• Dated 07^th September, 2026

GST RECOVERY PROCEEDINGS UNDER SECTION 79 – MANDATORY COMPLIANCE WITH RULE 88C AND ISSUANCE OF DRC-01B IN CASE OF GSTR-1/GSTR-3B MISMATCH

BRIEF FACTS:

The petitioner, challenged a FORM GST DRC-13 garnishee notice dated 06.11.2025, issued by the Department under Rule 145(1) read with Section 79(1)(c) of the CGST Act, 2017. The recovery proceedings related to a difference between the outward supplies reported in GSTR-1 under Section 37 and the tax liability reported in GSTR-3B under Section 39 for the period April 2021 to September 2021. The differential amount involved was ₹44,68,724. The Department treated the differential liability as "self-assessed tax" under the Explanation to Section 75(12) and sought to recover the amount directly under Section 79. Although an email was sent to the petitioner on 25.04.2024, the Department did not issue FORM GST DRC-01B under Rule 88C before initiating recovery.

ASSESSEE'S CONTENTION:

The petitioner contended that the Department could not initiate direct recovery under Section 79 without following the prescribed procedure. The petitioner essentially challenged the recovery on the ground that the alleged liability arose from a GSTR-1 and GSTR-3B mismatch, The Department was required to follow Rule 88C, A proper FORM GST DRC-01B should first have been issued, The Assessee should have been given an opportunity to either pay the differential tax with interest or explain the discrepancy. Since this procedure was not followed, the direct issuance of DRC-13 was legally unsustainable.

DEPARTMENT'S CONTENTION:

The Department argued that under Section 75(12), where tax qualifies as self-assessed tax, recovery can be undertaken under Section 79 without adjudication proceedings. The Department relied upon the Explanation to Section 75(12), which provides that "self-assessed tax" includes tax payable on outward supplies reported under Section 37 but not included in the return under Section 39. The Department's position was therefore that the GSTR-1/GSTR-3B mismatch itself constituted self-assessed tax and enabled recovery under Section 79.

DECISION:

The Telangana High Court held in favour of the Assessee. The Court observed that although the Explanation to Section 75(12) covers tax payable on outward supplies reported in GSTR-1 but not reported in GSTR-3B, Rule 88C specifically prescribes the procedure for dealing with such discrepancies. Under Rule 88C, the proper officer must first issue FORM GST DRC-01B, informing the taxpayer of the difference and providing an opportunity to Pay the differential tax along with interest through DRC-03; or Explain the difference through Part B of DRC-01B. Only where the amount remains unpaid and the explanation is either not furnished or is found unsatisfactory can recovery under Section 79 be initiated. Since the Department had not followed Rule 88C and had not issued DRC-01B, the Court held that the direct recovery proceedings were invalid. Accordingly, the Court set aside the DRC-13 garnishee notice dated 06.11.2025.

BTA's COMMENT:

The judgment establishes that a GSTR-1 vs. GSTR-3B mismatch cannot be directly recovered under Section 79 without first following the procedure prescribed under Rule 88C. However, the Court did not finally determine that the ₹44,68,724 differential liability was not payable. The Department remains free to issue the prescribed DRC-01B, consider the Assessee's explanation/payment, and thereafter initiate recovery in accordance with law if the liability remains unpaid.

Case Reference- P.R. PRODUCTIONS Vs ASSISTANT COMMISSIONER OF CENTRAL TAX, HYDERABAD [Writ Petition No. 38758 of 2025, decided on 17-6-2026]

Author: Madhurima Bose