Extract of the notice of demand for interest under sub-section (1) of Section 50 of the Central Goods and Services Tax Act, 2017 is re-produced here-in-below:
“During analysis of the returns filed by you for the period 2017-18 to 2019-20, it has been found that you have filed Form GSTR-3B returns belatedly without discharging the applicable interest payable on the delayed payment of tax under the sub-section (1) of the Section 50 of the Central Goods and Service Tax Act, 2017 (CGST Act, 2017).
Further, interest payable on such delayed payment of tax may be recovered under the provisions of Section 79 of the CGST Act, 2017 read with Section 75(12) of the CGST Act, 2017, which provides for various methods by which the proper officer shall proceed to recover the said amount due to the Government.
In this regard, you are requested to pay all interest due for delayed payment of tax for the above mentioned period, under intimation to this office within 07 days, failing which appropriate action as per relevant Acts/Rules will be initiated.”
In today’s era, with the ease in communication, the Proper Officers are mass circulating the aforementioned demand notice to all the alleged non-compliant taxpayers.
Interest has always been considered as the time cost of money which stands payable on account of delay in payment of tax for whatever reason, like delayed filing of return, non-payment of tax, excess claim of input tax credit, dispute in taxability and such others. The Hon’ble Supreme Court in the case of COMMISSIONER OF INCOME TAX, MUMBAI VS ANJUM M. H. GHASWALA & ORS (252 ITR 1) had held interest to be compensatory and hence mandatory.
Section 50 of the Central Goods and Services Tax Act, 2017 (‘the Act’) imposes interest on tax liability not discharged within the due dates prescribed in the law. As is the trend in GST, there has already been a history to the interest levy on either ‘net tax liability after input tax credit adjustment’ or on ‘gross tax liability’.
To add salt to injury, the Act has provisions like Section 75 (12), Section 73 (11) and 79 which further cast gloomy shadows to the GST regime.
At this juncture, what does a genuine confused taxpayer do? Conduct business regardless, litigate and wait for the government to figure it out all?
Part I – Levy of Interest
The resolution to the question of levy of interest has however been satisfactorily clarified by the Hon’ble Madras High Court in the case of Refex Industries (supra) wherein they have looked into the concept of interest and analysed that the word ‘delayed’ connotes a situation of deprival, where the State has been deprived of the funds representing tax component till such time the Return is filed accompanied by the remittance of tax. The availability of input tax credit is contrary to this, as it connotes the enrichment of the State, to the extent of credit accumulated. The credit being available with the Department is, thus, neither belated nor delayed. Thus, Section 50 which is specifically intended to apply to a state of deprival cannot apply in a situation where the State is possessed of sufficient funds to the credit of the assessee.
As per the Hon’ble Court, the proper application of Section 50 is one where interest is levied on a belated cash payment but not on credit available and utilised. It has been further added that the proposed amendment in Finance Act 2019 should be considered retrospectively as it is clarificatory in nature.
Part II – Recovery of Interest
Once it is satisfactorily agreed that interest should be computed and paid on net tax liability retrospectively (despite contrary stand that may still be taken by the jurisdictional authorities), what remains to be seen is the proceedings being initiated by the Proper Officer.
In the demand notices being issued today, the Proper Officers do not ask the taxpayer to show cause as to why recovery should not be made, rather the officers tend to directly take actions in gross violation of the principles of natural justice. The proper officer is seen quoting Section 79 to authorise its actions of recovery of interest in case of delay in payment of tax.
At this juncture, it becomes imperative to refer to Section 79 read with Section 75(12) of the Act to interpret the Proper officer’s stand in terrorizing the taxpayers with actions that may be taken without affording proper opportunities to the taxpayer.
Sec 75. General provisions relating to determination of tax
(12) “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”
Sec 79. Recovery of tax.
(1) Where any amount payable by a person to the Government under any of the provisions of this Act or the rules made thereunder is not paid, the proper officer shall proceed to recover the amount by one or more of the following modes …..”
On a plain conjoint reading of the aforesaid provisions, it appears that the Proper Officer may be justified in his actions that no Show Cause Notice under Section 73(1) is required and recovery proceedings can be directly initiated for recovery of interest for delay in filing the return.
Is that so?
Recently, various Courts, including division benches of High Courts, have questioned the actions of the Department in directly attaching banks to recover interest amount calculated by the department. So far, it appears that Courts have almost without exception agreed that unilateral power cannot be granted to the Department in case of interest and reasonable opportunity should be granted to taxpayers to give reasons for levy of interest as well as in calculation of interest payable.
On 21.04.2020, the Hon’ble Jharkhand High Court deliberated on the question of whether authorities can initiate recovery of interest without adjudicating the liability of interest in the case of MAHADEO CONSTRUCTION CO. vs THE UNION OF INDIA & Others [2020-VIL-185-JHR]. Very emphatically, it was held that even though interest liability is automatic on delay in filing the return, Section 79 cannot be invoked unless amount payable by the taxpayer has been determined under the provisions of the Act by following procedure laid down in Section 73 (1) of the Act. The Hon’ble Court had relied on past judgements and interpreted that Section 73 (1) shall also apply in cases where tax had not been paid within the due dates prescribed in law.
Before that on 3rd March 2020, the Division bench of Hon’ble Karnataka High Court in THE UNION OF INDIA & OTHERS VS M/S. LC INFRA PROJECTS PVT. LTD. [WRIT APPEAL NO.188 OF 2020 (T-RES)] has also upheld the views of the Single bench in rejecting the Department’s notion on Section 75(12) that it empowers them to proceed with recovery directly. The Hon’ble Court held such views as misconceived and interpreted that section 75 (12) is applicable for limited purpose of self-assessment made by the taxpayer and not for determination of interest amount. The division bench stressed that issuance of show cause notice is absolutely a must “sine-qua-non” for determination and recovery of interest liability.
It is certain that the department is gearing up to issue notices under GST for FY 2017-18, being the first year of its operations and for later periods. At times, it appears that the stand of the department is aggressive and the provisions are interpreted not reasonably, but in a manner to suit the purposes of the department. Interest recovery for delay in filing of return has already been initiated in several cases and the hostile actions of the department have already been questioned.
To be fair, the levy of interest, in my view, should not be questioned to the extent there has actually been delay in filing the return. In my opinion, the interest liability can be disputed on the following limited issues :
In this connection, reference should also be made to the judgement of the Hon’ble High Court in the case of GODAVARI COMMODITIES LTD VS UNION OF INDIA [2019-VIL-596-JHR] wherein the Hon’ble High Court looked into the intimation given by the department to the taxpayer directing him to deposit the interest payable on delayed filing of return. The Hon’ble High Court concluded that such an intimation serves as show cause notice and compliance has been made under Section 73(1) of the Act. However, direction was also given for adjudication of the interest amount for determining liability.
Thus, levy of interest and quantification thereof, remains to be seen on case to case basis.