Introduction In the intricate web of Goods and Services Tax (GST) compliance, taxpayers often find themselves at the receiving end of notices from the GST department. These notices, particularly concerning demands for tax, interest, and penalties, are becoming increasingly common. The department’s approach, especially the issuance of DRC-01 under rule 142(1)(a) of the CGST Rules for interest demands, has sparked a debate on the legality and procedural correctness of such actions. This article delves into the reasons behind the department’s demands for interest, the legal provisions underpinning these demands, and the judicial perspective on the matter, aiming to shed light on the path that taxpayers should ideally follow when confronted with such notices.
There are many reasons for which demand for interest can be raised by the department, for example –
1. Delay in payment of tax liability in the belated filing of GSTR-3B (may be of a period when interest was not getting auto-calculated in the GSTR-3B),
2. Furnishing of invoices in GSTR-1 in the month succeeding month to which the invoices pertain,
3. Differences between 2A/2B and 3B (wherein taxpayer has already paid excess ITC claimed, voluntarily through GST DRC-03),
4. Liability declared in Table – 10 to Table -13 in GSTR – 9 and shown as paid in Table – 14 in GSTR – 9,
5. ETC.
Provisions of Section 50 of the CGST Act and Rule 88B of CGST Rules apply to the calculation and determination of interest liability.
But most of the time, officers are issuing show cause notices u/s 73 or 74 of the CGST Act in Form DRC-01. Sections 73 and 74 talk about the determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized. Subsection (1) of both sections i.e. section 73 and 74 stipulates that the proper officer 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 utilised 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.
These sections talk about raising of demand for tax not paid or short paid along with interest and penalty on the same. These are not stating about the issue of notice for recovery of interest on the amount of tax which has already been paid by the Taxpayer.
Moreover, Rule 142 (1) states that “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”. Nowhere it is referring to Section 50 of the CGST Act.
Section 75(12) of CGST Act, 2017 states that “Notwithstanding anything contained in section 73 or section 74, where any amount of self-assessed tax in accordance with a return furnished under section 39 remains unpaid, either wholly or partly, or any amount of interest payable on such tax remains unpaid, the same shall be recovered under the provisions of section 79”.
Whereas rule 142(5) of CGST Rules states that “A summary of the order issued under section 52 or section 62 or section 63 or section 64 or section 73 or section 74 or section 75 or section 76 or section 122 or section 123 or section 124 or section 125 or section 127 or section 129 or section 130 shall be uploaded electronically in FORM GST DRC-07, specifying therein the amount of tax, interest and penalty payable by the person chargeable with tax”.
Rule 142 (5) has included section 75 in its wording while issuing notice for recovery in Form GST DRC-07, but Rule 142(1)(a) has not included section 75 in its wording.
Hence it can be inferred that the notice in Form GST DRC-01 under Rule 142(1)(a) and Section 73 or 74 for demand of interest wherein tax has already been paid by the taxpayer is violative of the law. The department should straight away issue notice for recovery in GST DRC-07 by referring to section 75(12) read with rule 142(5) of CGST Rules.
This issue was carefully analyzed by the Hon’ble High Court of Gujarat in the case of Rajkamal Builder Infrastructure Pvt. Ltd. vs Union of India – R/Special Civil Application No. 21534 of 2019, decided on 23/03/2021 and the same view has been given by the Hon’ble High Court of Gujarat.
However, there are some practical issues with the above process of law, which should have been followed by the department. The process followed by the department by issuing notice in Form DRC-01 u/s 73 or 74 gives more time to the Taxpayer to analyze the demand of interest and provide an explanation to the proper officer in case of difference of opinion with calculation and determination of interest by the proper officer.
If the officer starts with straight away issuing demands in DRC-07 for recovery of interest, wherein tax has already been paid by the taxpayer, the taxpayer would have no other recourse and would have to file an appeal to explain the difference of opinion. The current practice of the department has given the Taxpayer one additional opportunity, to explain his stand before the department materializes the demand by issuing an order in Form GST DRC-07.
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