M/S Narsingh Ispat Limited Through Its ... vs Union Of India Through The Secretary on 22 March, 2022

M/S Narsingh Ispat Limited vs Union Of India (22 March, 2022)

1. Outcome
The High Court quashed the impugned demand notices issued in Form GST DRC-01A and the Summary of Order issued in Form GST DRC-07. The Respondents (tax authorities) were granted liberty to issue a proper Show Cause Notice (SCN) in terms of Section 73(1) of the JGST Act, 2017, providing the petitioner an opportunity to respond before passing any fresh adjudication order. The Court explicitly refrained from ruling on the merits of the interest calculation at this stage.

2. Core Issue
The core issue was whether the GST authorities could levy and demand interest under Section 50 of the JGST Act, 2017 by directly issuing a Summary of Order (DRC-07) without first issuing a formal Show Cause Notice (SCN) under Section 73(1) or 74(1) of the Act, especially when the assessee had disputed the interest liability after receiving a pre-SCN intimation (DRC-01A). This primarily concerned the violation of principles of natural justice and statutory procedure.

3. Key Facts
* The petitioner, M/s Narsingh Ispat Limited, challenged demand notices (Form GST DRC-01A dated 28.01.2020) and Summary of Orders (Form GST DRC-07 dated 26.02.2020) for interest on delayed payment of tax for Financial Years 2017-18, 2018-19, and 2019-20.
* The demand for interest was raised on the grounds of late filing of GSTR-3B and non-payment of interest "on its own" as per Section 50(1) of the SGST Act.
* Prior to the DRC-07, the tax authorities issued an intimation in Form GST DRC-01A, advising the petitioner to pay the ascertained interest by a specific date (05.02.2020), explicitly stating that "failing which Show Cause Notice will be issued under Section 73(1)."
* The petitioner filed a detailed reply on 03.02.2020, disputing the interest liability on various legal and factual grounds.
* Despite the petitioner's detailed reply disputing the liability, the tax authorities did not issue a formal Show Cause Notice under Section 73(1). Instead, they directly proceeded to issue the Summary of Order in Form GST DRC-07, confirming the interest demand.

4. Arguments
* Taxpayer (M/s Narsingh Ispat Limited):
* The writ petitions are maintainable due to the initiation of proceedings without a proper Show Cause Notice (SCN) under Section 73 or 74, violating natural justice.
* Interest under Section 50(1) is for delayed payment of tax, not for delayed filing of GSTR-3B. If tax is deposited in the Electronic Cash Ledger (ECL) by the due date as per Section 49, interest cannot be demanded for subsequent delay in filing the return.
* Interest is compensatory in nature; late fees under Section 47 are for delayed filing.
* The retrospective substitution of GSTR-3B by Rule 61(5) does not make the levy of interest retrospective, as interest is a substantive liability.
* The demand for interest under Section 50(2) is illegal in the absence of prescribed rules for its calculation by the State Government.
* There is no substantive provision for interest under the IGST Act, 2017.
* Revenue (Union of India/State Authorities):
* The writ petitions are not maintainable due to the availability of an effective alternative remedy (statutory appeal under Section 107).
* Interest under Section 50, read with Section 75(12), is payable automatically by the assessee "on its own" at the time of filing GSTR-3B, and therefore, adjudication under Section 73/74 is not required.
* The proviso to Section 50, clarifying interest on the net tax liability paid through the Electronic Cash Ledger, applies retrospectively from 01.07.2017, clarifying existing liability, not creating new retrospective liability.
* Section 50(2) is workable even without specific rules, as Section 50(1) provides the rate.
* Section 20 of the IGST Act, 2017, applies the provisions of the CGST Act, including interest, mutatis mutandis to integrated tax.
* The intimation in Form GST DRC-01A provided sufficient opportunity and satisfied principles of natural justice.

5. Court’s Reasoning
* The Court held that once the petitioner disputed the ascertained interest liability communicated through Form GST DRC-01A, the tax authorities were bound to issue a proper Show Cause Notice under Section 73(1) of the JGST Act, as explicitly stated in their own intimation.
* By directly issuing the Summary of Order (Form GST DRC-07) without an SCN and an opportunity for the petitioner to present their case after disputing the demand, the Respondents clearly violated the principles of natural justice and the statutory procedure.
* Citing Magadh Sugar & Energy Ltd. v. State of Bihar & others (2021 SCC OnLine SC 801), the Court reaffirmed that a writ petition under Article 226 is maintainable when there is a violation of natural justice, even if an alternative remedy exists.
* The Court reiterated its earlier position in Mahadeo Construction Co. v. Union of India (2020) and agreed with the Madras High Court's view in The Assistant Commissioner of CGST & Central Excise and others Vs. Daejung Moparts Pvt. Ltd. and ors (2019) that while interest liability under Section 50 might be automatic, its quantification cannot be unilateral, especially when the assessee disputes the quantum or leviability. An arithmetic exercise and consideration of the assessee's objections through an adjudication process are necessary.
* The Court consciously refrained from delving into the merits of the arguments regarding the leviability of interest (e.g., on delayed GSTR-3B filing vs. delayed payment from ECL) since the entire proceeding was vitiated due to procedural impropriety and violation of natural justice.

6. Statutory References
* Constitution of India: Article 226, Article 265
* Jharkhand Goods and Services Tax Act, 2017 (JGST Act) / Central Goods and Services Tax Act, 2017 (CGST Act):
* Section 39 (Furnishing of returns)
* Section 47 (Levy of late fee)
* Section 49 (Payment of tax, interest, penalty and other amounts)
* Section 50 (Interest on delayed payment of tax), including its proviso.
* Section 73 (Determination of tax not paid or short paid...), Sub-sections (1) to (11).
* Section 74 (Determination of tax not paid... by reason of fraud...).
* Section 75(12) (General provisions relating to determination of tax).
* Section 79 (Recovery of tax).
* Section 107 (Appeals to Appellate Authority).
* Integrated Goods and Services Tax Act, 2017 (IGST Act):
* Section 20 (Application of provisions of CGST Act).
* Jharkhand Goods and Services Tax Rules, 2017 (JGST Rules):
* Rule 61 (Form and manner of submission of monthly return).
* Rule 142 (Notice and order for demand of amounts payable under the Act), Sub-rules (1), (1A), (2), (2A).
* Forms: GST DRC-01A, GST DRC-07.

7. Precedents Cited
* By the Court:
* Magadh Sugar & Energy Ltd. Versus State of Bihar & others [2021 SCC Online SC 801]
* Mahadeo Construction Co. Versus Union of India [2020 (36) G.S.T.L 343 (Jhar.)]
* Godavari Commodities Ltd. Versus Union of India [2020 (33) G.S.T.L 16 (Jhar.)]
* The Assistant Commissioner of CGST & Central Excise and others Vs. Daejung Moparts Pvt. Ltd. and ors [Madras High Court, W.A.s decided on 19th December 2019]
* By Parties (not specifically discussed by Court in its reasoning, but mentioned):
* Collector of Central Excise, Pune and others versus Dai Ichi Karkaria Ltd. and other [(1999) 112 ELT 353 (SC)]
* J.K. Synthetics Limited versus Commercial Taxes Officer (1994) 4 SCC 276
* M/s Megha Engineering & Infrastructure Ltd. versus The Commissioner of Central Tax [Telangana High Court, W.P. No. 44517/2018 dated 18.04.2019]
* Jantia Hill Truck Owner Association versus Shailang Area Coal Dealer and Truck Owner Association and others [(2009) 8 SCC 492]
* C.I.T, Bangalore versus B.C. Srinivasa Setty [(1981) 2 SCC 460]
* Abdul Jabbar Butt versus State of Jammu & Kashmir [AIR 1957 SC 281]