Revenue cannot impose interest liability under Section 50 CGST Act without adjudication proceedings under Section 73/74

The HC quashed the revenue's demand for interest liability under Section 50 of the CGST Act for delayed GSTR-3B return filing from July 2017 to December 2019. The court held that when a taxpayer disputes interest liability, the revenue cannot impose such liability without initiating adjudication proceedings under Section 73 or 74 of the CGST Act. Since no adjudication proceedings were initiated despite the petitioner's dispute through reply to Section 79 recovery notice, the demand letters were quashed following the precedent in Mahadeo Construction Co. case.

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Issues Involved:
1. Determination of interest liability under Section 50 of the CGST Act without adjudication.
2. Recovery proceedings under Section 79 of the CGST Act without adjudication.

Detailed Analysis:

1. Determination of Interest Liability under Section 50 of the CGST Act without Adjudication:

The petitioner challenged the imposition of interest amounting to Rs. 83,96,873/- for delayed filing of GSTR-3B returns from July 2017 to December 2019. The petitioner argued that the liability was disputed and, hence, interest could not be levied without adjudication under Section 73 or 74 of the CGST Act. The petitioner referenced the Finance Act, 2021, which amended Section 50 to state that interest is payable only on the portion of tax paid by debiting the electronic cash ledger.

The court noted that the due date for filing GSTR-3B returns had been extended multiple times. The petitioner cited a previous decision by the Coordinate Bench in Mahadeo Construction Company Vrs. Union of India & Ors., which addressed similar issues, asserting that interest liability under Section 50 cannot be determined without initiating adjudication proceedings if the liability is disputed.

The respondent CGST argued that monthly returns and tax payments were delayed without discharging the applicable interest. They claimed that interest on delayed payments could be recovered under Section 79 read with Section 75(12) of the CGST Act. They also noted that Rule 61(5) of the CGST Rules, amended retrospectively from 1st July 2017, provided that GSTR-3B is a return under Section 39 of the CGST Act.

The court reaffirmed the decision in Mahadeo Construction Company, stating that interest liability under Section 50 is not automatic and requires adjudication if disputed. 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, the quantification of such liability requires an arithmetic exercise and consideration of the assessee's objections.

2. Recovery Proceedings under Section 79 of the CGST Act without Adjudication:

The court addressed whether recovery proceedings under Section 79 of the CGST Act could be initiated for interest recovery without adjudicating the liability. The court held that Section 79 empowers authorities to initiate garnishee proceedings for tax recovery only when an amount payable under the Act is not paid. Since the liability of interest must be adjudicated if disputed, the amount of interest cannot be considered payable until adjudication is completed.

The court concluded that without adjudication proceedings, no recovery under Section 79 could be initiated. The court quashed the impugned order and garnishee notices, allowing the respondent authorities to initiate appropriate adjudication proceedings under Section 73 or 74 of the CGST Act and determine the liability of interest after giving due opportunity of hearing to the petitioner.

Conclusion:

The court allowed the writ petition, quashing the impugned demand letters dated 28th February 2020 / 2nd March 2020. The court left liberty to the respondent authorities to initiate appropriate adjudication proceedings under Section 73 or 74 of the CGST Act to determine the liability of interest in accordance with the law and after providing an opportunity for a hearing to the petitioner.

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