Can an SCN be issued under S 73/ 74 of CGST Act, 2017 only and only for payment of interest on late filing of GSTR-3B ?, Goods and Services Tax - GST

[Gautam Godhwani]

Section 73 of the CGST Act, 2017 covers the following circumstances -

• Tax not paid
• Tax short paid
• Erroneously Refunded
• Input Tax Credit wrongly availed
• Input Tax Credit wrongly utilized

It also covers the interest and penalty on that tax paid thereon.

But can an SCN be issued merely and only for the payment of interest on delayed filing of GSTR-3B ? In short, there is no tax, there is no penalty, only interest as per the SCN issued under S 73 r/w S50 of the CGST/ SGST Act, 2017.

I would like to mention the decision in the case of Rajkamal Builder Infrastructure (P.) Ltd. v. Union of India - 2021 (3) TMI 1139 - GUJARAT HIGH COURT in which it was held in the following paras that -

9. Thus, the plain reading of the aforesaid rules indicates that Form GST DRC 01 can be served by the proper officer along with the notice issued under section 52 or Section 73 or section 74 or section 76 or section 122 or section 123 or section 124 or section 125 or section 127 or section 129 or section 130 and that too, electronically as a summary of notice.

10. We do not find reference of any notice under section 50 so far as Rule 142(1)(a) of the CGST Rules is concerned. In such circumstances, DRC 01 could not have been issued for the purpose of recovery of the amount towards interest on delayed payment of tax.

11. The aforesaid leads us to consider the question that if the amount towards interest on delayed payment of tax is to be recovered, then what is the Form in which the notice is to be issued?

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16. Rule 142 makes it clear that the order referred in sub-rule (5) shall be treated as the notice for recovery.

17. From the aforesaid, we have reached to the conclusion that the notice should have been issued in Form GST DRC 07. The Notice should specify the amount of tax, interest and penalty payable by the person chargeable with tax.

18. In view of the aforesaid, the Form GST DRC 01 could be said to have been issued without any authority of law.

Even in the case of Godavari Commodities Ltd. v. Union of India 2019 (12) TMI 275 - JHARKHAND HIGH COURT, the counsel for the respondent argued since the matter related to only interest short paid on belated filing of returns, SCN need not have been issued u/S 73. But this contention was rejected primarily on the ground that this would amount to violation of principles of natural justice, and an opportunity of being heard ought to have been provided and thus the mechanism of SCN was a necessary process for the same.

In the case of Union of India v. LC Infra Projects (P.) Ltd. - 2020 (4) TMI 664 - KARNATAKA HIGH COURT similar line of reasoning that PNJ must not be violated was repeated at Para 12 -

12. Assuming that sub section (1) of Section 73 is not applicable, in our view, before penalizing the assessee by making him pay interest, the principles of natural justice ought to be complied with before making a demand for interest under sub section (1) of Section 50 of the GST Act. Consequence of demanding interest and non-payment thereof is very drastic.

(Emphasis Added)

Thus it can be seen from Para 12 of the judgment which has been reproduced as above that -

1. The para simulated a scenario in which S 73 was not applicable to the mere demand of interest on delayed payment of returns;

2. That assuming such situation existed, it would be draconian since there would have been no following of principles of natural justice.

My questions are the following -

1. That in the Rajkamal Builder Infrastructure judgment, would the notice stage be entirely presumed by the order stage since DRC-07 itself would be treated as notice ?

2. That vide the Godavari Commodities and LC Infra judgment does there arise a situation where an SCN under S 73 is inapplicable for merely demanding interest on delayed payment of tax; and even if it is applicable, it is primarily to follow principles of natural justice ?

3. In the event that issuance of DRC-01 or SCN for that matter is NOT an appropriate step for the initiation of proceedings for interest short paid due to delayed filing of GSTR-3B; what would be the appropriate step for the department ?

Posts / Replies

[Gautam Godhwani]

Edit : The query is pertaining to FY 2017-18 only.

[KASTURI SETHI]

Sh.Gautam Godhwani Ji,

Regarding imposition of penalty, see serial no.2 of Board's Circular No.76/50/2018-GST dated 31.12.18.

 

[KASTURI SETHI]

Interest is part of tax. Interest is automatic. held by Orissa High Court in the case of P.K.Ores Pvt. Ltd. - 2022 (5) TMI 1293 - ORISSA HIGH COURT date of order 6.5.2022.

Interest for delayed payment of GST — Recovery thereof without issuing any show cause notice whether justified?

The Supreme Court Bench comprising Hon’ble Dr. Justice D.Y. Chandrachud and Hon’ble Mr. Justice M.R. Shah on 16-7-2021 issued notice in the Petition(s) for Special Leave to Appeal (C) No. 8370 of 2021 filed by Union of India against the Judgment and Order dated 21-4-2020 of Jharkhand High Court in W.P.T. No. 3517 of 2019 as reported in 2020 (36) G.S.T.L. 343 (Jhar.) (Mahadeo Construction Co. v. Union of India). While issuing notice, the Supreme Court passed the following order :

“1. Issue notice, returnable in eight weeks.

2. Dasti, in addition, is permitted.

3. Counter affidavit be filed within a period of four weeks from the date of service of the notice.

4. Tag with SLP(C) No. 6977 of 2021.”

The Jharkhand High Court in its impugned order had held that without issuing any show cause notice under Section 73 or Section 74 of Central Goods and Services Tax Act, 2017, initiation of proceedings under Section 79 ibid for recovery of interest for delayed payment of GST could not be justified.

[Union of India v. Mahadeo Construction Co. - 2021 (11) TMI 274 - SC ORDER]

[Amit Agrawal]

Dear Querist,

W.r.t. query raised by you, kindly note the followings:

A. Section 73 (7) of the CGST Act, 2017 reads as follows: "Where the proper officer is of the opinion that the amount paid under sub-section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-section (1) in respect of such amount which falls short of the amount actually payable".

B. As a noticee, you should not have any problem for SCN demanding only interest u/s 50. If SCN demanded taxes (being paid beyond due date, though before SCN), there would have been proposal to levy penalty u/s 73(9) read with 73(11). As this has not happened, you should be actually happy defending such SCN demanding only interest u/s 50 & nothing more.

C. Rajkamal Builder Infrastructure (P.) Ltd. v. Union of India - 2021 (3) TMI 1139 - GUJARAT HIGH COURT does not give relief to the assessee per se. All it said is Dept. needs to issue Form DRC-07 (which is order). Actual relief given there was in Para 6 which reads as follows: Thus, from the above, it is clear that the interest under Section 50 of the CGST Act, 2017 can only be levied on the net tax liability and not on the gross tax liability. In such circumstances, the demand raised by the respondent is not in accordance with law.

C1. Presumably, factual aspects of your case seems different (i.e. you case is that of 'delay in payment of taxes through cash ledger & not through credit ledger'). Hence, it is better to avoid using above-said ruling to challenge Form DRC-01 on the technicality.

D. Among many grounds to defend yourself, you can challenge the delay ITSELF in payment of taxes through cash ledger on the ground that due date of paying those taxes is not yet lapsed.

D1. Due-date of paying taxes u/s 39 (7) is specifically linked with 'Due date of filing return u/s 39 (1)'. We hold a view that 'Due Date' of payment of taxes (as per Section 39 (7)) for the period from July, 17 to Mar, 19 has not lapsed considering various notifications issued in those period which is extended time-limit to file return u/s 39 (1) (For examples: Notification No. 58/2017-Central Tax, dated 15th November, 2017, Notification No. 44/2018-C.T., dated 10-9-2018, as amended from time to time) AT-LEAST till 08.10.2019. Presumably, you have filed all those returns for FY 17-18 or or before 08.10.2019.

D2. Please note that I hold this view despite Apex Court ruling in UNION OF INDIA & ORS. VERSUS AAP AND COMPANY (2021 (12) TMI 840 - SUPREME COURT) and assuming that said ruling is legally correct. And this is despite retrospective amendment carried in Rule 61 via Notification No. 49/2019 – Central Tax dated 09-10-2019 w.e.f. 01-07-2017.

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