2020 (10) TMI 1173 - HC - GST

Court allows challenge on GST interest, quashes garnishee notices, directs interest payment as per administrative instructions

The court allowed the writ petition challenging the levy of interest on delayed GST payments and the constitutionality of certain provisions of the ... Interest on delayed payment of GST - Section 50 of the CGST Act - interest on net cash tax liability versus gross tax liability - Administrative instructions of the Central Board of Indirect Taxes and Customs dated 18.09.2020 - Retrospective application of amendment to section 50 - Quashing of garnishee notices - Keeping show cause notices in call book pending retrospective amendmentSection 50 of the CGST Act - interest on net cash tax liability versus gross tax liability - Administrative instructions of the Central Board of Indirect Taxes and Customs dated 18.09.2020 - Retrospective application of amendment to section 50 - Whether interest under section 50 of the CGST Act for the period prior to the statutory amendment is to be levied on net cash tax liability or on gross tax liability - HELD THAT: - The Court recorded that amendment to section 50 (by Finance (No.2) Act, 2019) provided for charging interest on the net cash tax liability and was made effective prospectively from 01.09.2020 by notification No.63/2020-Central Tax dated 25.08.2020. The GST Council had recommended that interest be charged on net cash tax liability with effect from 01.07.2017 and that a retrospective amendment would be carried out by legislation. In the meanwhile the Board issued administrative instructions dated 18.09.2020 directing field formations to recover interest on the net cash tax liability for the period 01.07.2017 to 31.08.2020 and to keep show cause notices issued on gross tax payable in the call book until retrospective amendment is effected. The Court held that these administrative instructions address the central grievance and answer the question of whether interest should be on net cash liability for the stated pre amendment period. [Paras 12, 13, 14]Interest for the period 01.07.2017 to 31.08.2020 shall be recovered only on the net cash tax liability in terms of the Board's administrative instructions dated 18.09.2020.Quashing of garnishee notices - Administrative instructions of the Central Board of Indirect Taxes and Customs dated 18.09.2020 - Whether the garnishee (recovery) notices issued to the petitioner's customers on 16.07.2020 should stand - HELD THAT: - Having accepted that the administrative instructions of 18.09.2020 have substantially met the petitioner's grievance by restricting recoveries for the period 01.07.2017 to 31.08.2020 to net cash tax liability, the Court found no live controversy requiring further adjudication. In consequence the Court held that the garnishee notices issued on 16.07.2020 had become ineffective and ordered them quashed. The respondents were directed to intimate the petitioner the quantum of interest payable in terms of the administrative instructions and the petitioner to pay, if not already paid. [Paras 15, 16]Garnishee notices dated 16.07.2020 are quashed; respondents to notify petitioner of interest payable in terms of the administrative instructions and petitioner to pay accordingly.Final Conclusion: Writ petition allowed: administrative instructions dated 18.09.2020 treated as dispositive - interest for 01.07.2017 to 31.08.2020 to be recovered only on net cash tax liability; garnishee notices of 16.07.2020 quashed; respondents to intimate quantum and petitioner to pay as directed; no order as to costs. Issues Involved:1. Levy of interest on delayed payment of GST.2. Validity and constitutionality of Section 50, 39(7), 75(12), and 164(3) of the CGST/MGST Act, 2017.3. Legality of recovery (garnishee) notices issued by the respondents.4. Retrospective application of the amendment to Section 50 of the CGST Act.Detailed Analysis:1. Levy of Interest on Delayed Payment of GST:The petitioner, a manufacturing company, faced interest charges on delayed GST payments computed on gross liability. The petitioner contended that interest should be levied on net liability, not gross. The respondents issued garnishee notices to recover the interest amount, which the petitioner argued was done without due process.2. Validity and Constitutionality of CGST/MGST Act Provisions:The petitioner challenged several provisions of the CGST/MGST Act, 2017, claiming they were unconstitutional under Articles 14, 19, and 265 of the Constitution. Specifically, the petitioner sought declarations that:- Section 50 is unenforceable due to lack of prescribed machinery provisions.- Sections 39(7) and 75(12) violate Articles 14 and 19.- Section 164(3) is unreasonable and discriminatory.- Rule 61(5) of the CGST Rules and related notifications are beyond statutory provisions and violate Articles 14 and 19.3. Legality of Recovery (Garnishee) Notices:The petitioner argued that the garnishee notices issued by the respondents were unreasonable, arbitrary, and issued without following due process, thus violating Articles 14, 19, and 300A of the Constitution. The court noted that these notices were issued despite the petitioner remitting interest based on net liability.4. Retrospective Application of the Amendment to Section 50:Section 50 of the CGST Act was amended by the Finance (No.2) Act, 2019, to levy interest on net cash tax liability, effective from 01.09.2020. However, the GST Council recommended that this should apply retrospectively from 01.07.2017. The Central Board of Indirect Taxes and Customs (CBIC) issued administrative instructions on 18.09.2020 to recover interest on net cash liability retrospectively, pending formal legislative amendment.Judgment Analysis:The court acknowledged the administrative instructions dated 18.09.2020, which addressed the petitioner's grievances by clarifying that interest on delayed GST payments should be levied on net cash liability from 01.07.2017 to 31.08.2020. The court noted that both parties agreed that these instructions resolved the primary issue.The court quashed the garnishee notices issued on 16.07.2020 and directed the respondents to inform the petitioner of the interest amount payable based on the administrative instructions. The petitioner was required to pay any outstanding interest as per these instructions.Conclusion:The writ petition was allowed, and the recovery notices were quashed. The court concluded that no live issue remained for adjudication, as the administrative instructions had resolved the central issue. The order was digitally signed, and no costs were imposed.