Form GST DRC-13 is a notice to a third person under Section 79(1)(c) of the CGST Act read with Rule 145(1) of the CGST Rules, directing the third person to deposit the amount specified in the notice towards the GST dues of the defaulter. The third person is typically a bank, a debtor or another party holding money for or on account of the defaulter. The garnishee notice is a coercive recovery tool, and its exercise is subject to statutory conditions, natural justice and judicial scrutiny.
The Statutory Mechanism and the Third-Person Relationship
Section 79(1)(c) permits the proper officer to require any person who holds money for or on account of the defaulter to pay the amount to the government. Rule 145 prescribes the DRC-13 form. The notice must identify the defaulter, the demand, the amount to be recovered and the third person. The third person is not the taxpayer; the third person is a conduit, and the notice’s validity depends on the existence of a money relationship between the third person and the defaulter.
The Natural-Justice Requirement
The Karnataka High Court has held that GST recovery cannot be extended to a separate and independent company merely because both entities share a common director; the court quashed the DRC-13 where the petitioner company was neither a garnishee nor a defaulter. The Bombay High Court has held that recovery against a legal heir cannot be initiated without determining liability under Section 93 and affording a hearing. The Telangana High Court has allowed a delayed appeal where the taxpayer became aware of the liability only upon receipt of a garnishee notice. The consistent thread is that coercive recovery requires prior notice, a hearing and a determination of liability.
The Bank-Account Attachment
The most common DRC-13 scenario is the attachment of the defaulter’s bank account. The bank is the third person, and the notice directs the bank to freeze or transfer the account balance. The bank is ordinarily protected by the notice, but the defaulter can challenge the notice if the demand is not confirmed, if the account belongs to a different legal entity, or if the notice was issued without a hearing.
The Common-Director and Group-Company Limits
The department sometimes seeks to recover one company’s dues from a group company or a commonly controlled entity. The Karnataka High Court’s ruling makes clear that a common director does not make one company the defaulter for another company’s dues. The third person must hold money for or on account of the defaulter; a group relationship is not enough.
What the Taxpayer and the Third Person Should Control
The DRC-13 position depends on three variables: whether the demand is confirmed and the defaulter has defaulted; whether the third person actually holds money for or on account of the defaulter; and whether the notice was preceded by notice and a hearing. The taxpayer and the third person that control these variables can challenge an overbroad or procedurally defective garnishee notice before the account is attached.
Call to Action: We advise taxpayers and third persons on DRC-13 garnishee notices, bank-account attachments and natural-justice challenges. For a garnishee-specific engagement, contact office@anujdesaiassociates.com, Ph No. 9619456656, Website https://anujdesaiassociates.com, LinkedIn linkedin.com/in/ca-anuj-desai-122547230.