Mahadeo Construction Co vs The Union Of India on 21 April, 2020

Outcome**
The High Court of Jharkhand allowed the writ application, quashing and setting aside the demand letter for interest (dated 08.03.2019) and the garnishee notice (dated 22.05.2019) issued under Section 79 of the CGST Act. The Court clarified that the Revenue Authorities are at liberty to initiate appropriate adjudication proceedings under Section 73 or 74 of the CGST Act to determine the interest liability, if any, after providing due opportunity of hearing to the petitioner.

2. Core Issue
The seminal issues before the Court were:
* Whether interest liability under Section 50 of the CGST Act can be determined without initiating any adjudication process under Section 73 or 74 of the CGST Act, in the event an assessee disputes the liability of interest.
* Whether recovery proceedings under Section 79 of the CGST Act can be initiated for recovery of interest under Section 50 of the said Act without initiation and completion of adjudication proceedings under the Act.

3. Key Facts
* The petitioner, Mahadeo Construction Co., is a partnership firm registered under the CGST Act.
* Due to issues with the GSTN Portal, GSTR-3 returns were suspended, and GSTR-3B returns were being filed as a stop-gap arrangement under Rule 61(5) read with Rule 61(6) of the CGST Rules.
* As per Section 39(7) of the CGST Act, tax is to be paid not later than the last date for furnishing the return (typically 20th of the succeeding month).
* For the months of February and March 2018, the GSTN Portal reflected the due date for filing GSTR-3B returns as 31st March 2019.
* The petitioner filed its returns for February and March 2018 within this date (before 31st March 2019).
* Respondent No.3 (Superintendent) issued a letter dated 8th March 2019, demanding interest amounting to Rs. 19,59,721/- for alleged delay in filing GSTR-3B for February and March 2018.
* The respondent authorities subsequently initiated garnishee proceedings under Section 79 of the CGST Act by issuing a notice to the petitioner's banker for recovery of the demanded interest.
* The petitioner disputed the interest liability, contending that there was no delay based on the due date reflected in the GSTN Portal.

4. Arguments (Taxpayer vs Revenue)
* Taxpayer (Petitioner):
* The interest demand was determined unilaterally, without initiating any adjudication process under Section 73 or 74 of the CGST Act, which is contrary to law.
* The petitioner is not liable to pay interest as there was no delay in furnishing GSTR-3B returns or depositing tax, since the GSTN Portal (relied upon by the petitioner) showed 31st March 2019 as the due date for the returns of February and March 2018.
* If the amount of interest is not admitted by the assessee, its determination requires an adjudication process under Section 73 of the CGST Act.
* Recovery proceedings under Section 79 are premature and illegal because "any amount payable" must be formally determined (unless admitted) through adjudication under Section 73 or 74. Without such adjudication, the liability is disputed and not an "amount payable."

• Revenue (Respondents):
  • The dispute pertains to delayed payment of tax beyond the statutory due date prescribed under Section 39(1) read with Section 39(7), not just delayed filing of GSTR-3B.
  • The liability to pay interest under Section 50 of the CGST Act is automatic upon delayed payment of tax, and thus, no separate adjudication proceedings are required for its determination.
  • Sections 73 and 74 are not applicable as they relate to demand and recovery of tax not paid or short paid due to fraud or otherwise, not to automatic interest liability.
  • The due date of "31st March 2019" reflecting on the GSTN Portal was merely for the waiver of late fees (Notification No. 76/2018-Central Tax), and did not extend the actual due date for tax payment.
  • Since interest liability is automatic, it qualifies as an "amount payable" under the Act/Rules. Therefore, initiation of garnishee proceedings under Section 79 is justified when the assessee fails to discharge this liability.
  • Cited judgments: U.P. Cooperative Cane Unions Federations -Vs- West U.P. Sugar Mills Association & ors. (2004) and Commissioner of Central Excise -Vs- International Auto Limited (2010).

5. Court’s Reasoning
* The Court noted that the GSTN Portal indeed reflected 31st March 2019 as the due date for filing returns for February and March 2018, and the petitioner filed within this date. While acknowledging the Revenue's explanation regarding late fee waiver, the Court emphasized the existence of a dispute regarding interest liability.
* Interpreting Section 73(1), the Court held that if tax has not been paid or has been short paid, a notice is required to be served not only for the recovery of tax but also for interest payable thereon under Section 50. This implies that "tax not paid" includes delayed payment, necessitating a notice even for interest recovery.
* The Court relied on its earlier decision in Godavari Commodities Ltd. Vs. Union of India and ors. (2019 SCC Online Jhar 1839), which held that "tax not paid" under Section 73 includes tax not paid within the prescribed period.
* Referring to Section 73(5), (6), and (7), the Court reasoned that if an assessee pays tax and interest on self-ascertainment, and the amount falls short, the Proper Officer must initiate proceedings under Section 73(1) for the recovery of the shortfall (including interest). This implies that if interest is not paid, or short paid, adjudication is required.
* The Court, while acknowledging that interest liability under Section 50 is automatic, held that the quantification of such liability, especially when disputed by the assessee regarding its calculation or leviability, cannot be unilateral. It explicitly endorsed the reasoning of the Madras High Court in The Assistant Commissioner of CGST & Central Excise and others Vs. Daejung Moparts Pvt. Ltd. and ors. (2019), which stated that "automatic" does not exclude "arithmetic exercise" and unilateral quantification is unjustified when the assessee disputes the quantum or period of liability.
* Regarding recovery proceedings under Section 79, the Court concluded that since adjudication under Section 73 or 74 is required when interest liability is disputed, the interest amount cannot be termed as "an amount payable" under the Act or Rules until such adjudication is completed. Therefore, recovery proceedings under Section 79 cannot be initiated without prior adjudication of the disputed interest liability.

6. Statutory References
* Central Goods and Services Tax Act, 2017 (CGST Act):
* Section 39 (Furnishing of returns)
* Section 39(1)
* Section 39(7)
* Section 42(10) (referenced in Section 50(3))
* Section 43(10) (referenced in Section 50(3))
* Section 50 (Interest on delayed payment of tax)
* Section 50(1)
* Section 50(2)
* Section 50(3)
* Section 73 (Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any willful misstatement or suppression of facts)
* Section 73(1)
* Section 73(5)
* Section 73(6)
* Section 73(7)
* Section 74 (Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any willful misstatement or suppression of facts)
* Section 79 (Recovery of tax)
* Central Goods and Services Tax Rules, 2017 (CGST Rules):
* Rule 61(5)
* Rule 61(6)
* Notifications:
* Notification No. 76/2018-Central Tax dated 31st December, 2018

7. Precedents Cited
* By Revenue:
* U.P. Cooperative Cane Unions Federations -Vs- West U.P. Sugar Mills Association & ors., 2004 (5) SCC 472
* Commissioner of Central Excise -Vs- International Auto Limited, 2010 (2) SCC 672
* By Court:
* Godavari Commodities Ltd. Vs. Union of India and ors., 2019 SCC Online Jhar 1839 (Jharkhand High Court)
* The Assistant Commissioner of CGST & Central Excise and others Vs. Daejung Moparts Pvt. Ltd. and ors., Madras High Court, judgment dated 19th December 2019 in Writ Appeals (referred to and adopted by the Jharkhand High Court)