As per Section 50(1) of CGST Act, interest at notified rate is payable on delayed GST payment. Said section reads as under:
50. (1) Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent., as may be notified by the Government on the recommendations of the Council.
In a recent case of M/s LC Infra Projects Pvt Ltd [ Writ Petition No.28876 of 2019 (T-RES, Karnataka High court) ] department issued demand notice for recovery of interest and also served a letter for attachment of the bank accounts of petitioner. Hence, petitioner approached Karnataka High Court challenging the action of the respondents in quantifying the interest and attaching the bank account without issuing Show Cause Notice as contemplated under Section 73 of the CGST Act.
Karnataka High Court [Single Judge bench] held that issuance of Show Cause notice u/s 73 of the Act is essential to proceed with the recovery of interest payable thereon under Section 50 and further held that Sec 75(12) of CGST Act is applicable only to the self-assessment made by the assessee and not to quantification or determination made by the Authority and hence by virtue of said section authorities are not empowered to proceed with recovery of interest without issuing Show Cause Notice on account of principle of natural justice.
Aggrieved by Single Judge order Revenue [GST department] preferred appeal before Karnataka High Court-Division bench [Writ Appeal No. 188 of 2020 (T-RES)] on following grounds:
√ as the tax was payable as per the self-assessment made by the assessee, it was not necessary to issue a show cause notice to the respondent-assesse as the demand was only as regards to payment of interest under Sub Section (1) of Section 50 of the GST Act.
√ that as the demand was not for a tax and only for interest, a notice under Sub Section (1) of Section 73 of the GST Act was not all necessary
√ that as a consequence of failure to pay interest, consequential action of attachment of the bank account has been taken.
While dismissing revenue appeal, High court vide order dated 03-Mar-2020 upheld single judge order and observed that:
√ Under sub section (1) of Section 50 of the GST Act, interest can be demanded if an assessee fails to pay the tax or any part thereof within the specified period.
√ On the factual aspect, whether there was a failure on the part of the assessee to pay the tax or any part thereof within the period prescribed, the assessee is entitled to be heard as he could always point out on the basis of the material on record produced that there was no delay in payment of tax.
√ Assuming that sub section (1) of Section 73 is not applicable, in our view, before penalizing the assessee by making him pay interest, the principles of natural justice ought to be complied with before making a demand for interest under sub section (1) of Section 50 of the GST Act. Consequence of demanding interest and non-payment thereof is very drastic.
√ The learned Single Judge rightly held that issuance of show Cause Notice is sine qua non to proceed with the recovery of interest payable in accordance with sub section (1) of Section 50 of the GST Act
Above ruling is a welcome ruling and is a sigh of relief for taxpayers wherein hefty interest demands are made without following principles of natural justice.