Is refund of waived late fee under GST possible?

The waiver of late fee has become a hot topic on social media now. Twitter is flooded with tweets to waive of the late fee on late filing of GSTR 3B from the inception of law. Recently, GST Council has released a press note stating that the “Issue of GST late fee for the past period (August 2017 to January 2020) to be discussed in the GST Council meeting which is going to held on June 14, 2020”. Finally, the late fee got reduced up to a maximum of Rs. 500 in the aforesaid Council meeting.

Keeping aside the discussion upon late fee for a while, the million dollar question which arises here is whether the taxpayer can claim the refund of late fee, if the same is already paid by him. Because GSTR 3B would not allow the taxpayers to file the return without paying the late fee. So, can the taxpayer claim the refund of such late fee which he has already paid while filing returns earlier. In this article we will analyze the issue with the help of equity rule of law and the relevant judicial pronouncements.

Authorizing Provision:

Section 47(1) of CGST Act, 2017 gives the power to levy late fee in case of belated filing of returns. In terms of section 47(1) “Any registered person who fails to furnish the details of outward or inward supplies required under section 37 or section 38 or returns required under section 39 or section 45 by the due date shall pay a late fee of one hundred rupees for every day during which such failure continues subject to a maximum amount of five thousand rupees”.

Thus, the registered person who has not filed the returns on time has to pay a late fee of Rs. 100 in CGST Act and Rs. 100 in SGST Act on each such day of delay. The same provision has been included in the IGST Act with a late fee of Rs. 200.

Late Fee waived off earlier

However, on 31^st December 2018 the GST Council has issued a Notification vide 76/2018 – CT, which waives off the late fee on delayed filing of GSTR 3B for the period July 2017 to September 2018, if the same were filed in between the period 22^nd December 2018 to 31^st March 2019. But the said notification has not talked anything about the refund of late fee which has already been paid. Thus, it can be said that the issue was not arisen now. It was there since the earlier waiver.

Current Reduction of Late Fee:

In the 40^th GST Council held on 12^th June 2020 the government has reduced the late fee on filing of GSTR 3B by fixing a maximum cap of Rs. 500. But the said relief has been given to the filing of GSTR 3B pertaining to July 2017 to January 2020, if the same were filed in between 01.07.2020 to 30.09.2020 i.e. prospective in nature. Furthermore, the government has not talked about the refund of late fee which is already paid. This again has led to the stage where it was started.

Analysis:

The word waiver has not been defined under any Act. However, In the case of “M/s. Galada Power and Telecommunication Ltd. Vs. United India Insurance Co. Ltd. and Another” the Apex Court has described the meaning of waiver as “The expression ‘waiver’ may, in law, bear different meanings. The primary meaning has been said to be the abandonment of a right in such a way that the other party is entitled to plead the abandonment by way of confession and avoidance if the right is thereafter asserted, and is either express or implied from conduct”. Thus, it can be said that collecting the late fee is a right of government and the government has abandoned such right by waiving off the same. Now the biggest question that arises is, whether such right can be abandoned to the specific set of people i.e. people who have not filed returns till date as late fee has been waived off for them.

Logic behind waiving of the late fee:

The government’s intention on waiving of the late fee is to enable the taxpayers, who have not yet filed the returns, pay the taxes along with the interest. This is like an encouragement to the taxpayers to file their returns properly, even if there is a delay and at the same time government could also get the revenue in the form of interest. Now the biggest flaw here is the situation of honest taxpayers who have already paid the late fee on late filing of returns. Either of the waivers has not talked about the refund of late fee which has already been paid. This can be said as a discouraging factor on them. Let us analyze, how far the said treatment is correct.

Prospective or Retrospective Amendment?

Before starting our discussion on the subject topic, first, we have to analyze whether the benefit of waiver will be applicable prospectively or retrospectively. Because the words used in the GST Council Meeting are as follows: “The reduced rate of late fee would apply for all the GSTR 3B returns furnished between 01.07.2020 to 30.09.2020”. Thus, the statement has made clear that the reduced late fee will be applicable only if the returns are filed between the said period. The question here is, can the legislation give the benefit of law giving only prospective amendment.

In the case of “Commissioner of Income Tax, New Delhi vs Vatika Township Pvt Ltd (2015) 1 SCC 1”, the Apex Court has held that “If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect”.

Further in the case of “Vijay vs State of Maharashtra & Others (2006) 6 SCC 286”, the Supreme Court has held that “When a law is enacted for the benefit of the community as a whole, even in the absence of a provision, the statute may be held to be retrospective in nature”

From the above judgements, it is clear that the amendments incorporated by the statue shall be given a retrospective effect if the same have been enacted for the benefit as a whole. Applying the same judgements in our case, it can be accentuated that as the benefit of waiver of late fee has been granted to public at large, the same has to be given a retrospective effect i.e. from the inception of law and refund the late fee which was already paid by the honest taxpayers.

Doctrine of Fairness

In the case of “Government of India & Others vs Indian Tobacco Association (2005) 7 SCC 396”, the doctrine of fairness has been nicely explained. The facts of the said case are that the respondent is cultivator of tobacco. Government has provided an incentive of 2% on the exports carried out from notified container depots vide Notification dated 07.04.1997. In that notification “Guntur” port was not there. However, another Notification dated 27.11.1997 was issued amending the former one by including the Guntur port. The respondent has challenged that the said benefit of incentive from Guntur port will be applicable from 07.04.1997. While pronouncing the judgement in the said case, the Supreme Court has based its decision o “Doctrine of Fairness”.

The Apex Court has held that “Where a statute is passed for the purpose of supplying an obvious omission in a former statute, the subsequent statute relates back to the time when the prior Act was passed [See Attorney General vs. Pougette  (1816) 2 Price 381 : 146 ER 130] The doctrine of fairness also is now considered to be a relevant factor for construing a statute. In a case of this nature where the effect of a beneficent statute was sought to be extended keeping in view the fact that the benefit was already availed of by the agriculturalists of tobacco in Guntur, it would be highly unfair if the benefit granted to them is taken away, although the same was meant to be extended to them also. For such purposes, the statute need not be given retrospective effect by express words but the intent and object of the legislature in relation thereto can be culled out from the background facts”

Thus, the decision makes it clear that if a benefit has been granted by the statute, it cannot be taken away on the ground that the said benefit doesn’t have retrospective nature. Even the intent and the object of the legislature have to be analyzed to check its extent. In our case too, the benefit of late fee which is already paid cannot be snatched from the taxpayer by giving it a prospective nature and hence, refund of such waived off late fee shall be granted upon.

Can the Doctrine of Legitimate Expectation evolve here?

The Halsbury’s Laws of England, Fourth Edition, Volume I has explained the Legitimate Expectation as  “A person may have a legitimate expectation of being treated in a certain way by an administrative authority even though he has no legal right in private law to receive such treatment. The expectation may arise either from a representation or promise made by the authority, including an implied representation, or from consistent past practice. The authority ought not to act so as to defeat the expectation without some overriding reason of public policy to justify it doing so”.

If the decision maker deprives any benefit, advantage or interest of a person which militates his legitimate expectation , he can apply this doctrine. This doctrine imposes duty on public authority to act fairly. In the case of “The Scheduled Caste and Weaker Section Welfare Association vs. State of Karnataka (1991)2 SCC 604” the doctrine has been brought down by Supreme Court. In the said case, the government has notified some slum clearance areas. However, the notification was subsequently amended by excluding some of such areas. The Court has held that the earlier notification had raised legitimate expectation in the people living in an area which has been subsequently left out and it is clear violation of principles of natural justice.

Based on the above discussion, it can be said that the refund of the late fee waived off can be treated as a legitimate expectation as it is being in the nature of reasonable and logical, unless there is an overriding reason of public interest which defeats such expectation. Furthermore, the legislation has to justify such denial of expectation by showing the reasons. Thus, even if the decision makers have not talked about the refund of late fee which was already granted, the same can be implied with regard to this doctrine of legitimate expectation.

Rule of Beneficial Construction

A legislation is not just a series of statements. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various “Principles of Interpretation of Statutes”. There are specific set of principles which helps us to interpret the provisions of the law. One of such rules is this “Rule of Beneficial Construction”.

As per this rule, where there are two or more possible interpretation arising out a provision, the one which protects the benefits given by legislation and which moves onwards the directions of the objectives, should be chosen. By connecting this rule with the subject case, it can be said that granting the refund of late fee already paid is the benefit to the honest taxpayers and it cannot be snatched upon. As the Council has not talked about the refund of such late fee, it can be considered as implied.

Mitigating circumstances – reasonable and non-arbitrary principle

The notifications for waiver of late fee are issued by virtue of Section 128 of the CGST Act, which inter alia provide for waiver of late fee or penalty under the specified sections, under such mitigating circumstances as may be specified by GST Council. The fact that the power to waive off fees is exercisable only on the basis of satisfaction of GST Council on certain parameter, the qualification of non-arbitrary action under Article 14 of the Constitution kicks in.

Further a mitigating circumstance under the criminal law is one which the court determines to be conditions or happenings which do not excuse or justify criminal conduct but are considered out of mercy or fairness in deciding the degree of the offense. The mitigating circumstance by their very nature appears to be grant of mercy one time, therefore arbitrary exercise of powers by the GST Council by giving amnesty multiple times contradicts this concept of mitigating circumstances inter alia fairness. Therefore, a person while arguing for refund of late fee could put an argument before the court that exercise of powers by taking recourse to mitigating circumstance again and again, would suffice fairness only when the refund is also granted to the persons who are on the compliant side of the law.

Morality of law

The continuous promulgation of amnesties are textbook examples of neglecting of the morality of the law. Time and again, the government have introduced amnesty schemes like these, the object of such scheme may be encouraged compliance, but the end results always paves way for the illogical disparity between the honest taxpayers and the ones who keep waiting for the scheme.

Justice Bhagwati, PN in the classic case of RK Garg vs UOI 1981 AIR 2138, 1982 SCR (1) 947 had upheld the constitutionality of immunity granted to holders of Special Bearer Bonds despite the fact that such the holders had evaded payment of taxes, on the ground that morality does not find place in the framing of law. The Supreme Court agreed with the view taken by Bombay High Court in All India Federation of Tax Practitioners vs UOI 1997 228 ITR 68 Bom wherein the Court had inter alia upheld voluntary disclosure scheme under the Income Tax Act on the basis of assurances given by Attorney General that such schemes would be formulated with due care and interest of honest tax payers would be kept in consideration.

It appears that the statements of securing the interest of honest taxpayer is long forgotten. The government has decided to accept waiver of late fees but at the same time forgotten about the ones who have already paid late fees. Considering the quantum of the late fees that has already been collected by government would also be humungous, it looks highly likely that discriminated policy of the government would be scrutinized by the Court. And the fact that frequency of the amnesty is increasing over the years and interest of honest taxpayers jeopardized, it would be interesting, how the Courts would react considering the assurances that was given by government in AIFTP case.

Conclusion:

The legislation should set out the principles which should not create any hardship on the taxpayers and it should also be made beneficial to the public at large. Not giving the refund of already paid late fee could discourage the honest taxpayers who have already paid such late fees and it goes upon the biased nature. It is opined that the government should consider the subject matter and give a clarity on claiming the refund of the late fee which is paid.

For clarifications, readers may reach to venkat@hiregange.com