Introduction
Taxpayers, due to various reasons, may fail to file their monthly GST returns within the prescribed due date. A pertinent issue arises as to whether such non-filing constitutes suppression of facts, thereby warranting the imposition of a 100% penalty. Additionally, it is crucial to examine whether a taxpayer, having subsequently discharged the GST liability and filed overdue returns, can be absolved from the stringent penalties prescribed under the CGST Act. These legal questions were comprehensively examined by the Hon’ble Andhra Pradesh High Court in Sriba Nirman Company v. The Commissioner (Appeals), Guntur, which provides significant judicial insights into the interpretation of term “suppression” and interplay of Section 74 and 122 of the Act
Facts of the case
The petitioner, a works contractor functioning as a sub-contractor for M/s. Vijay Nirman Company Ltd., issued invoices in March 2018, resulting in a GST liability of approximately Rs. 3.19 Crore. While the main contractor remitted partial payments, the petitioner, citing financial constraints, failed to discharge the monthly GST liability and did not file GSTR-3B within the prescribed timelines.
On 31st July 2018 (after passage of the deadline of three months after the due date of filing GST Returns for March 2018), officers of the Directorate General of GST Intelligence (DGGI) conducted an inspection of the petitioner’s premises. Within two months of the inspection, the petitioner fully discharged the outstanding GST liability and filed the overdue GSTR-3B returns. However, the DGGI subsequently issued a Show Cause Notice (SCN) demanding interest for delayed payment and a penalty equivalent to the output tax under Section 122 read with Sections 125, and 74(1) of the Act.
Despite the petitioner’s payment of interest and submission of a detailed reply to the SCN, the adjudicating authority confirmed the penalty. The appellate authority has also upheld the penalty in appellate proceeding, prompting the petitioner to challenge the decision before the Hon’ble Andhra Pradesh High Court.
Arguments Advanced by the Petitioner
1. Since the tax liability was settled prior to the issuance of the SCN, the provisions of Section 74(5) were inapplicable.
2. Mere non-payment of tax does not constitute fraud, willful misstatement, or suppression of facts to evade tax liability and therefore Section SCN u/s 74(1) could not be issued
3. The applicable tax was paid well before the due date for filing the annual return. Hence, non-filing of monthly returns should not be construed as suppression of facts.
Contentions of the Revenue
Relying on Section 39 of the Act, Department argued that petitioner was mandated to make monthly payment of tax and thereafter file month GST Returns. Therefore, the petitioner’s assertion that non-filing of monthly returns does not constitute suppression of facts if tax liability is duly discharged before the due date for the annual return doe does not hold ground.
Legal Issue for Determination
Present litigation poses a difficult question of whether a penalty under Section 74(1) of the CGST Act can be levied where a taxpayer has collected tax from the recipient but failed to file monthly GST returns, despite discharging the tax liability in full prior to the issuance of an SCN without payment of interest.
Observations of the Hon’ble High Court
A conjoint reading of Section 74(5) & 74(6) indicates that an SCN under Section 74(1) is impermissible where the taxpayer has fully discharged the tax liability along with interest under Section 50 and a penalty equivalent to 15% of the tax amount. Since the interest and penalty were not paid prior to the issuance of the SCN, the Hon’ble Court upheld the Department’s jurisdiction to invoke Section 74(1) of the Act.
Referring to Section 39 and Rule 61(2), the Hon’ble Court concluded that the petitioner was statutorily obligated to file monthly returns and remit tax within the due date. The taxpayer’s contention that GST liability was discharged before the due date of filing the annual return did not find favour with the Court.
Relying on Explanation 2 to Section 74 of the Act Hon’ble Court held that that non-filing of monthly Return by prescribed due dates amount to suppression of facts. However, it emphasized that unless such non-filing is willful, the taxpayer cannot be subjected to the rigors of a 100% penalty. Considering the appellate authority’s findings that the petitioner had received certain payments from the main contractor but still failed to make GST payments in time, the Court concluded that such suppression was willful and accordingly upheld the imposition of a 100% penalty on the petitioner.
Our comments
Attention is drawn to Section 122(1)(iii) of the Act, which stipulates that if a supplier collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due then supplier shall be liable to pay penalty of Rs. 10,000 or tax equivalent, whichever is higher. It appears that the Court’s decision was influenced by this legal provision.
Broadly speaking, default of Non-payment of GST by prescribed due dates can be categorized into following two scenarios:
Scenario 1: Taxpayer delayed GST payments due to non-receipt of corresponding taxes from the recipient
In this scenario, the taxpayer can rely on CBIC Circular No. 76/50/2018-GST dated 31st December 2018. By making the tax payment along with applicable interest, the taxpayer can claim immunity from the penalty.
Scenario 2: Taxpayer collected GST payments from recipients but delayed remittance for over three months
In such a situation, it is advisable to voluntarily pay a 15% penalty along with applicable interest to prevent the proper officer from initiating proceedings under Section 74(1) of the Act.
While this judgment may pose significant compliance challenges, it is a pertinent to note that evolving GST framework now demands strict compliance, and non-adherence comes at a significant cost. Gone are the days when taxpayers could use government funds for business needs by merely paying interest.
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