2020 (11) TMI 107 - HC - GST

Court rules GST Act proviso applies retrospectively, deems interest on reversed ITC unjustified.

The court held that the proviso to Section 50 of the Central Goods and Services Tax Act, 2017 should apply retrospectively. It ruled that levying interest ... Interest on delayed payment of tax - Leviability of interest on ITC adjustment - Net cash tax liability - Proviso to Section 50 retrospective operation - Availability and utilization of Input Tax Credit - Compensatory nature of interest - Administrative instructions for recoveryLeviability of interest on ITC adjustment - Availability and utilization of Input Tax Credit - Compensatory nature of interest - Interest is not leviable on the portion of tax discharged by debiting available Input Tax Credit held in the electronic credit ledger. - HELD THAT: - The Court held that Section 50 is intended to compensate the revenue for deprival of funds and thus applies where tax remains unpaid in cash. Where the Department is in possession of credit in the electronic credit ledger to the credit of the assessee, there is no state of deprival; availment and utilization of ITC are distinct events and credit valid until reversed by statutory mechanism. Consequently, interest intended as compensation for loss of capital does not arise on adjustment of ITC which is 'good as cash'. This conclusion is reinforced by the proviso to Section 50 which limits interest to the portion paid by debiting the electronic cash ledger and by precedents treating available credit as equivalent to cash for these purposes. [Paras 12, 14, 23]Impugned notices and coercive recovery for interest on tax remitted by reversal of ITC are set aside.Proviso to Section 50 retrospective operation - Net cash tax liability - Administrative instructions for recovery - The proviso inserted to Section 50 (charging interest only on the portion paid from electronic cash ledger) must be read as clarificatory and operative retrospectively with effect from 01.07.2017, and administrative directions of the Board and GST Council confirm retrospective operation for recovery purposes. - HELD THAT: - The Court examined the sequence of GST Council recommendations, press releases and Board communications culminating in the Circular and Notification, and concluded there is a consensus of the Centre, States and CBIC that the proviso was intended to correct an anomaly and operate retrospectively. Administrative instructions by the Board directed recovery for the period 01.07.2017 to 31.08.2020 to be restricted to net cash liability and called for keeping gross-SCNs in call book pending legislative amendment. Applied principles governing retrospective operation of curative amendments and the compensatory nature of interest support reading the proviso as clarificatory and retrospective. [Paras 11, 12, 26, 27, 29]Proviso to Section 50 to be taken as retrospective to 01.07.2017; Board's administrative instructions and Council recommendations support restricting recovery to net cash liability for past periods.Administrative instructions for recovery - Net cash tax liability - Reliefs granted: assessment actions levying interest on ITC reversals are quashed; attachments are to be lifted; authorities may recompute interest only on cash component and refund excess amounts collected. - HELD THAT: - In light of the legal conclusions on non-leviability of interest on ITC adjustments and retrospective effect of the proviso, the Court set aside the impugned notices and coercive recovery steps. Where coercive recovery had already been effected, Assessing Officers were directed to compute interest liability limited to delayed cash remittances and refund any excess collected within four weeks of upload of the order. Attachments were ordered to be lifted and Assessing Officers permitted to raise fresh demands confined to cash remittances as per law. [Paras 15, 30, 31]Impugned notices set aside, attachments lifted, authorities directed to compute interest only on delayed cash remittances and refund any excess recovered.Final Conclusion: Writ petitions allowed: orders/SCNs levying interest on tax remitted by reversal of available ITC quashed; proviso to Section 50 read as clarificatory and retrospective (effect from 01.07.2017); attachments lifted and authorities directed to compute interest only on net cash tax liability and refund excess recoveries in accordance with the Court's directions. Issues Involved:1. Interpretation of Section 50 of the Central Goods and Services Tax Act, 2017.2. Effective date of the proviso inserted by Section 100 of Finance (No.2) Act, 2019.3. Levy of interest on remittances of tax by adjustment of available Input Tax Credit (ITC).4. Retrospective application of the proviso to Section 50.5. Validity of actions taken by GST authorities in levying interest and coercive recovery.Issue-Wise Detailed Analysis:1. Interpretation of Section 50 of the Central Goods and Services Tax Act, 2017:Section 50 mandates that every person liable to pay tax must remit the tax either in cash or by adjusting the credit available in the Input Tax Credit (ITC) register. In cases of delay, interest is liable to be paid for the period of delay. The authorities have levied interest on remittances of tax by adjustment of available ITC, which is challenged by the petitioners.2. Effective Date of the Proviso Inserted by Section 100 of Finance (No.2) Act, 2019:The proviso to Section 50, inserted by Section 100 of the Finance (No.2) Act, 2019, states that interest shall be levied only on that part of the tax paid in cash. The effective date of this proviso was not specified initially, leading to confusion. Notification No. 63 of 2020 dated 25.08.2020, later specified the effective date as 01.09.2020, which resulted in apprehensions among taxpayers.3. Levy of Interest on Remittances of Tax by Adjustment of Available ITC:Petitioners argue that the credit was available even before the output tax liability arose, so the question of delay does not arise. They contend that interest is a measure of compensation, and since ITC is already available in the electronic ledger, there is no question of it being due to the revenue. The authorities, however, argue that the entitlement to credit arises only with the filing of the return, and interest is due on the total tax liability as revealed in the GST return.4. Retrospective Application of the Proviso to Section 50:The petitioners argue that the proviso to Section 50 is intended to correct an anomaly and should be applied retrospectively from 01.07.2017. This view is supported by the GST Council's recommendations and subsequent clarifications by the Central Board of Indirect Taxes and Customs (CBIC). The CBIC's press release dated 26.08.2020 and Circular F.No.CEBC/20/1/8/2019-GST dated 18.09.2020 indicate that no recovery of interest should be made for the earlier periods.5. Validity of Actions Taken by GST Authorities in Levying Interest and Coercive Recovery:The GST authorities have issued orders levying interest for allegedly belated remittance of tax by reversal of ITC without granting an opportunity to the assessees for explanation. Coercive recovery actions, including attachment of bank accounts, have been resorted to by the respective Assessing Officers. The court finds these actions contradictory to the clarifications and recommendations of the GST Council and CBIC.Conclusion:The court concludes that the proviso to Section 50 should be read as clarificatory and operative retrospectively. The levy of interest on tax remitted by reversal of available ITC is not justified. The court allows the writ petitions, sets aside the impugned notices, and directs the authorities to compute the interest liability for belated remittances of cash and refund the balance of the amount collected from the petitioners. The attachments are to be lifted, and the Assessing Officers are at liberty to raise fresh demands relating to interest on delayed remittances of tax by cash, in accordance with law.