GST

Interest Liability Under GST should be adjudicated If Assessee Raises Dispute: Jharkhand HC

The High Court of Jharkhand ruled that in case where an assessee disputes the interest liability, where the calculation or its leviability of interest is disputed, then the assessing officer should initiate a proceeding under Section 73 or Section 74 of the CGST Act^[1] for adjudicating the interest liability.

Case in Brief: Interest Liability under GST

The assessee had challenged the CBIC circular dated Feb 10, 2020, which provides that interest payable on the delayed payment of taxes can be recovered under Section 79 read with Section 75(12) of the JGST Act. The department ordered the assessee to pay the interest amount in full, failure to do so would invoke proceedings under Section 73(1) of the JGST Act. The question to consider here was whether liability of interest under Section 50 of the Act can be raised without initiating any adjudication under Section 73/74 of the Act in case where the assessee raises a dispute towards liability of interest.

Further another question to be considered was whether a recovery proceeding under Section 79 of the Act can be commenced for recovery of interest under Section 50 without the completion of the adjudication process under the Act.

Petitioner’s Contentions

The petitioner’s counsel said before the court that interest under Section 50(1) of the JGST Act cannot be asked for in case of delay in filing monthly return on Form GSTR 3B, but can be demanded only for a delay in paying taxes. Section 50 of the JGST Act deals with the liability to pay interest on unpaid tax when a taxpayer fails to pay tax. It doesn’t state anything when a person has paid tax as per Section 49 of the JGST Act.

The proviso to Section 50(1) of the Act can’t go beyond, or make an addition to the primary provision. It should be limited to the subject matter of the enacting clause. As per proviso to Section 50(1) ITC is as good as tax paid hence no interest shall be payable. It doesn’t speak about payment from electronic credit ledger as Section 50 (1) of the JGST Act is connected with cases of unpaid or failure to pay tax only.

Under Section 50(1) the word debiting is used for apportionment of an amount on which interest should be paid if not paid in accordance with Section 49 of the JGST Act. The word debiting should be read in the context of words- fails to pay & unpaid in sub-section (1) & (2) of Section 50 of JGST Act.

The petitioner’s counsel argued before the court that the summary of order issued in Form GST DRC-07 & the demand notice issued in Form GST DRC-01A, through which interest was ordered for the number of days of delay in filing GSTR 3B rather than the number of days of delay in the payment of tax, was both illegal and without the authority of law.

He further submitted that in case of delayed filing of GSTR 3B, at best a late fee could be demanded, which was discharged already by the petitioner. Interest under Section 50(1) of the Act is compensatory in nature. Hence when the amount is credited in the electronic cash ledger as per Section 49 of the JGST Act, the money is deposited with the government exchequer hence no interest for the period after that can be demanded. The government doesn’t have to wait to file return or appropriation of tax to enjoy the amount deposited in the electronic cash ledger.

Finally, the counsel submitted that if the money is being enjoyed by the government, then the amount cant be said to be unpaid or failed to pay in order to attract Section 50(1). If a person has paid tax as per Section 49, no interest shall be levied as the amount has been paid already.

Respondents’ response

The counsel representing the department argued that interest can be recovered on the delayed payment of tax under Section 50 read along with Section 75(12) of the Act. A conjoint reading of both these sections makes it clear that the interest is payable by debiting the electronic cash ledger. Interest has to be calculated by the assessee on its own, and that the interest shall be payable automatically at the time of return filing on Form GSTR 3B. The word payable used in the proviso to Section 50 of the JGST Act has wide significance. It means liable to be paid justly due, legally enforceable etc. The counsel submitted that the scope of Section 50 is limited in a way that interest becomes payable on delay in payment of tax.

Courts’ Observation

The court stated that the department has failed to follow the process as provided under the JGST act. Further, a summary of the order has been issued to the petitioner without following the principles of natural justice.

The court ruled in favour of the petitioner, stating that interest is not payable in case of delayed filing of GSTR 3B as the amount of tax has been deposited in the electronic cash ledger according to Section 49 of the Act. As per Section 50 (1) of Act, interest can be charged only on the unpaid tax in case where the assessee doesn’t pay it within the due date. The court ruled that since there is no delay in tax payment, interest cannot be charged for late filing of GSTR 3B.

Final Order

The court quashed the impugned summary of the order, and it ruled that respondents may issue a proper show cause notice and provide assessee the opportunity to file response thereto before any adjudication order is passed. The court said it is open to the petitioner to challenge the leviablity of the interest on delayed filing of GSTR 3B, relying on its stand that the tax amount has been deposited with the electronic cash ledger within the due date.  

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