The process of recovery of interest cannot be initiated against an assessee under the Central Goods and Services Tax Act without a prior show cause notice and adjudication proceedings, Jharkhand High Court has held.
On this principle, a bench comprising Justices HC Mishra and Deepak Roshan set aside an order issued by the GST Department to a partnership firm for recovery of interest on unpaid taxes. The court also quashed the garnishee order for attachment of the firm's bank account.
In this case titled Mahadeo Construction Company vs Union of India, the bench held
"a bare reading of Section 73(1) would reveal that if tax has not been paid or has been short paid, a notice is required to be served by the Proper Officer on the assesse not only requiring him to show cause as to why tax be not recovered from it, but also specifying in the notice the interest payable under Section 50 also to be recovered along with penalty. Thus, if there is a short payment of tax or nonpayment of tax, a notice is required to be issued even for recovery of interest under Section 50 of the CGST Act".
Mahadeo Construction had filed a writ petition in the the High Court challenging the order passed by the GST authorities directing it to pay an interest of Rs 19 lakh on account of delayed filing of monthly returns in form GSTR-3B for February and March 2018. It argued that tax liability was imposed on it without following due process.
The Court also added that garnishee proceedings against the firm's bank account were also unsustainable.
"Since, we have already held that though the liability of interest is automatic, but the same is required to be adjudicated in the event an assesse disputes the computation or very leviability of interest, by initiation of adjudication proceedings under Section 73 or 74 of the CGST Act, in our opinion, till such adjudication is completed by the Proper Officer, the amount of interest cannot be termed as an amount payable under the Act or the Rules. Thus, without initiation of any adjudication proceedings, no recovery proceeding under Section 79 of the Act can be initiated for recovery of the interest amount".
While allowing the writ petition, the Court clarified that it will be open for the respondent Authorities to initiate appropriate adjudication proceeding either under Section 73 or 74 of the CGST Act against the petitioner-assessee and determine the liability of interest.
Title : Mahadeo Construction Co Vs Union of India and others
Bench : Justice H C Mishra and Justice Deepak Roshan
Appearances : Advocates Sumeet Gadodia, Shilpi John, Ranjeet Kushwaha (for appellants)
Advocates Ratnesh Kumar, and Amit Kumar (for respondents)
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