GST UPDATE No 154 ON RECOVERY OF INTEREST WITHOUT ADJUDICATION

One of the acute problems which is being faced by many taxpayers is the flurry of demands being initiated by GST department for interest payable on delayed payment of GST. It is settled principle of law that no recovery can be made without adjudication but recently, an issue came before Hon’ble Jharkhand High Court in the case of R.K. TRANSPORT PVT. LTD. wherein the interest liability amounting to Rs. 83,96,873/- confirmed without adjudication proceedings was challenged by the petitioner. The detailed analysis of the judgment is the subject matter of our present update. The petition is filed in the Jharkhand High Court challenging the demand of interest amounting to Rs. 83,96,873/- confirmed by the revenue authorities due to delay in filing of GSTR-3B for the period July 2017 to December 2019. It has been contended that since the GST liability stands disputed by the petitioner, interest could not be levied without adjudication proceedings under Section 73 or 74 of CGST Act, 2017. The petitioner contended that no interest shall be charged on gross tax liability and further no rules have been prescribed u/s 50 of CGST Act, 2017 for computation of interest. Reliance was placed on the favourable decision given by Jharkhand High Court in the case of MAHADEO CONSTRUCTION COMPANY V/S UNION OF INDIA & ORS. The counsel of the department argued that the there was delay in filing of monthly returns and making payment of tax as per Section 39(1) of CGST Act, 2017 without charging interest on delayed payment of tax. Further, the interest is recovered as per Section 79 read with Section 75(12) of CGST Act, 2017. It is contended that Rule 61(5) is amended retrospectively w.e.f. 01.07.2017. Consequently, in case the returns are filed belatedly and tax dues are not paid within time, interest and late fee shall be applicable as per Section 49 and 50 of the Act which do not require any adjudication process under Section 73 or 74 of CGST Act. The Court opined that the interest liability was under dispute by the petitioner by way of reply to the notice of recovery under Section 79 of CGST Act, 2017. Reliance was placed on one of the decisions of the Coordinate Bench of this Court wherein it was held that liability regarding payment of interest is automatic under GST Act is not true. The amount of interest is required to be calculated and then intimated to the assessee. In case of any disputes, the officer can then in that case initiate actions u/s 73 or 74 of CGST Act, 2017. Reference was made to Madras High Court in the case of THE ASSISTANT COMMISSIONER OF CGST & CENTRAL EXCISE AND OTHERS VS. DAEJUNG MOPARTS PVT. LTD. AND ORS wherein it was held that liability to pay interest is an automatic liability fastened on the assessee to pay on his own and cannot be a unilateral action particularly when assessee disputes as regards to the period for which tax has not been paid. Therefore, since the liability is an automatic liability, its quantification is an “arithmetic exercise” which is done after considering the objections if any raised by the assessee. It was stated that the petitioner is not disputing their liability to pay interest on delayed payment of tax but the quantum of interest to be paid. Therefore, the impugned order is quashed and revenue authorities are left with an option to initiate adjudicating proceedings u/s 73 or 74 of CGST Act, 2017. The above decision has proved to be a boon for the assessee as revenue authorities are stubborn and often fail to recognize the fact that process of recovery of interest cannot be initiated against without issuance of show cause notice and adjudicating the same. The judgment is based on sound principles of law that no liability can be fastened on the assessee unless opportunity of hearing is provided to them to defend their case. There had been various judicial pronouncements on the same subject matter wherein Courts were of the view that revenue authorities must use their powers to attach bank accounts and initiate garnishee proceedings only with respect to recovery of confirmed tax demands. Resorting to recovery proceedings without proper adjudication is harassment of taxpayers. The Government should issue appropriate clarification in this respect so that unwarranted litigations can be avoided in future.

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GST UPDATE No 154 ON RECOVERY OF INTEREST WITHOUT ADJUDICATION

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