2022 (8) TMI 978 - HC - GST

Liability of Interest - whether liability of interest under Section 50 of the JGST Act can be raised without initiating any adjudication proceeding either under Section 73 or 74 of the JGST Act in the event assessee has rai sed a dispute towards liability of interest? - HELD THAT - The reference may be made to the case ofMAHADEO CONSTRUCTION CO. VERSUS THE UNION OF INDIA, ASSISTANT COMMISSIONER, CENTRAL GOODS SERVICES TAX AND CENTRAL EXCISE, SUPERINTENDENT, CENTRAL GOODS SERVICES TAX AND CENTRAL EXCISE 2020 (4) TMI 666 - JHARKHAND HIGH COURT wherein this Court has held that it appears that if any assessee disputes the liability of interest under Section 50 of the JGST Act then the revenue will have to follow the specific procedure as stipulated under Section 73 or 74 of the JGST Act. In the instant case admittedly a notice was issued to the petitioner dated 6.11.2018 thereafter, the petitioner duly replied in form of objection with regard to non payment of interest vide its reply dated 9.1.2019. However the respondent department vide letter dated 28.1.2019 repeated its earlier stand and refused to accept the petitioner s stand and the petitioner was directed to pay the balance amount of Rs.40,71,403/- towards interest payment after adjustment of refund amount sanctioned in favour of the petitioner. Thus, it clearly transpires that the respondents have not followed the procedure as enshrine d in Section 73 or 74 of the JGST Act. Thus the issue involved in the writ applications is squarely covered by the decision passed by this Court in the case of Mahadeo Construction. The matter is remitted back to the re venue to initiate a fresh proceeding with regard to the liability towards interest under Section 50 of JGST Act in accordance with law as stipulated in JGST Act. It goes without saying that after following the procedure and dependant on the proceedings, fresh refund order be issued in accordance with law - application allowed.

Summary

Issues Involved:
1. Whether interest under Section 50 of the JGST Act, 2017 can be levied if the ITC has not been availed twice.
2. Whether the procedure prescribed for realization of interest under Section 50(3) of the JGST Act has been followed.
3. Whether liability of interest under Section 50 of the JGST Act can be raised without initiating adjudication proceedings under Section 73 or 74 of the JGST Act.

Issue-wise Detailed Analysis:

1. Whether interest under Section 50 of the JGST Act, 2017 can be levied if the ITC has not been availed twice:
The petitioner claimed transitional credit of ITC under the JVAT Act 2005 and submitted a declaration in form TRAN-1 as per section 140 of the JGST Act, 2017. Due to human error, the same credit amount was repeated in the GSTR-3B for July 2017. The petitioner reversed this entry in July 2018, asserting that the transitional credit was never utilized against output tax liabilities. The department demanded interest for the irregular credit taken. The petitioner argued that interest under Section 50, which is compensatory, cannot be levied if the ITC was not availed twice.

2. Whether the procedure prescribed for realization of interest under Section 50(3) of the JGST Act has been followed:
The petitioner objected to the demand for interest, stating that the respondents did not follow the prescribed procedure for realizing interest under Section 50(3). The department argued that the reversal of irregularly taken SGST credit should have been added to the output tax liability in the GSTR-3B return for August 2017. The department issued a letter demanding interest, but the petitioner contended that no formal proceedings were initiated for recovery as required.

3. Whether liability of interest under Section 50 of the JGST Act can be raised without initiating adjudication proceedings under Section 73 or 74 of the JGST Act:
The court referred to the case of Mahadeo Construction Co. Vs. Union of India, which established that liability of interest under Section 50 is not automatic and requires calculation and intimation to the assessee. If disputed, the liability must be adjudicated under Section 73 or 74. The court observed that the department did not follow the procedure under Section 73 or 74, as the petitioner had disputed the interest liability. The court concluded that the respondents should have initiated adjudication proceedings to determine the interest liability.

Conclusion:
The court quashed the letters dated 6th November 2018 and 28th January 2019, and the appellate order, as the respondents did not follow the procedure under Section 73 or 74 of the JGST Act. The matter was remitted back to the revenue to initiate fresh proceedings regarding the interest liability under Section 50 of the JGST Act, following the prescribed procedure. Fresh refund orders were to be issued based on the outcome of these proceedings. Both writ applications were allowed.