The Assistant Commissioner Of Cgst & ... vs M/S.Daejung Moparts Pvt Ltd on 13 June, 2019

Outcome**
The writ appeals filed by the Revenue were dismissed. The judgment upheld the Single Judge's order which had set aside the bank attachment proceedings, conditional on the taxpayer paying the admitted interest liability. It further directed the Revenue to pass a reasoned order after considering the taxpayer's objections regarding the quantum of interest. The reference to the third judge regarding Section 50 of the CGST Act was answered: while the liability to pay interest for delayed tax payment is automatic, the quantification of such liability requires an arithmetic exercise and consideration of the assessee's objections.

2. Core Issue
The core issues referred to the third judge due to differing opinions in the Division Bench were:
a) Whether interest on delayed filing of returns under Section 50 of the Central Goods and Services Tax Act, 2017 (CGST Act) arises automatically or on assessment after considering the explanation offered by the assessee.
b) Whether the writ appeals filed by the Revenue against the Single Judge's order (setting aside bank attachments conditionally and directing reconsideration of interest quantum) ought to have been entertained.

3. Key Facts
* The taxpayers, M/s. Daejung Moparts Pvt Ltd and another unit, experienced delays in filing GSTR-3B returns and consequently in paying GST for various periods between July 2017 and November 2018.
* The Revenue initiated recovery proceedings by issuing notices in Form GST DRC-13 under Section 79(1)(c) of the CGST Act directly to the taxpayers' banks, attaching their accounts for alleged non-payment of interest totaling Rs. 41,74,617/- and Rs. 10,091,755/- respectively.
* The taxpayers admitted liability for some interest but disputed the quantum. They contended that interest should be calculated only on the net tax payable in cash after deducting available Input Tax Credit (ITC), not on the gross tax liability. They submitted worksheets demonstrating their calculated interest liability (Rs. 9,15,121/- and Rs. 22,39,413/- respectively) and argued that the bank attachments violated principles of natural justice as no formal order determining the precise interest liability had been passed after considering their objections.
* The Single Judge set aside the bank attachment proceedings, subject to the taxpayers paying their admitted interest liability. The Single Judge directed the Revenue to reconsider the taxpayers' objections and pass a speaking order on the actual interest liability, with a provision for statutory appeal under Section 107 if the decision was adverse to the taxpayers.
* The Revenue appealed this decision to a Division Bench, where the judges delivered conflicting opinions, leading to the reference to a third judge.

4. Arguments (Taxpayer vs Revenue)
* Revenue's Arguments:
* Interest liability under Section 50 of the CGST Act is automatic and self-assessed by the taxpayer.
* Upon delayed payment of tax, the liability for interest automatically arises, and no separate assessment or determination process is required.
* The taxpayers' admitted delays in filing returns and paying self-assessed tax automatically attracted interest under Section 50.
* They relied on the Telangana High Court's judgment in Megha Engineering and Infrastructures Limited, which held Section 50(1) interest liability to be automatic.
* Taxpayer's Arguments:
* They acknowledged their liability to pay interest on delayed payments but contested the quantum of interest demanded.
* Interest should be calculated on the cash component of the tax paid, after utilising available ITC, and not on the entire gross tax liability.
* The bank attachments were unlawful because they were made without a prior determination of the exact interest liability after considering the taxpayer's objections and submissions.
* The Single Judge's order was appropriate as it allowed the Revenue to reconsider the matter and determine the correct liability in a fair manner.

5. Court’s Reasoning
* On the Automatic Nature of Interest Liability (Section 50):
* Section 50(1) mandates every person liable to pay tax, but failing to do so within the prescribed period, to "pay, on his own, interest". This clearly indicates that the liability to pay interest is automatic.
* However, the term "automatic" does not imply unilateral quantification without an "arithmetic exercise".
* While the liability itself is automatic, the quantification of such liability cannot be unilateral, especially when the assessee disputes the period of delay, the quantum of tax unpaid, or the adjustment of ITC (as per Sections 50(2) and 50(3)).
* Therefore, the liability to pay interest under Section 50 is automatic, but its accurate quantification requires consideration of the assessee's objections and a proper arithmetic calculation.
* On the Maintainability of Writ Appeals:
* The Single Judge's order was not prejudicial to the Revenue's interests, as it specifically granted the Revenue the liberty to pass an order (after considering the taxpayer's objections) in a manner known to law.
* The core dispute was about the quantum of interest, not the fundamental liability to pay interest, which the taxpayers had admitted in part.
* Unilateral quantification of interest without considering the assessee's submissions is not justified.
* The Single Judge's decision to remit the matter back to the officer for a fresh determination of the quantum of liability was appropriate and did not warrant entertaining the writ appeals. The writ appeals were considered "wholly unnecessary".

6. Statutory References
* Central Goods and Services Tax Act, 2017 (CGST Act):
* Section 50: Interest on delayed payment of tax (specifically Sub-sections (1), (2), and (3))
* Section 79(1)(c): Recovery of tax
* Section 107: Appeals to Appellate Authority
* Section 42(10): Matching, reversal and reclaim of input tax credit (referenced in Section 50(3))
* Section 43(10): Matching, reversal and reclaim of reduction in output tax liability (referenced in Section 50(3))
* Letters Patent: Clause 36 (for reference to a third judge)

7. Precedents Cited
* Megha Engineering and Infrastructures Limited vs Commissioner of Central Tax and Others (W.P.No.44517 of 2018, Telangana High Court, dated 18.04.2019): This Division Bench order was relied upon by the Revenue (and by C.V. Karthikeyan, J.) to argue that interest under Section 50(1) is automatic. The present judgment noted that a review petition against this Telangana High Court order had been filed and a stay granted.