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 CGST/MGST Act. The court quashed the garnishee notices issued by the respondents and directed the petitioner to pay any outstanding interest based on administrative instructions clarifying that interest should be levied on net cash liability from 01.07.2017 to 31.08.2020. The court found that the administrative instructions resolved the primary issue, leading to the quashing of recovery notices without imposing costs.

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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.

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