The Jharkhand High Court bench of Justice Aparesh Kumar Singh and Justice Deepak Roshan has quashed the summary order contained in Form GST DRC-07 as the department failed to follow the procedure prescribed in law before issuing a summary of the order on Form GST DRC-07, amounting to a violation of the principle of natural justice.

The petitioner/assessee challenged the circular dated 10.02.2020 issued by the Central Board of Indirect Taxes and Customs (CBIC) which prescribed that interest payable on delayed payment of taxes can be recovered under the provisions of Section 79 read with Section 75 (12) of the CGST Act.

The petitioner has sought the quashing of the demand notices issued on Form GST DRC-01 relating to the different tax periods.

Counsel for the petitioner contended that no show cause notice under section 73 of 74 of the JGST Act was issued before passing the adjudication order despite the clear mention in Form GST DRC-01.

Counsel for the petitioner urged that interest under section 50(1) of the JGST Act not be demanded for a delay in filing a monthly return on Form GSTR-3B but for a delay in payment of the taxes. Section 50 deals with the liability to pay interest on "unpaid" tax when a person "fails to pay" tax. It does not say anything when a person has paid tax in accordance with Section 49. The proviso to Section 50(1) cannot go beyond, be inconsistent with, or make an addition to the main provision. It must be limited to the subject matter of the enacting clause.

Counsel for the petitioner submitted that the proviso to Section 50(1) of the JGST Act merely says that the Input Tax Credit (ITC) is as good as the tax paid; hence, no interest is payable thereon. It does not say anything about payment from the electronic credit ledger, as Section 50(1) deals with cases of unpaid or failure to pay tax only. The word 'debiting' under section 50(1) is used for the apportionment of an amount on which interest is payable if not paid in accordance with Section 49. This expression 'debiting' must be read in the context of the words "fails to pay" and "unpaid" in sub-Section (1) and (2) of Section 50 of the JGST Act.

Counsel for the petitioner further submitted that for the delayed filing of GSTR-3B, a late fee at best can be demanded, which has already been discharged by the petitioner. Interest under section 50(1) is compensatory in nature. Therefore, once the amount is deposited or credited in the electronic cash ledger in accordance with Section 49, particularly the Explanation thereto, money goes to the Government Exchequer and, therefore, no interest for the period thereafter can be demanded. To enjoy the amount credited in the Electronic Cash Ledger, the government does not need to wait for the filing of a return or appropriation of the tax. 

Counsel for the petitioner stated that if the money was enjoyed by the government, the amount could not be said to be "unpaid" or "fail to pay" to attract Section 50 (1) of the JGST Act. When a person has paid tax in accordance with Section 49 of the JGST Act, no interest is attracted since the amount was already paid. Interest can be demanded on the amount withheld, as it is always compensatory in nature. 

Counsel for the petitioner has also drawn attention to Section 54(12) of the JGST Act, which provides that if the amount in the electronic cash ledger is not refunded within the specified time by the government, the registered person would be entitled to interest at a rate not exceeding 6%, which shows that money goes into the coffers of the government. Compensatory interest, therefore, cannot be demanded. For any delay in filing a return, a late fee can be levied under section 47 of the Act, but interest on a delayed filing of a return cannot be levied as it would be contrary to the concept of interest in a taxing statute.

Counsel for the petitioner further added that if tax is deposited into the Electronic Cash Ledger in accordance with Section 49 before the 20th of the next month, interest cannot be demanded. Interest can be demanded only for the period of delay thereafter. The date of filing the return or the delay in filing the return is irrelevant for the purposes of Section 50 of the JGST Act. For Section 9, which creates a levy of tax, whereas for the purpose of demanding interest, Section 50 is relevant, which provides for interest only on "unpaid" amounts.

For Section 50(1), mere credit in the credit/cash ledger is sufficient to stop the running of interest. Therefore, levy under Section 9 should not be confused with levy under Section 50. It is an independent charging provision.

The court noted that the department has failed to follow the procedure prescribed in law before issuing a Summary of the Order in Form GST DRC-07 holding the petitioner liable to pay interest under section 50(1) of the JGST Act due to the late filing of GSTR-3B and not depositing the due interest on its own. 

"As such, the writ petition succeeds only on the point of failure to follow the principles of natural justice and the procedure prescribed in law," the court said.

The court quashed the Summary of the Order contained in Form GST DRC-07 relating to different tax periods. 

The court stated that the department is at liberty to issue a proper show-cause notice in accordance with Section 73(1) of the JGST Act, 2017 and provide an opportunity to the petitioner to file a response before passing any adjudication order. It is open to the petitioner to raise the question of the leviability of interest on the delayed filing of GSTR-3B, relying upon its plea that the amount of tax has been duly deposited in the Electronic Cash Ledger by the due date.