GST Interest Liability cannot be raised without Initiating Adjudication process If dispute in raised by Assessee: Jharkhand HC

The Writ Petitioner challanged GST Circular bearing F. No. CBEC-20/16/07/2020-GST dated 10.02.2020 issued by the Central Board of Indirect Taxes and Customs (CBIC) which prescribes that interest payable on delayed payment of taxes can be recovered under the provisions of Section 79 read with Section 75(12) of CGST Act. It was pointed out that the petitioner has been asked to pay the amount of interest applicable over the taxes in full, failing which he would face proceeding under section 73(1) of the CGST Act.

However, at the time of final hearing of this case, learned counsel for the petitioner has abandoned such prayer as it has become redundant in view of the provisions of Section 50(1) of CGST Act, 2017 under which a proviso has been inserted by Gazette Notification dated 02.11.2021 of Government of Jharkhand clarifying that interest is to be paid on the net tax liability i.e. amount of tax paid by debiting Electronic Cash Ledger.

Writ petitions as stands now are confined to the challenge to the impugned demand notice in Form GST DRC- 01A dated 28.01.2020 pertaining to the Financial Years 2017-18, 2018-19 and 2019-20 in the respective writ petitions. Petitioner has also sought quashing of the Summary of the Order issued in Form GST DRC-07 dated 26.02.2020 in the respective writ petitions. Petitioner has also raised a contention that interest under section 50(1) is not leviable on the taxes paid. It cannot be demanded for any delay in filing monthly return in Form GSTR-3B once the amount is deposited / credited in Electronic Cash Ledger in accordance with Section 49. Interest under section 50(1) being compensatory in nature, it can be demanded for the amount withheld by the registered person or if the amount remains unpaid or the registered persons fails to pay the tax. Since the charge of the interest has been disputed by the petitioner, the same can only be levied after an adjudication proceeding under section 73 or 74 of the Act after proper show- cause notice and opportunity to reply. In this regard, learned counsel for the petitioner has relied upon the case of Mahadeo Construction Co. (Supra) decided by a Coordinate Bench of this Court, of which one of us (Deepak Roshan, J) was a Member.

Order:

16. Petitioner has inter-alia taken a legal plea that the interest is not payable on late filing of GSTR-3B since the amount of tax has been deposited in the Electronic Cash Ledger in accordance with Section 49 of the Act. The Revenue has not denied the tax due and as such, interest under section 50(1) which is compensatory in nature cannot be realized from it. Interest can only be charged on the tax unpaid or if the Assessee fails to pay the same by the due date, as per Section 50(1) of the Act. Since there is no delay in payment of the tax, interest is not chargeable for late filing of GSTR-3B for which, a late fee has been prescribed under Section 47 of the Act which the petitioner had duly paid. Petitioner has also submitted that only the balance amount of tax which was paid through Electronic Cash Ledger after the due date, is liable to be charged for interest which the petitioner had also paid. However, since the proceedings have been held to be vitiated on failure to follow the principles of natural justice and the procedure prescribed under section 73(1) of JGST Act, 2017, we consciously refrain from making any comments on the merits of this contention raised by the petitioner at this stage. The impugned Summary of the Order contained in Form GST DRC-07 dated 26.02.2020 in the respective writ petitions relating to different tax periods in question are accordingly quashed. Respondents are at liberty to issue proper show-cause notice in terms of Section 73(1) of JGST Act, 2017 with opportunity to the petitioner to file response thereto before passing any adjudication order. It is open to the petitioner to raise the question of leviability of interest on delayed filing of GSTR-3B relying upon its plea that the amount of tax has been duly deposited in the Electronic Cash Ledger by the due date. Needless to say, if such a plea is raised, the Adjudicating Authority shall consider it in accordance with law.

17. Writ petitions are allowed in the manner and to the extent indicated hereinabove. Since the writ petition has been decided only on the question of failure to follow the principles of natural justice, we do not consider it necessary to deal with the other authorities cited on behalf of the parties.

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