Adjudication process required to determine interest liability under Section 50 of CGST Act

The court held that interest liability under Section 50 of the CGST Act must be determined through an adjudication process under Sections 73 or 74 when disputed by the assessee. Recovery proceedings under Section 79 cannot be initiated for interest recovery without completing the adjudication process. The court quashed the demand for interest and garnishee notice, allowing authorities to initiate adjudication proceedings to determine interest liability.

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Issues Involved:

1. Whether interest liability under Section 50 of the CGST Act can be determined without initiating any adjudication process either under Section 73 or 74 of the CGST Act in the event of an assessee raising a dispute towards liability of interest.
2. Whether recovery proceedings under Section 79 of the CGST Act can be initiated for recovery of interest under Section 50 of the said Act without initiation and completion of the adjudication proceedings under the Act.

Detailed Analysis:

Issue 1: Determination of Interest Liability Without Adjudication Process

The primary issue is whether the interest liability under Section 50 of the CGST Act can be determined without initiating any adjudication process under Sections 73 or 74 of the CGST Act when there is a dispute raised by the assessee. The petitioner, a partnership firm, argued that the demand for interest amounting to Rs. 19,59,721/- for delayed filing of GSTR-3B Return for February and March 2018 was invalid as it was determined without any adjudication process. The petitioner contended that the interest liability requires determination through an adjudication process as per Section 73 of the CGST Act, especially when the liability is disputed.

The respondent argued that the liability to pay interest on delayed payment of tax is automatic under Section 50, and no separate proceedings are required for determining such interest liability. The respondent further contended that the due date reflected on the GSTN Portal as 31st March 2019 was due to a waiver of late fees notified by the Central Government and not an extension of the due date for filing GSTR-3B Return.

The court, referring to Section 73 of the CGST Act, concluded that if an assessee disputes the liability of interest, the proper officer must initiate proceedings under Section 73 or 74 for adjudication. The court emphasized that the interest liability under Section 50 is automatic, but its quantification requires an arithmetic exercise, especially when disputed by the assessee. The court cited the Madras High Court's decision in The Assistant Commissioner of CGST & Central Excise vs. Daejung Moparts Pvt. Ltd., which held that while the liability to pay interest is automatic, quantification must be done after considering the assessee's objections.

Issue 2: Initiation of Recovery Proceedings Without Adjudication

The second issue is whether recovery proceedings under Section 79 of the CGST Act can be initiated for recovery of interest without adjudication when the interest liability is disputed. The petitioner argued that the initiation of garnishee proceedings under Section 79 for recovery of interest was arbitrary and illegal since the interest liability was not adjudicated.

The respondent justified the initiation of garnishee proceedings, stating that the liability for payment of interest is automatic on delayed payment of tax, making the interest amount payable under the Act. The respondent relied on two Supreme Court decisions to support their contention that the interest liability does not require adjudication.

The court held that without adjudication of the interest liability, the amount cannot be termed as an amount payable under the Act or the Rules. Therefore, recovery proceedings under Section 79 cannot be initiated without initiating and completing the adjudication process under Section 73 or 74 of the CGST Act.

Conclusion:

The court quashed the impugned letter dated 08.03.2019 demanding interest and the garnishee notice dated 22.05.2019 issued under Section 79 of the CGST Act. The court allowed the respondent authorities to initiate appropriate adjudication proceedings under Sections 73 or 74 of the CGST Act to determine the liability of interest, if any, after providing an opportunity of hearing to the petitioner. The writ application was allowed without any order as to costs.

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