GST department attached my personal bank account after restaurant GST dispute (5% vs 18% due to ITC). Need advice on next steps.
Hi everyone,
I’m looking for advice from people experienced in GST litigation or tax practice.
I was the proprietor of a small restaurant in Karnataka. The business has been closed for almost two years now, and my GST registration was cancelled after closure.
Here’s the timeline:
Started restaurant business in 2023.
We charged and paid GST at 5% on restaurant services.
Unfortunately, our accountant also claimed Input Tax Credit (ITC), apparently without understanding that restaurants paying 5% generally cannot claim ITC.
The department conducted an inspection around August 2024.
They later issued Show Cause Notices for FY 2023-24 and FY 2024-25 alleging that because ITC was claimed, I should have paid GST at 18% instead of 5%, and demanded the 13% differential along with interest.
Total demand at the SCN stage was around ₹2.56 lakh.
After receiving the SCNs, I:
Filed detailed replies.
Explained that the mistake was due to lack of knowledge and accountant error.
Reversed the ITC through DRC-03.
Paid interest on the reversed ITC.
Requested that the department treat the supplies as taxable at 5% after reversal of ITC instead of demanding 18%.
Also explained that the business had already shut down due to financial difficulties and personal circumstances.
Despite this, I have now discovered that:
The GST department has attached the demand to my PAN.
Recovery has reached my personal savings bank account.
The portal/recovery records are now showing approximately ₹2.71 lakh outstanding.
I was not expecting recovery to begin because I believed my replies and DRC-03 reversals would be considered.
My questions are:
Does reversal of ITC with DRC-03 generally help in cases like this, or is the department legally correct in insisting on 18% GST?
Is there still any remedy available after recovery has started?
Can I still file an appeal if an order has already been passed?
Can recovery be stayed while an appeal is pending?
Is there any possibility of getting the demand recalculated based only on ITC wrongly claimed rather than treating the entire turnover as taxable at 18%?
Has anyone here handled similar restaurant GST cases after Circular 164/2021?
Would you recommend approaching a GST litigation lawyer immediately instead of a regular CA?
Any help or suggestions are welcome. Thanks in advance.