c) is a powerful tool—but not a weapon of harassment. Courts have laid down clear guidelines that protect taxpayers and third parties from arbitrary recovery actions. As a business, staying vigilant, maintaining documentation, and knowing your rights can be the best defense.

“A garnishee is not a scapegoat.” – Madras High Court