INTEREST RECOVERY UNDER GST

[Mr. M. GOVINDARAJAN]

Interest on delayed payment of tax

Section 50 of the Central Goods and Services Tax Act, 2017 provides that  every person who is liable to pay tax in accordance with the provisions of this Act or the rules made there under, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding 18%  as may be notified by the Government on the recommendations of the Council.

The interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger.

The interest shall be calculated, in such manner as may be prescribed, from the day succeeding the day on which such tax was due to be paid.

A taxable person who makes an undue or excess claim of input tax credit under section 42(10) or undue or excess reduction in output tax liability under section 43 (10), shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding 24% as may be notified by the Government on the recommendations of the Council.

Recovery

Section 73(1) of the Act provides that where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilized for any reason, other than the reason of fraud or any willful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilized input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty leviable under the provisions of this Act or the rules made there under.

The proper officer shall issue the show cause notice at least three months prior to the time limit specified in sub-section (10) for issuance of order.  Section 73(10) provides that the proper officer shall issue the order within three years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilized relates to or within three years from the date of erroneous refund.

In ‘L.C. Infra Projects Private Limited v. Union of India’ – 2019 (8) TMI 84 - KARNATAKA HIGH COURT the petitioner is a registered dealer under GST laws.  The petitioner was eligible to claim the input tax credit for the GST paid by the sub contractors while filing its GST returns.  Some of the contractors had not uploaded the invoices and filed their returns. Therefore the input tax credit to which the petitioner was entitled to was not being tallied. The Revenue addressed an email seeking clarification of availment of input tax credit. The Revenue contended that there was an excess availment of input tax credit to the tune of ₹ 2.62 crores. The petitioner pointed out that the input tax credit differential credit is not pertaining to the petitioner, relating to the tax period in question. The petitioner has been levied tax on the unpaid tax without issuing show cause notice.  The Revenue issued a demand notice for ₹ 13,63,864/- towards tax and ₹ 81,29,684/- towards interest. The Revenue also sought for attachment of the bank account of the petitioner.

The petitioner filed the present writ petition before the High Court seeking relief to issue a writ or order or direction quashing the email dated 04.03.2019 demanding payments and to issue a writ or order or direction quashing the letter to the Indian Overseas Bank attaching the account of the petitioner. The main challenge of the petitioner is against the action of the respondents in quantifying the interest and attaching bank account without issuing show cause notice as contemplated under section 73 of the Act. The petitioner submitted that the mandatory requirement of issuing show cause notice before quantifying interest and attaching bank account of the petitioner not being complied with, the orders impugned shall be liable to be set aside.

The Revenue contended that no notice as contemplated under section 73 was issued to the petitioner to show cause before quantifying interest amount and attaching bank account of the petitioner.  The Revenue initiated the proceedings to recover tax and interest based on section 75(12) of the Act.

The High Court analyzed the provisions of section 50 and 73 of the Act.  The High Court found that the issuance of show cause notice is sine qua non to proceed with the recovery of interest payable under section 50 of the Act and penalty leviable under the provisions of the Act or the rules.  In this case the interest payable under section 50 of the Act has been determined by the Revenue without issuing show cause notice.  The action of the Revenue is in breach of principles of natural justice.  The High Court further observed that it is a trite law that any order passed by the quasi judicial authorities in contravention of the principles of natural justice, cannot be sustained.  Similarly, after determination of the interest liable to be paid by the petitioner, no notice has been issued before attaching the bank account of the petitioner.  The High Court held that there is a lapse on the part of the Revenue.  The notion of the Revenue that section 75(12) of the Act empowers the authorities to proceed with recovery without issuing show cause notice is only misconceived.  The said section is applicable only to the self-assessment made by the assessee and not to quantification or determination made by the Authority.