A Bench of co-equal strength must follow decision of another Bench of co-equal strength

East India Udyog Ltd. Vs State of Jharkhand (Jharkhand High Court)

This case involves a challenge to orders and demand notices related to the imposition of interest under the Goods and Services Tax (GST) Act for delayed filing of returns. The petitioner, East India Udyog Ltd., contested the imposition of interest without proper adjudication.

The petitioner argued that interest cannot be levied without adjudication, citing precedents such as “M/s Nkas Services Private Limited Vs. The State of Jharkhand” and “R.K. Transport Private Limited, Phusro, Bokaro Vs. The Union of India.” These cases established that the recovery proceedings under Section 73 of the JGST Act cannot be initiated without a final adjudication.

The state, represented by Mr. Ashok Kumar Yadav, countered this argument by referring to the case “Narsingh Ispat Limited through its Director Sri Ajay Kumar Singh Vs. Union of India,” claiming that once the petitioner admits default, and the statutory authorities address their plea, the court may not entertain the petition.

However, the court, following the principle of judicial discipline, ruled in favor of the petitioner. It cited the precedent that a bench of co-equal strength must follow the decision of another bench of co-equal strength, as established in “Chandra Prakash Vs. State of U.P” and “State of Bihar Vs. Kalika Kuer.” Consequently, the court set aside the orders and demand notices, granting the department the liberty to initiate adjudication proceedings if deemed necessary.

This case underscores the importance of proper adjudication before imposing liabilities such as interest under the GST Act, ensuring fairness and adherence to legal procedures.

FULL TEXT OF THE JUDGMENT/ORDER OF JHARKHAND HIGH COURT

These writ petitions seek to challenge the Orders in Appeal dated 28th December 2022 in Appeal Case Nos. AD200821002136V, AD200821002134Z and AD200821002135X passed by the Additional Commissioner State Tax (Appeal), Jamshedpur Division, Jamshedpur.

2. Soon after these Appeals were dismissed, followed the summary of demand in FORM GST APL-04 all dated 11th February 2023 in Order Nos. ZD2002230008049, ZD200223000803B and ZD200223000800H passed by the Additional Commissioner, Jamshedpur, Jharkhand.

3. The aforementioned order and demand were made in connection to the order dated 4th January 2021 in Form GST DRC-07 passed by the State Tax Officer, Jamshedpur Division, Jamshedpur against the petitioners in Reference No. ZD200121000051W, Reference No. ZD200121000052U and Reference No.ZD200121000050Y.

4. Before passing of the order in Form GST DRC-07, the petitioners were informed by the order dated 17th January 2020 that they had defaulted in filing the Return and thus have to pay interest; with the following direction:

“The grounds and qualification are attached/given below:

You have filed GSTR-3B after due date, but you have not paid Interest U/S 50 of SGST, 2017 on Tax/Cess in Cash Because it was not system calculated.

You are hereby advised to pay the amount of interest as ascertained above full by 25.01.2020, failing which show Cause Notice will be issued under Section 73(1).

In case you wish to file any submissions against the above ascertainment, the same may be furnished by 25.01.2020 in part B of this Form.”

DSCT/ACST/STO

Jamshedpur Circle, Jamshedpur

5. The writ petitioners aggrieved by the aforementioned demand notices for payment of interest preferred the statutory Appeals which, as noticed above, have been dismissed. For the sake of convenience, we shall refer to the facts in WP (T) No.2853 of 2023 in which the challenge laid was to the appellate order dated 28th December 2022 and the demand notice dated 4th January 2021.

6. Aggrieved by the appellate order, summary of demand and demand notice, the petitioner-Firm made the following prayers:

“a. For issuance of an appropriate writ/order/direction including writ of Certiorari quashing and setting aside the Appellate Order dated 28.12.2022 as contained in memo no. 610 dated 28.12.2022 passed by Additional Commissioner State Tax (Appeal), Jamshedpur Division, Jamshedpur, alongwith APL-04 dated 11.2.23 (Annexure-8 collectively), whereby and whereunder the liability has been imposed upon the Petitioner to pay interest u/s 50 of the Goods and Service Tax Act, 2017 for delay in filing GSTR-3B returns resulting into delayed payment of ‘Gross Tax Liability’ for the period 2018-19 (June 2018 to March 2019).

b. For issuance of an appropriate writ/order/direction including writ of Certiorari quashing and setting aside DRC-07 being summary of the order dated 04.01.2021 (Annexure-6) issued by State Tax Officer, Jamshedpur Division, Jamshedpur (Respondent no.3), whereby and whereunder the Petitioner has been directed to pay interest to the tune of Rs.92,96,042.91, without passing any adjudication order.

c. For issuance of an appropriate writ/order/direction including Writ of Mandamus declaring the action of the Respondents in demanding interest to the tune of Rs.92,96,042.91 for the period 2018-19 (June 2018 to March 2019) by determining the due date of payment of tax from the due date of filing of GSTR-3B Return to the actual date of filing of GSTR-3B Return for the particular month, is absolutely arbitrary, illegal and contrary to the provisions of Section 50 of the Goods and Service Tax Act, 2017.

d. For issuance of any other writ(s)/order(s)/direction(s) as Your Lordships may deem fit and proper in the facts and circumstances of the case.”

7. The petitioner-Firm has pleaded that it is engaged in the business of manufacturing various types of power distribution transformers, conductors and cables and is duly registered under the Jharkhand Goods and Service Tax Act,2017 (in short JGST Act) vide registration No.20AAACE6839Q1ZC. Being a manufacturer, the petitioner-Firm is engaged in outward and inward supply of goods in connection to its business. Under section 39 of the JGST Act, every registered person other than the input service distributor or a non-resident taxable person etc. shall be liable to furnish a Return for every calendar month or part thereof electronically of inward and outward supply of goods or services or both, input tax credit availed, tax payable, tax paid and such other particulars in such form and manner and within such time as may be prescribed.

8. According to the petitioner-Firm, there was some delay in filing of the Return for the period from June 2018 to March 2019 but the Return could at last be filed within time as Notifications were issued on 31st December 2018, 24th June 2020 and 1st June 2021 extending the time for filing of the Return. However, the petitioner-Firm received a notice on 17th January 2022 for the payment of interest to the tune of Rs. 92,96,042.91 on account of delayed filing of the Return. Later, a show-cause notice under section 73 of the JGST Act was issued on 3rd December 2020 and, without affording any opportunity of hearing, Form GST DRC-07 dated 4th January 2021 was issued and a demand of Rs. 92,96,042.91 under section 73 of the JGST Act was made without any adjudication.

9. Section 73 of the JGST Act, 2017 which deals with the determination of tax not paid or short paid or erroneously refunded etc. and Rule 142 of the JGST Rules, 2017 which lays down the procedure for issuing notice and demand order are quoted hereunder :

“73. 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 wilful misstatement or suppression of facts.— (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 wilful 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 sub-section (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.”

Rule 142. Notice and order for demand of amounts payable under the Act.—(1) The proper officer, shall serve, along with the—

(a) notice issued under section 52 or section 73 or section 74 or section 76 or section 122 or section 123 or section 124 or section 125 or section 127 or section 129 or section 130, a summary thereof electronically in form GST DRC-01.

(b) statement under sub-section (3) of section 73 or sub-section (3) of section 74, a summary thereof electronically in form GST DRC- 02, specifying therein the details of the amount payable. (1A) The proper officer shall, before service of notice to the person chargeable with tax, interest and penalty, under sub­section (1) of section 73 or sub-section (1) of section 74, as the case may be, shall communicate the details of any tax, interest and penalty as ascertained by the said officer, in Part A of form GST DRC-01 A.

(2) Where, before the service of notice or statement, the person chargeable with tax makes payment of the tax and interest in accordance with the provisions of sub-section (5) of section 73 or, as the case may be, tax, interest and penalty in accordance with the provisions of sub-section (5) of section 74, or where any person makes

payment of tax, interest, penalty or any other amount due in accordance with the provisions of the Act (whether on his own ascertainment or, as communicated by the proper officer under sub-rule (1A),) he shall inform the proper officer of such payment in form GST DRC- 03 and the proper officer shall issue an acknowledgement, accepting the payment made by the said person in form GST DRC-04.

(2A) Where the person referred to in sub-rule (1A) has made partial payment of the amount communicated to him or desires to file any submissions against the proposed liability, he may make such submission in Part B of form GST DRC-01A.”

10. Ms. Amrita Sinha, the learned counsel for the petitioner-Firm submits that the issue whether or not interest can be levied without adjudication is no more res integra. The learned counsel for the petitioner-Firm refers to the decisions by coordinate Benches of this Court in “M/s Nkas Services Private Limited Vs. The State of Jharkhand” in W.P.(T) No. 2444 of 2021 dated 6th October 2021, “R.K. Transport Private Limited, Phusro, Bokaro Vs. The Union of India” in W.P.(T) No. 1404 of 2020 dated 16th February 2022, “M/s Godavari Commodities Ltd. Vs. The State of Jharkhand & others” in W.P.(T) No. 3908 of 2020 with W.P.(T) No. 3909 of 2020 dated 18th April 2022 and other decisions, to put forth a plea that the recovery proceeding under section 73 of the CJST Act cannot be initiated without a final adjudication.

11. Mr. Ashok Kumar Yadav, Sr.S.C.-I, the learned counsel for the State of Jharkhand has however referred to “Narsingh Ispat Limited through its Director Sri Ajay Kumar Singh Vs. Union of India through the Secretary, Ministry of Finance, (Department of Revenue) and others” [2022 SCC Online Jhar 184], to distinguish the aforementioned cases. The learned State counsel has submitted that once the petitioner-Firm admits default on its part and the statutory authorities dealt with its plea, this Court may not entertain this writ petition.

12. In “R.K. Transport Private Limited”, this Court referred to “Mahadeo Construction Co. Vs. Union of India” [2020 (36) G.S.T.L 343 (Jhar.] and held that without initiating any adjudication proceedings under section 73 or 74 of the CGST Act 2017, where the liability has been disputed, the Department cannot raise a demand for the payment of interest on delayed furnishing of the Return under section 39 of the CGST Act.

13. In “R.K. Transport Private Limited”, the co-ordinate Bench of this Court held as under:

“13. We are of the considered opinion that the case of the present petitioner stands covered by the ratio rendered by this Court in the case of Mahadeo Construction Co. (supra) as despite disputing the liability towards interest, the revenue has raised a demand for payment of interest on the ground of delay in furnishing of GSTR-3B return for the period July 2017 to December 2019 without initiating any adjudication proceedings under Section 73 or 74 of the CGST Act, 2017. Earlier by an order dated 8th May 2020 a Coordinate Bench of this Court had been pleased to grant interim protection from any coercive steps against the petitioner pursuant to the impugned demand at Annexure-4.”

14. A glance at paragraph No. 14 in “Narsing Ispat” (supra) reveals that in that case also the co-ordinate Bench of this Court took note of “Mahadeo Construction Co.” which was referred in “R.K. Transport Private Limited”, and held as under:

“14. The next question which falls for consideration is, whether liability of interest under section 50 of the Act could be raised without initiating any adjudication proceeding either under section 73 or 74 of JGST Act in the event Assessee raising a dispute towards liability of interest. In this regard, opinion of this Court rendered in the case of Mahadeo Construction (Supra) at para-21 of the judgment is extracted hereunder:

“21. It is not a true that liability of interest under Section 50 of the CGST Act is automatic, but the said amount of interest is required to be calculated and intimated to an assesse. If an assesse disputes the liability of interest i.e. either disputes its calculation or even the leviability of interest, then the only option left for the Assessing Officer is to initiate proceedings either under Section 73 or 74 of the Act for adjudication of the liability of interest. Recently, the Hon’ble Madras High Court, in its decision dated 19th December, 2019 rendered in Writ Appeals in the case of The Assistant Commissioner of CGST & Central Excise and others Vs. Daejung Moparts Pvt. Ltd. and ors, has taken similar view. The said Writ Appeals were initially decided by a Two Judges Bench of the Hon’ble Madras High Court and divergent views were taken by the Hon’ble Judges on the issue of initiation of adjudication proceedings before imposing liability of interest under Section 50 of the Act. The matter was, thus, referred to learned Third 12 Judge, which was decided vide Judgment dated 19th December 2019 in the following terms:-

“27. A careful perusal of the above said provision would show that every person who is liable to pay tax, but fails to pay the same or any part thereof within the period prescribed shall, on his own, pay interest at such rate not exceeding 18% for the period for which the tax or any part thereof remains unpaid. Thus, sub clause (1) of Section 50 clearly mandates the assesse to pay the interest on his own for the period for which the tax or any part thereof remains unpaid. The liability to pay interest is evidently fastened on the assesse and the same has to be discharged on his own. Thus, there cannot be any two view on the liability to pay interest under Section 50(1) of the said Act. In other words, such liability is undoubtedly an automatic liability fastened on the assesse to pay on his own for the period for which tax or any part thereof remains unpaid.

28. Sub-section (2) of Section 50 contemplates that the interest under Sub-section (1) shall be calculated in such manner as prescribed from the day succeeding the day on which such tax was due to be paid. Sub-section (3) of Section 50 further contemplates that a taxable person who makes an undue or excess claim of input tax credit under Section 42(10) or undue or excess reduction in output tax liability under Section 43 (10) shall have 17 to pay interest on undue or excess claim or such undue or excess reduction, at the rate not exceeding 24 percent.

29. A careful perusal of sub Sections (2) and (3) of Section 50 thus would show that though the liability to pay interest under Section 50 is an automatic liability, still the quantification of such liability, certainly, cannot be by way of an unilateral action, more particularly, when the assesse disputes with regard to the period for which the tax alleged to have not been paid or quantum of tax allegedly remains unpaid. Likewise, whether an undue or excess claim of input tax credit or reduction in output tax liability was made, is also a question of fact which needs to be considered and decided after hearing the objections of the assesse, if any. Therefore, in my considered view, though the liability fastened on the assesse to pay interest is an automatic liability, quantification of such liability certainly needs an arithmetic exercise after considering the objections if any, raised by the assesse. It is to be noted that the term “automatic” does not mean or to be construed as excluding “the arithmetic exercise”. In other words, though liability to pay interest arises under Section 50 of the said Act, it does not mean that fixing the quantum of such liability can be unilateral, especially, when the assesse disputes the quantum as well as the period of liability. Therefore, in my considered view, though the liability of interest under section 50 is automatic, quantification of such liability shall have to be made by doing the arithmetic exercise, after considering the objections of the assessee. Thus I answer the first issue accordingly.

xxx xxx xxx

31. It is to be noted at this juncture that in both the writ petitions, the respective writ petitioners are not disputing their liability to pay the interest on the delayed payment of tax. On the other hand, they are disputing the quantum of interest claimed by the Revenue by contending that the interest liability was worked out on the entire tax liability instead of restricting the liability to the extent of tax unpaid. It is further seen that the writ petitioners have placed some worksheets, wherein they have claimed some ITC credit for every month as well. Their grievance before the Writ Court was that the impugned bank attachment ought not to have been resorted to without determining the actual quantum of liability.

32. Therefore, it is evident that the dispute between the parties to the litigation is not with regard to the very liability to pay interest itself but only on the quantum of such liability. In order to decide and determine such quantum, the objections raised by each petitioners shall have to be, certainly, considered. Undoubtedly unilateral quantification of interest liability cannot be justified especially when the assesse has something to say on such quantum. The Writ Court, thus, in the above line, has disposed the writ petitions, that too, on a condition 18 that the petitioner in each case should pay the admitted liability of interest.

33. A careful perusal of the direction issued by the Writ Court does not indicate anywhere as to how the Revenue is prejudiced by the said order, especially when the Revenue is given liberty to pass an order in a manner known to law and communicate the same to the petitioners, after considering their objections. Thus, I find that the Writ Appeals preferred against the said orders of the Writ Court, as observed by Dr. Vineet Kothari, J, are wholly unnecessary. Therefore, I am in agreement with the view expressed by Dr. Vineet Kothari, J., as I find that entertaining the writ appeal is not warranted, since the Writ Court has not determined the interest liability of each petitioners against the interest of the Revenue in any manner and on the other hand, it only remitted the matter back to the concerned Officer to determine the quantum of such liability. Thus, the second question with regard to the maintainability of the writ appeals is answered accordingly.”

15. We have gone through the orders passed by the State Tax Officer and find that there was no adjudication before a demand for the payment of interest was raised because of the delayed filing of the Returns. This is a well accepted norm of judicial discipline that a Bench of co-equal strength must follow the decision of the another Bench of co-equal strength. In “Chandra Prakash Vs. State of U.P” reported in (2002) 4 SCC 234 the Hon’ble Supreme Court held as under:

“22….The doctrine of binding precedent is of utmost importance in the administration of our judicial system. It promotes certainty and consistency in judicial decisions. Judicial consistency promotes confidence in the system, therefore, there is this need for consistency in the enunciation of legal principles in the decisions of this Court. It is in the above context, this Court Raghubir Singh held that a pronouncement of law by a Division Bench of this Court is binding on a Division Bench of the same or smaller number of Judges... ”

16. Soon after “Chandra Prakash”, the Hon’ble Supreme Court rendered a similar opinion in “State of Bihar Vs. Kalika Kuer” reported in (2003) 5 SCC 448 and held as under:

“10. … an earlier decision may seem to be incorrect to a Bench of a coordinate jurisdiction considering the question later, on the ground that a possible aspect of the matter was not considered or not raised before the court or more aspects should have been gone into by the court deciding the matter earlier but it would not be a reason to say that the decision was rendered per incuriam and liable to be ignored. The earlier judgment may seem to be not correct yet it will have the binding effect on the later Bench of coordinate jurisdiction. Easy course of saying that earlier decision was rendered per incuriam is not permissible and the matter will have to be resolved only in two ways — either to follow the earlier decision or refer the matter to a larger Bench to examine the issue, in case it is felt that earlier decision is not correct on merits. …”

17. Having regard to the aforesaid facts, these writ petitions succeed and the order dated 4th January 2021 in Form GST DRC-07 passed by the State Tax Officer, Jamshedpur Division, Jamshedpur in Reference No. ZD200121000051W, Reference No. ZD200121000052U and Reference No.ZD200121000050Y the appellate order dated 28th December 2022 passed in Appeal Case Nos. AD200821002136V, AD200821002134Z and AD200821002135X by the Additional Commissioner State Tax (Appeal), Jamshedpur Division, Jamshedpur and the summary of demand in FORM GST APL-04 and dated 11th February 2023 passed in Order Nos. ZD2002230008049, ZD200223000803B and ZD200223000800H by the Additional Commissioner, Jamshedpur, Jharkhand are set aside, with a liberty to the department to initiate the adjudication proceeding in accordance with law, if so advised.

18. I.A. No. 4902 of 2023 in W.P.(T) No. 2853 of 2023, I.A. No. 4903 of 2023 in W.P.(T) No. 2854 of 2023 and I.A. No. 4904 of 2023 in W.P.(T) No. 2855 of 2023 stand disposed of.