2023 (11) TMI 1017 - HC - GST

Dealer's GST Flood Cess Payment Error Leads to Partial Relief with Refund of Excess Interest Charges

KANNAN PAINT & RADHAS HARDWARE Versus THE DEPUTY COMMISSIONER OF STATE TAX SGST DEPARTMENT, SPECIAL CIRCLE KERALA, UNION OF INDIA, CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS DEPARTMENT OF REVENUE, MINISTRY OF FINANCE, NEW DELHI, GOODS AND SERVICE TAX NETWORK

Kerala HC partially ruled in favor of petitioner regarding GST Flood Cess payment. Court acknowledged the dealer's genuine mistake in remitting cess to ... Refund claim - Transfer of amount paid as GST Cess in the GSTR-3B filings towards Cess dues under the Kerala Flood Cess - seeking permission to Petitioner to file Exhibit P-9 KFC-A form manually with the 1st Respondent - seeking declaration that the petitioner is not liable to pay interest on the Cess dues already paid as GST Cess - initial period of GST regime. HELD THAT:- The case is of the initial period of the GST regime. There were genuine difficulties faced by the assessees/dealers and even tax experts in understanding the GST regime. The petitioner has committed a bona fide mistake of depositing the KFC in the wrong account along with its GSTR-3B instead of filing a KFC-A return for payment of the KFC. The petitioner has been refunded the said cess by the 3rd respondent on direction issued by this Court. However, the fact remains that the State was denied KFC from 1st August 2019 to 04.08.2022 - it appears that the petitioner has not been vigilant in responding to the notices issued to the petitioner, inasmuch as the notice of March 2021 remains unanswered by him. Considering this fact, the petitioner should pay the interest from 01.04.2021 to 31.07.2022 and is entitled to get a refund for the remaining period of interest paid by the petitioner. The present writ petition is disposed of with a direction to the 1st respondent to refund the interest portion to the petitioner after adjusting interest for the period from 01.04.2021 to 31.07.2022. ISSUES PRESENTED AND CONSIDERED 1. Whether amounts of Kerala Flood Cess (KFC) remitted by a registered dealer through GSTR-3B under a central government cess pool can be treated as payment of KFC dues and ordered to be transferred or refunded to enable remittance under the correct head (KFC-A returns). 2. Whether interest paid by the dealer for delayed deposit of KFC (where initial remittance was made in an incorrect head but on time by way of GSTR-3B) is recoverable by the dealer - in particular, whether the dealer is entitled to refund of interest paid under protest when payment in the correct return could not be effected without first paying interest. 3. Whether penalty or late fee should be imposed on the dealer for having paid KFC in the wrong head during the relevant period, having regard to bona fide mistake and the administrative/technical difficulties in the early GST period. ISSUE-WISE DETAILED ANALYSIS Issue 1: Transfer/refund of amounts paid in wrong head (GSTR-3B vs KFC-A) Legal framework: GST regime requires cess dues to be remitted in the designated flood cess account and returns be filed in KFC-A; payments made under other heads (e.g., via GSTR-3B) are not automatically adjustable or transferable to the KFC account under the departmental scheme. Sectional provisions governing payment heads and utilization are distinct in the GST statutory and administrative scheme. Precedent Treatment: The Court referred to administrative practice and the departmental position as reflected in departmental notices and previous judicial consideration of similar issues (reference to an asserted earlier decision was made by petitioner counsel but the Court primarily examined facts and administrative options rather than mechanically following any binding precedent on head transferability). Interpretation and reasoning: The Court recognized that the petitioner deposited the KFC amount through GSTR-3B (incorrect head) from 01.08.2019 to July 2021, and that the department treated the payment head and utilisation heads as distinct, requiring filing of KFC-A and an application for refund of amounts paid to the wrong head. The Court accepted that in the initial GST period genuine difficulties and bona fide mistakes occurred in understanding the mode and head of payment. On that basis, and given that the department refunded the cess after interim directions, the Court treated refund as an appropriate remedy where payment had been mistakenly made in the wrong head. Ratio vs. Obiter: Ratio - where a dealer bonafidely deposits a cess in an incorrect head due to genuine confusion in early GST implementation, the department may be directed to refund amounts so the dealer can remit in the proper head by filing KFC-A (subject to departmental process). Obiter - general observations about systemic difficulties in the initial GST period and administrative confusion. Conclusions: The Court upheld the remedy of refunding the erroneously placed KFC amounts to permit correct remittance via KFC-A. The department's procedure of refund followed by remittance in KFC-A was accepted as the available course; consequently the amounts were to be refunded and the petitioner permitted to pay in KFC-A. Issue 2: Liability for interest and entitlement to refund of interest paid Legal framework: Interest liability arises under the GST statutory scheme for delayed payment of tax/cess. Section 77 of the CGST Act (as invoked by petitioner's counsel) and related provisions govern interest and refund claims; departmental notices and procedural requirements dictate that relief may be available where payments were incorrectly made but the State was deprived of funds for a period. Precedent Treatment: Petitioner relied on a High Court decision (Shree Nanak Ferro Alloys Pvt. Ltd.) as supportive of non-liability for interest in comparable circumstances; the Court considered such precedents as persuasive but not binding in the specific factual matrix and departmental chronology before it. Interpretation and reasoning: The Court balanced two competing factual strands: (a) the petitioner made a bona fide mistake by depositing KFC in the wrong head during the early GST period and later paid interest under protest because filing KFC-A required payment of interest for successful upload; and (b) the petitioner failed to respond to the departmental notice dated 19.03.2021, thereby delaying corrective action and prolonging the period during which the State was deprived of KFC funds. The Court emphasized that while administrative confusion justified relief for a portion of the interest, failure to respond to the earlier notice disentitled the petitioner to refund for the period after that notice. On the facts the Court apportioned interest liability: interest was to be paid by the petitioner for the period 01.04.2021 to 31.07.2022; interest paid covering other periods was to be refunded. Ratio vs. Obiter: Ratio - where a bona fide payment error is coupled with an assessees' failure to respond to departmental notice, equitable apportionment of interest is warranted: refund of interest paid for periods prior to a respondent's reasonable opportunity to rectify, but retention of interest liability for the period following a clear departmental notice to the assessees. Obiter - observations on necessity of paying interest to enable electronic filing and administrative constraints in the early GST era. Conclusions: The Court directed refund of the interest portion paid by the petitioner after adjusting interest for 01.04.2021 to 31.07.2022 (i.e., the petitioner remains liable for interest for that period). The refund was ordered to be effected within three weeks after adjusting the specified period. Issue 3: Liability for penalty or late fee for paying KFC in wrong head Legal framework: Penalty and late fee provisions in the GST code can apply for defaults in payment or filing; however, the statutory scheme and principles of equity allow courts to relieve from penalty/late fee in cases of bona fide mistakes, particularly where systemic confusion existed in implementation. Precedent Treatment: The Court considered administrative practice, early GST implementation difficulties, and equitable considerations rather than citing binding authority mandating immunity from penalty in every such case. Interpretation and reasoning: Given the admitted bona fide mistake, the timing within the initial period of GST implementation, and that the petitioner ultimately paid the correct cess after departmental refund, the Court concluded it would be unjust to impose penalty or late fee on the petitioner for the period during which the wrong head was used. The petitioner had acted in good faith, and the department's administrative scheme permitted refund and re-payment. Ratio vs. Obiter: Ratio - where a bona fide mistake is established in the early GST regime and the taxpayer remedies the position following departmental directions and court intervention, imposition of penalty or late fee for that period may be disallowed. Obiter - comments on broader systemic confusion in the initial GST roll-out. Conclusions: The Court directed that the petitioner shall not be saddled with any penalty or late fee in respect of payment of Kerala Flood Cess for the period during which the cess was paid under the wrong head along with GSTR-3B. Cross-References and Implementation Directions 1. The Court's directions interlink Issues 1-3: refund of incorrectly paid cess (Issue 1) was ordered and linked to the petitioner's obligation to remit KFC in KFC-A; interest adjustments (Issue 2) were ordered in light of the petitioner's failure to respond to an earlier departmental notice; and exemption from penalty/late fee (Issue 3) was granted based on bona fide mistake and remedial steps taken. 2. Administrative implementation: the 1st respondent was directed to refund the interest portion after adjusting interest for 01.04.2021 to 31.07.2022, and to effect such refund within three weeks. The petitioner was required to remit any outstanding KFC in KFC-A and was not to be penalised for the earlier error.