2020 (11) TMI 107 - HC - GST

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

M/s. Maansarovar Motors Private Limited Versus The Assistant Commissioner, The Superintendent of GST & Central Excise, The Branch Manager

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 - Refund of amount deposited earlier at the instance of Department - Interpretation of Section 50 of the Central Goods and Services Tax Act, 2017, particularly the effective date of application of the proviso inserted vide Section 100 of Finance (No.2) Act of 2019 - HELD THAT:- Under the second proviso to Section 43B, assessees were entitled to deduction only if the contribution to provident fund (PF) stood credited on or before the due date as set out under the Provident Funds Act - This presented a difficulty since the financial year for companies ended on the 31st of March of the particular financial year whereas, the accounting period of the Provident Fund Commissioner ended after the due date for filing of income tax returns. Thus, an assessee, who had made the statutory deposit within the due date under the PF Act, would not be in a position to claim the deduction when the return of income for income tax was filed. The second proviso thus stood deleted by Finance Act, 2003, with effect from 01.04.2004. However, while considering the effective date of deletion, the Bench noted the reason for such deletion as being curative and intended to remove existing anomalies. The Bench held that an amendment, be it by way of insertion, substitution or deletion, made specifically to remove an anomaly, should normally be effective retrospectively, back to the date when the anomaly first arose. The Board has extended a waiver of recovery for the past period in line with the decisions of the Council (vi) Notification dated 18.09.2020, that cemented the long line of assurances of the GST Council and the Board in letter and spirit. While promising that the amendment in question will be clarified to be retrospective, the Board has indicated certain difficulties in carrying out the stated amendment at this juncture. I would be loath to speculate on the nature of the difficulties expressed and restrict myself to concluding that the sequence of events that I have set out above make it more than amply clear to me that the present writ petitions are liable to be allowed. Learned counsel for the petitioner states that the interest liability relating to belated payment of tax both by cash and reversal of ITC has been coercively recovered - With the insertion of the proviso to be taken to be retrospective, these writ petitions are allowed. 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.