A.M Distributors Vs Assistant Commissioner (Kerala High Court)
Summary: The petitioner, A.M Distributors, a taxpayer under the CGST/KGST Act, challenged Exts.P2 and P2A notices issued by the first respondent demanding interest under Section 50 of the CGST Act for belated filing of returns during 2017-2018 and 2018-2019.
The petitioner contended that the interest demand was unsustainable because sufficient amounts were available in its electronic credit ledger during the relevant period. Relying on the proviso to Section 50 of the CGST Act, the petitioner argued that, for belatedly furnished returns, interest is payable only on the portion of tax discharged by debit to the electronic cash ledger and that no interest is contemplated on the portion discharged from the electronic credit ledger. The petitioner also relied upon the observations of the Rajasthan High Court in Swift Motors v. Central Goods and Service Tax Department, Civil Writ Petition No.2415 of 2020.
The Kerala High Court found merit in the petitioner’s submission. It examined Section 50(1), which generally provides for interest where a taxpayer fails to pay tax within the prescribed period, together with the proviso specifically dealing with interest in cases of belated filing of returns. According to the Court, the proviso confines the accrual of interest, in the circumstances covered by it, to the portion of tax paid by debiting the electronic cash ledger and does not contemplate interest on payments made by debiting the electronic credit ledger.
The Court further noted that the relevant proviso had been brought in by the Finance Act, 2021 with retrospective effect from 01.07.2017. Consequently, the petitioner was entitled to the benefit of the retrospective provision for the periods involved in the notices.
The Court did not itself finally quantify or extinguish the interest demand. Instead, it disposed of the writ petition by directing the first respondent to finalise the proceedings based on Exts.P2 and P2A after considering the legal position identified by the Court. For that purpose, the petitioner was directed to submit a reply to Exts.P2 and P2A within two weeks from receipt of a copy of the judgment. The first respondent was then directed to take a decision within one month from receipt of that reply.
Thus, the judgment recognises the retrospective application of the proviso to Section 50 and its relevance to interest demanded for belated filing of returns, while leaving the factual question of whether sufficient amounts were actually available in the petitioner’s electronic credit ledger at the relevant time to be considered by the first respondent.
Cases Discussed
- Swift Motors v. Central Goods and Service Tax Department, Civil Writ Petition No. 2415 of 2020 (Rajasthan High Court)
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
The petitioner is a taxpayer under the provisions of the CGST/KGST Act. This writ petition is submitted by the petitioner, being aggrieved by Exts.P2 and P2A notices issued by the 1st respondent requiring the petitioner to pay interest for the belated filing of returns during the year 2017-2018 and 2018-2019.
2. According to the petitioner, the said demand is not sustainable in view of the fact that, the petitioner had sufficient amount available in the credit ledger and therefore, even though the returns were submitted belatedly as claimed by Exts.P1 and P2, no interest could have been demanded. Reliance was made to the proviso to Section 50 of the CGST Act. As per the said provision, the interest is payable, only in respect of the amount debited from the electronic cash ledger and therefore, no interest is contemplated for the amount debited from the electronic credit ledger. Petitioner also brought to the attention of this Court to the observations made by the High Court of Rajasthan in M/s.Swift Motors v. Central Goods and Service Tax Department [Civil Writ Petition No.2415 of 2020].
3. After hearing the learned counsel for the petitioner and the learned Government Pleader, I find merits in the submission made by the petitioner. Going by the proviso to Section 50, it is evident that, what is contemplated therein, is the instances where, interest could be levied for the belated filing of returns. Although Section 50 (1) provides for interest upon failure of the taxpayer in paying tax in time, at the rate specified in this regard, in the proviso, which specifically deals with the interest for the belated filing of returns, the accrual of interest is confined to the amount paid towards the portion of tax, by debiting the electronic cash ledger and not remitted from the electronic credit ledger. Thus, the said provision, which is an enabling provision to collect interest as far as the filing of returns are concerned, does not provide for payment of interest on any payments to be made by debiting from electronic credit ledger. Moreover, even though the proviso was brought in only by the Finance Act, 13 of 2021, the same was implemented with retrospective effect from 01.07.2017. Therefore, the petitioner is entitled to get the benefit thereof.
In such circumstances, this writ petition is disposed of by directing the 1st respondent to finalize the proceedings based on Exts.P2 and P2A, after considering this aspect. In order to enable the 1st respondent to take a decision on this and to find out whether sufficient amounts were available in the credit ledger of the petitioner at the relevant time, the petitioner shall submit a reply to Exts.P2 and P2A within a period of two weeks from the date of receipt of a copy of this judgment, and thereupon, a decision shall be taken within a period of one month from the date of receipt of the said reply.
