Synopsis of Judgement – Mahadeo Construction Co. Vs UOI (Jharkhand HC)

Synopsis: Recently, the Hon’ble HC, Jharkhand in the matter of Mahadeo Construction Co. [W.P.(T) No. 3517 of 2019 dated 21-04-2020] held that no interest liability u/s 50 of the CGST Act 2017 can be determined without initiating any adjudicatory process either under section 73 or 74 of the CGST Act.

Further held that, garnishee proceedings u/s 79 of the CGST Act, 2017 cannot be initiated for recovery of interest by issuing notice to the petitioner’s bankers without adjudicating the liability of interest, when the same is admittedly disputed by the assessee.

Fact of the Case: The petitioner’s Mahadeo Construction Co. has filed its monthly GSTR-3B return of the month of February 2018 and March 2018 during September 2018 as in the GSTN Portal, due date for furnishing of return for the month of February and March 2018 was shown as 31st Match 2019 as it would be evident from Annexure-4 (Screenshot of the GSTN Portal) of the Writ Application. (Though the GSTN Portal showing the same owing to the fact that late fees in respect of the said month has been waived by NN 76/2018-CT dated 31-12-2018)

The petitioner was served with a letter dated 08-03-2019 issued by the Superintendent of Goods and Service tax and Central Excise directing to make payment of interest amounting to INR 19,59,721/- on the ground of delayed filing of GSTR-3B Return for the months of February and March, 2018. Further, during the pendency of the Writ application, the respondent Authorities exercised power under section 79 of the CGST Act by garnishee proceedings for the recovery of aforesaid amount of interest by issuing notice to the petitioner’s Banker.  (Garnishee proceeding has been stayed vide order dated 24-07-2019)

Issue involved: Whether imposition of interest u/s 50 of the CGST Act 2017 and attaching Bank Property of the Petitioner’s is valid under the eyes of law?

Petitioner plea/Views:

• The petitioner most humbly submitted that demanding interest amount of Rs.19,59,721/-on the alleged ground of delay in submitting GSTR-3B Return for the months of February and March, 2018, is not sustainable in the eyes of law, as there has been no delay on its part in furnishing of GSTR-3B Return and, consequentially, there is no delay on its part in depositing the tax with the respondent-Authority.
• It has been contended that, if the amount of interest is not admitted by an assessee, the same requires determination through an adjudicatory process to be initiated as per the detailed provisions contained under Section 73 of the CGST Act.
• Adopting extra legal steps i.e. initiated garnishee proceedings under Section 79 of the CGST Act for recovery of the amount of interest is arbitrary and illegal, as the provisions of Section 79 of the CGST Act can be adopted only when “any amount payable by a person to the Government under the provisions of the Act and the Rules is not paid”. The amount payable (unless admitted) can only be determined by initiating adjudication process as provided u/s 73 & 74 of the CGST Act.

“In the present scenario, since the petitioner has not admitted its liability of interest, the said interest liability to be classified as an amount payable under the Act and/or Rules, necessarily requires adjudication process and, in absence thereof, initiation of garnishee proceedings is not sustainable in the eyes of law.”

Respondent Views:

• The respondent submitted that he present dispute pertains to recovery of interest not on the ground of delay in filing of GSTR-3B Return, but on the ground of delayed payment of tax beyond the stipulated date as prescribed u/s 39(1) read with Section 39(7) of the CGST Act.
• They had taken the plea that in case of the revenue that once there is a delay in payment of tax, the liability to pay interest on the same becomes automatic, for which no separate proceedings is required to be initiated for determining such interest liability.
• It has been contended that payment of interest as envisaged u/s 50 of the Act is automatic and is to be paid by the defaulter at his own without initiating any adjudication process under Section 73 or 74 of the CGST Act.
• It has been further contended that due date as reflected in GSTN Portal as “31-12-19” for furnishing of GSTR-3B monthly return for the months of February and March, 2018 was reflecting owning to the fact that CBIC, vide N.No. 76/2018-Central Tax dated 31-12-18 has waived the levy of late fee for furnishing returns for the months of July, 2017 to September, 2018, if the said returns were furnished between the period 22-12-18 to 31-03-19, not extended the due date.
• In support of the contention, they relied upon- (a) 2004 (5) SCC 472(U.P. Cooperative Cane Unions Federations –Vs-West U.P. Sugar Mills Association &ors.); (b) 2010 (2) SCC 672(Commissioner of Central Excise –Vs-International Auto Limited).
• In respect of the Garnishee proceedings, it revenue contended that since the liability for payment of interest is automatic on delayed payment of tax, the amount of interest is an amount payable under the Act or the Rules and since the assessee, despite notices being issued to it, has failed to discharge the said liability, it was well within the competence of the respondent-Authorities to initiate garnishee proceedings under Section 79 of the CGST Act by attaching Bank account of the petitioner.

Discussion and Findings-

• Interest without adjudication proceedings: The Hon’ble HC, Jharkhand has gone through section 39(1) read with section 39(7) of the CGST Act, Section 50 and section 73 [Emphasis on sub section (5) (6) & (7) of Section 73] of the said Act and emphasised on the word “tax not being paid or short paid”. In respect to this, referring to its earlier ruling in the case of Godavari Commodities Ltd vs Union of India and ors. 2019 SCC online Jhar 1839 held that if an assessee has allegedly delayed in filing his return, but discharges the liability of only tax on his own ascertainment and does not discharge the liability of interest, the only recourse available to the Proper Officer would be to initiate proceedings u/s 73(1) of the CGST Act for recovery of the amount of “short paid” or “not paid” interest on the tax amount.

Recently the Hon’ble Madras High Court in the case of The Assistant Commissioner of CGST & Central Excise vs. Daejung Moparts Pvt Ltd and ors dated 19-12-2019 has taken a similar view.

• Initiation of Garnishee proceeding u/s 79 of the CGST Act 2017- In this respect, the Hon’ble HC held that Section 79 of the CGST Act empowers the authorities to initiate garnishee proceedings for recovery of tax where “any amount payable” by a person to the Government under any of the provisions of the Act and Rules made thereunder is not paid”.

Held:

• Though the liability of interest is automatic, but the same is required to be adjudicated in the event an assessee disputes the computation or very leviability of interest, by initiation of adjudication proceedings u/s 73 or 74 of the CGST Act.
• Without initiation of adjudication proceedings, the amount of interest cannot be termed as an amount payable under the Act or the Rules. Thus, no recovery proceeding under Section 79 of the Act can be initiated for recovery of the interest amount.