The Jharkhand High Court bench of Justice Aparesh Kumar Singh and Justice Deepak Roshan has ruled that if an assessee disputes the liability of interest, either disputes its calculation or the leviability of interest, then the only option left for the Assessing Officer is to initiate a proceeding either under Section 74 or 74 of the CGST Act for adjudication of the liability of interest.

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

The department asked the petitioner to pay the amount of interest applicable on the taxes in full, failing which he would face proceedings under section 73(1) of the JGST Act. 

The issue raised was whether liability of interest under section 50 of the JGST Act, 2017 can be raised without initiating any adjudication process under section 73 or 74 of the JGST Act in the event of an assessee raising a dispute towards the liability of interest. An incidental question also arises, whether a recovery proceeding under section 79 of the Act can be initiated for the recovery of interest under section 50 of the Act without the conclusion of an adjudication proceeding under the Act.

Counsel for the petitioner contended that interest under section 50(1) of the JGST Act could not be demanded for a delay in filing a monthly return on Form GSTR-3B, but only for a delay in paying 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 of the JGST Act. The proviso to Section 50(1) of the JGST Act 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. The proviso to Section 50(1) merely says that the Input Tax Credit (ITC) is as good as the tax paid, hence, no interest is payable. It does not say anything about payment from the electronic credit ledger, as Section 50(1) of the JGST Act 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 of the JGST Act. This expression 'debiting' has to 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 urged that the summary of the order issued in Form GST DRC-07 and the demand notice issued in Form GST DRC-01A, by which interest was demanded for the number of days of delay in filing GSTR-3B instead of the number of days of delay in payment of tax, was wholly illegal and without authority of law.

Counsel for the petitioner submitted that for the delayed filing of GSTR- 3B, a late fee at best could be demanded, which was already discharged by the petitioner. Interest under section 50(1) is compensatory in nature. Therefore, once the amount is credited in the Electronic Cash Ledger in accordance with Section 49 of the JGST Act, particularly Explanation, the 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 further submitted that if the money is being enjoyed by the government, the amount cannot be said to be "unpaid" or "failed to pay" so as to attract Section 50(1). When a person has paid tax in accordance with Section 49, no interest is attracted since the amount has already been paid. Interest can be demanded on the amount withheld, as it is always compensatory in nature.

On the other hand, the counsel for the department contended that interest can be recovered on delayed payment of tax under section 50 read with section 75(12) of the JGST Act. It was submitted that a conjoint reading of Section 50 and Section 75(12) of the JGST Act, 2017 makes it clear that interest is payable by debiting the electronic cash ledger. Interest is to be calculated by the assessee "on its own' and interest is automatically payable at the time of filing the return on Form GSTR-3B. Applicability of sections 73 and 74 of the Act is specifically excluded. The Proviso to Section 50 of the JGST Act, 2017 uses the word "payable", which has been inserted with effect from 1.07.2017. The word "payable" is of wide significance, which means liable to be paid justly due, legally enforceable, etc. It is submitted that the scope of Section 50 is very limited in the sense that interest becomes payable once there is a delay in making payment of the tax. By virtue of the proviso to Section 50, interest becomes payable on the amount of tax paid by debiting the Electronic Cash Ledger.

The court observed that the department has failed to follow the procedure stipulated under the JGST Act as indicated by them on Form GST DRC-01A, containing the intimation of the tax ascertained against the petitioner. A summary of the order has been issued to the petitioner on GST DRC-07 on his GSTN portal without following the principles of natural justice. 

The court held that interest is not payable on the late filing of GSTR-3B since the amount of tax has been deposited in the electronic cash ledger in accordance with Section 49 of the JGST Act, 2017. The Revenue has not denied the tax due and, as such, interest under section 50(1), which is compensatory in nature, cannot be realised from it. As per Section 50 (1) of the JGST Act, 2017, interest can only be charged on the tax unpaid if the assessee fails to pay the same by the due date, as per Section 50 (1) of the Act. Since there is no delay in payment of the tax, interest is not chargeable for late filing of GSTR-3B for which a late fee has been prescribed under Section 47 of the JGST Act, 2017 which the petitioner has duly paid.

"The impugned Summary of the Order contained in Form GST DRC-07 dated 26.02.2020 in the respective writ petitions relating to different tax periods in question is accordingly quashed. Respondents are at liberty to issue proper show-cause notice in terms of Section 73(1) of JGST Act, 2017 with opportunity to the petitioner to file response thereto before passing any adjudication order. It is open to the petitioner to raise the question of leviability of interest on 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. Needless to say, if such a plea is raised, the Adjudicating Authority shall consider it in accordance with law," the court said.