Interest under 50, Goods and Services Tax - GST

[Veeresham Veerabomma]

Recently the department is issuing DRC 07 notices for recovery of interest on account of belated filing monthly returns of 3B. Now the moot question is whether without issuance of any show cause notice can the revenue straight away issue the said notice / Order DRC 07 ? Direct recovery of interest on unpaid self-assessed tax is gross violation of natural justice and runs contrary to settled jurisprudence. Can it be challenged under Article 226 ? Based on the judgments in case of Mahadeo Constructions, Godavari Commodities, Narsing Ispat, R.K. Transport Pvt Ltd, Daejung Moparts Pvt Ltd and L.C. Infra Projects interest is automatic but recovery is not. I invite the valuable suggestions across this forum at large. The action of the revenue is right or unconstitutional ?

Posts / Replies

[Amit Agrawal]

What are your grounds to challenge the quantification of interest so ordered through Form DRC-07?

[Veeresham Veerabomma]

No Show cause notice issued nor opportunity given whether the interest is legitimately calculated or not. Without which direct order is not correct. Respected Amit ji, I know Interest is automatic, but reasonable opportunity is mandate isn't it?

[Amit Agrawal]

Relevant portion of Section 75 (12) reads as follows:

"(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.

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[Veeresham Veerabomma]

Thank you Amit ji

[Shilpi Jain]

Natural justice principles to be followed for interest as well. Even though interest is automatic and required to be paid, its quantification requires giving an opportunity to be heard.

In the past the department demanded interest on the credit portion of tax payment also. Now, they have got clarity and hence only demand on the cash portion.

W.r.t. the recent notices issued for the interest also, there is a required to consider the extension of due dates in COVID period, concessional interest rate provided during such period. All these should have been taken care by the department while issuing demand/recovery of interest.

Hence, a straight recovery without opportunity to assessee can be challenged.

[Alkesh Jani]

Shri,

In this regards, I am of the view that, in cases where the duty has been paid belatedly and interest has not been paid, interest needs to be demanded and recovered following the due process of demand and adjudication. Where differential duty and/or demand of duty is paid without interest, in such cases, Show Cause Notices demanding interest and levy of penalty should be issued. In the Show Cause Notice, the reference of duty already paid shall be mentioned.

It is settled law that before taking any (includes corrosive) action the assessee/taxpayer should be put to the notice, principles of natural justice are required to be followed.

Thanks

[Veeresham Veerabomma]

The Apex Court discussed in extenso in plethora of judgments that Principles of Natural Justice require that an opportunity of being heard is afforded to an aggrieved person in circumstances wherein their legal or vested rights have been curtailed or taken away, even in the cases where the express provision contained in a statute does not require it to do so. With due respect to all this is pool of knowledge. This discussion is of paramount importance.

[Amit Agrawal]

Dept. is well within its rights to issue order along-with summary in Form DRC-07 which is also treated as notice of recovery u/r 142 (6) due to above-said Section 75 (12).

And if assessee is aggrieved by such order, he has every right to appeal u/s 107 against such orders.

So, unless & until one is challenging constitutional validity of above-said Section 75 (12) by filing writ in HC (which can be costly affair with uncertain outcome, multiple risks thereof including actual recovery action from Dept. after 3 months from recovery-notice etc.), it is better to file appeal u/s 107 before first appellate authority.

And in your appeal-memorandum, you can raise all your grounds of defense, including related to denial of natural justice.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

Please read first Para of my post at serial number 8 as follows:

Dept. is well within its rights to directly issue order along-with summary in Form DRC-07 which is also treated as notice of recovery u/r 142 (6) due to above-said Section 75 (12), without issuing SCN or affording personal hearing.

[Amit Agrawal]

For the period from July, 17 to March, 19, one can put a ground of defense - while filing appeal u/s 107 - to the effect that due date of payment of taxes is either not lapsed till date or alternatively, it got lapsed only on 09.10.2019.

And this is despite Apex Court ruling in UNION OF INDIA & ORS. VERSUS AAP AND COMPANY (2021 (12) TMI 840 - SUPREME COURT)

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Padmanathan Kollengode]

Sir,

Is the interest demanded actual? if yes, even if the order is quashed by High Court, how will it help when the show cause notice is issued? Practically it would be advisable to pay the interest and close the matter.

On another thought, imagine penalty is also demanded in the order you may challenge the same before the court stating notice has not been issued.

Either way, since interest is automatic like you mentioned, it will have to be paid one way or another