In recent days, many Taxpayers has received communications from the GST Department in respect to payment of interest due to delay in payment of taxes. In some cases, we may have come across situations where the departmental correspondence does not contain a Document Identification Number even though the same is mandatory in any Government correspondence. Sometimes we may have faced certain situation where the computation of interest differs between the department’s computation and tax payer’s own computation. The Hon’ble Jharkhand High Court in the case of Mahadeo Construction Co. Vs. Union of India-W.P(T) No. 3517 of 2019 dated 21.04.2020 has decided an important aspect for demanding any tax from the taxpayers and is very important for recent times when we are receiving many letters from the GST department for recovery of interests etc. In this case the Hon’ble High Court has decided that-
1. Interest cannot be demanded by the Department without issuance of Show Cause Notice when the taxpayer disputed the leviability of the same.
2. Garnishee Proceeding u/s 79 of the CGST Act, 2017 cannot be initiated for recovery of interest which is on dispute.
In foregoing paragraphs we shall analyze the Judgement in detail
Questions Involved before the Hon’ble High Court
i.l Whether interest liability under Section 50 of the Central Goods and Services Tax Act, 2017 (for short ‘CGST Act’) can be determined and demanded without initiating any adjudication process either u/s 73 or 74 of the CGST Act in the event that the levy of interest is disputed by the assessee?
ii. Whether recovery proceedings u/s 79 of the CGST Act can be initiated for recovery of interest u/s 50 of the said Act without initiation and completion of the adjudication proceedings under the Act?
Facts of the Case
> The Petitioner i.e M/s Mahadeo Construction Co. has filed the GSTR 3B for the month of February 2018 and March, 2018 in March, 2019. In the said GSTR 3B returns for the month of Feb-2018 and March-18 the petitioner has deposited the due tax but not the interest.
> The petitioner believed that the due date for submission of GSTR 3B for Feb-2018 and March-2018 was extended till 31st March, 2019 and in the GST Common Portal also the due date was shown as 31st March, 2019. The petitioner has annexed the screenshot of the same too with the Writ Petition.
> According to the petitioner, since GSTR 3B was filed within the extended due date, so no interest shall be levied.
> However, the Revenue department has demanded interest of Rs. 19,59,721/- for the months of Feb-18 and Mar-18 by way of issue of a letter and subsequently initiated Garnishee Proceedings u/s 79 of the CGST Act, 2017.
> Being aggrieved, the petitioner has filed a Writ Petition before the Hon’ble High Court.
Reference Taken in the Judgement
Section 39(1) read with Section 39(7) of the CGST Act, 2017
Section 39 of the CGST Act, 2017 is dealing with Furnishing of Returns. The sub-section (1) and sub-section (7) of the said Section 39 is reproduced below for easy reference
(1) Every registered person, other than an Input Service Distributor or a non-resident taxable person or a person paying tax under the provisions of section 10 or section 51 or section 52 shall, for every calendar month or part thereof, furnish, in such form, manner and within such time as may be prescribed, a return, electronically, of inward and outward supplies of goods or services or both, input tax credit availed, tax payable, tax paid and such other particulars as may be prescribed:
PROVIDED that the Government may, on the recommendations of the Council, notify certain classes of registered persons who shall furnish return for every quarter or part thereof, subject to such conditions and safeguards as may be specified therein.”
(7) Every registered person, who is required to furnish a return under sub-section (1) or sub-section (2) or sub-section (3) or sub-section (5), shall pay to the Government the tax due as per such return not later than the last date on which he is required to furnish such return:
PROVIDED that the Government may, on the recommendations of the Council, notify certain classes of registered persons who shall pay to the Government the tax due or part thereof as per the return on or before the last date on which he is required to furnish such return, subject to such conditions and safeguards as may be specified therein.”
Conjoint reading of the aforesaid two provisions reveal that GST needs to be paid within 20th day of the subsequent month. Therefore, the Due Date for Payment of Tax for a Tax period in GST is 20th Day of the Subsequent month.
Section 50 of the CGST Act,2017: Section 50 of the CGST Act, 2017 deals with Levy of Interest on delayed payment of Tax. Section 50(1) levies Interest @ 18% if following two conditions are satisfied:
Section 50(3) prescribes to Levy Interest at a higher rate of 24%, in case of-
Section 73 of the CGST, 2017 deals with determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any willful misstatement or suppression of facts. For ease in reference, the said section 73 is reproduced below for ease in reference:
“(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilized for any reason, other than the reason of fraud or any willful misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilized input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty leviable under the provisions of this Act or the rules made thereunder.
(2) The proper officer shall issue the notice under sub-section (1) at least three months prior to the time limit specified in subsection (10) for issuance of order.
(3) Where a notice has been issued for any period under subsection (1), the proper officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for such periods other than those covered under sub-section (1), on the person chargeable with tax.
(4) The service of such statement shall be deemed to be service of notice on such person under sub-section (1), subject to the condition that the grounds relied upon for such tax periods other than those covered under sub-section (1) are the same as are mentioned in the earlier notice.
(5) The person chargeable with tax may, before service of notice under sub-section (1) or, as the case may be, the statement under sub-section (3), pay the amount of tax along with interest payable thereon under section 50 on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.
(6) The proper officer, on receipt of such information, shall not serve any notice under sub-section (1), or, as the case may be, the statement under sub-section (3), in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder.
(7) Where the proper officer is of the opinion that the amount paid under sub-section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-section (1) in respect of such amount which falls short of the amount actually payable.
(8) Where any person chargeable with tax under sub-section (1) or sub-section (3) pays the said tax along with interest payable under section 50 within thirty days of issue of show cause notice, no penalty shall be payable and all proceedings in respect of the said notice shall be deemed to be concluded.
(9) The proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten per cent of tax or ten thousand rupees, whichever is higher, due from such person and issue and order.
(10) The proper officer shall issue the order under sub-section (9) within three years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilized relates to or within three years from the date of erroneous refund.
(11) Notwithstanding anything contained in sub-section (6) or subsection (8), penalty under sub-section (9) shall be payable where any amount of self-assessed tax or any amount collected as tax has not been paid within a period of thirty days from the due date of payment of such tax.”
Therefore, apparent reading of the Section 73 of the CGST Act, 2017 it can be interpreted that A Show Cause Notice (SCN) shall be issued by the departmental officer in case of-
1. Non Payment of Tax
2. Short Payment Tax
Erroneous issue of Refund
1. Wrong/Excess Availment of Input Tax Credit
2. Wrong/Excess Utilisation of Input Tax Credit
In the said SCN, the proper officer may demand the Tax not paid or Short Paid along with Interest and penalty applicable under the provisions of the Act. But as per the fact of the case, what would be the situation when Tax is paid but after the due date. So, the important factor to be decided by the Hon’ble Court is whether Delay Payment of Tax would fall within the expression “tax not being paid or short paid” specified in Section 73(1) of the CGST Act, 2017. To find out the answer to this question, the Hon’ble High Court has relied upon the judgement in the case of Godavari Commodities Ltd vs UOI & Ors where in it was decided that Tax not paid to Government Account within the due date would squarely fall within the expression Tax not being paid as described in Section 73(1) and therefore, SCN needs to be issued by the departmental officers to demand the recovery of tax along with applicable interest and penalty.
This view is also supported by the sub-section (5), (6) and (7) of the Section 73 wherein it is stated that if before serving the SCN the Assessee may pay the tax dues along with interest u/s 50 on his own ascertainment and if the assessing officer agrees on the interest and tax ascertained by the assessee then no SCN shall be issued upon the assessee. However, if the assessing officer finds that the assessee’s ascertainment of tax and interest is not right then SCN may be issued by the Assessing Officer for difference amount. Therefore, the only recourse available to the assessing officer is to initiate adjudication proceedings u/s 73(1) by issuing SCN where tax was paid after due date and interest on it was not paid.
The Court further pointed out that levy of interest is not automatic, however the same needs to be calculated and intimated to the assessee. The assessee may very well dispute the levy of interest or its calculation of it and in that case the only option left over to the assessing officer is to issue SCN.
Further, the Hon’ble High Court has held that the Ganishee Proceedings u/s 79 of the CGST Act can be initiated for recovery of any amount payable by a person to the Government under any provisions of the Act and Rules made thereunder is not paid. As per fact of the instant case, the petitioner has already paid the due tax amount on its own in March, 2019 and therefore, no Tax amount is pending to be paid. Further, though the levy of interest u/s 50 is automatic in the case of delay in payment of tax, however, the same needs to adjudicated u/s 73 or 74 by the department when the petitioner disputed the very leviability of the interest. Unless and until the adjudication proceeding gets completed , the interest cannot be termed as Payable and so, recovery proceedings cannot be initiated against the petitioner under section 79 of the CGST Act, 2017.
The aforesaid judgement of the Hon’ble Jharkhand High Court in the context of present scenario. For issuance of any demand of Tax and/or Interest, the department shall issue SCN and start the adjudication proceedings against the tax payer. The department has no right to demand any tax/interest/penalty under the GST Laws, simply by issue of a letter. Further, attachment of Bank account cannot be done u/s 79 unless and until the adjudication proceeding is completed and the demand is confirmed upon the tax payer. The aforesaid judgement of the Hon’ble Jharkhand High Court holds good till any contrary order is passed by any other High Court in this regard.