2022 (9) TMI 118 - HC - GST

Interest for belated remittance of Goods and Service Tax (GST) - short disclosure of liability for the period July to October 2017 - specific argument of the petitioner is that it had sufficient ITC credit in both the electronic cash ledger (ECR) as well as the electronic credit register (ECrC) - period from July, 2017 to October, 2017 - section 50 of CGST Act - HELD THAT - The language of Section 50 used is categoric to the effect that it is only when a remittance is effected by way of debit, that an assessee would be protected from the levy of interest. Acceding to the stand of the petitioner would result in rewriting the proviso, to the effect that, even mere availability of credit would insulate the petitioner from interest, which is impermissible. That apart, there is some force to the submissions of the respondents that credit cannot, prior to availment be taken to construe the payment . There are any number of situations where credit may be found to have been availed erroneously or on a mistaken interpretation of law. Thus, it would be risky, from the view-point of the revenue, to state as a general proposition that the mere availability of electronic credit should be assumed to be utilization that would insulate the petitioner from the levy of interest. Thus, unless an assessee actually files a return and debits the respective registers, the authorities cannot be expected to assume that available credits will be set-off against tax liability. The specific issue raised relates to the levy of interest u/s 50 of the Act in a situation where the petitioner has not filed its returns of turnover for a particular period and the remittance of taxes for the aforesaid periods is admittedly belated. The petitioner argues that no interest need be levied on the strength of the balances lying to its credit in the ECR and ECrR. - The issue decided against the assessee.

Issues Involved:
1. Legality of the demand for interest on delayed GST payment without pre-intimation notice/show cause notice.
2. Impact of error in the July 2017 GSTR 3B return on subsequent returns and tax liabilities.
3. Justification for the levy of interest under Section 50 of the TNGST Act.
4. Distinction between cash balance and credit balance in the electronic ledgers for interest computation.
5. Relevance of judicial precedents and amendments to Section 50 of the TNGST Act.

Detailed Analysis:

1. Legality of the Demand for Interest Without Pre-Intimation Notice:
The petitioner challenged the order dated 10.04.2019, which demanded interest for delayed GST payment, on the grounds that it was issued without a pre-intimation notice/show cause notice. The court acknowledged this procedural lapse but did not set aside the order. Instead, it directed the jurisdictional Commissioner to consider the petitioner's representation dated 28.09.2017 and pass a fresh order after a hearing.

2. Impact of Error in July 2017 GSTR 3B Return:
The petitioner's error in the July 2017 GSTR 3B return, where data for the Faridabad plant was included instead of the Chennai plant, led to a short disclosure of liability. This error caused a delay in filing returns for subsequent months (August to October 2017), as the petitioner awaited rectification of the July return to accurately determine the tax liability for these months. The petitioner argued that the cascading effect of this error justified the delay in subsequent filings.

3. Justification for the Levy of Interest Under Section 50:
The court examined the levy of interest under Section 50 of the TNGST Act, which mandates interest on delayed tax payments. The petitioner contended that sufficient ITC credit in the electronic cash ledger and electronic credit register negated the need for interest, as there was no loss to the revenue. However, the court highlighted that interest is compensatory in nature and is levied for withholding tax payments. The court noted that the amendments to Section 50, which reduced the interest liability, were applied to recompute the interest from Rs.5,00,00,000/- to Rs.1,19,00,000/-.

4. Distinction Between Cash Balance and Credit Balance:
The court addressed the distinction between cash balance and credit balance in electronic ledgers. It was argued that while cash payments denote actual availability of funds, credits in the electronic credit register do not guarantee that resources are within reach of the Department. The court emphasized that tax payment is considered complete only when returns are filed and the respective ledgers are debited. Thus, mere availability of credit does not equate to payment and does not insulate the petitioner from interest.

5. Relevance of Judicial Precedents and Amendments:
The court referred to several judicial precedents, including the case of Refex Industries Limited and the Supreme Court's judgment in Union of India Vs Bharti Airtel Limited & Ors. These cases discussed the retrospective application of amendments to Section 50 and the scheme of the TNGST Act. The court concluded that the specific issue of interest on delayed tax payments, where returns were not filed, was not addressed by these precedents. The court upheld the demand for interest, aligning with the compensatory nature of interest as established in the case of Pratibha Processors Union of India.

Conclusion:
The court partly allowed the writ petition, granting relief as per the order dated 18.01.2021, which reduced the interest liability. The demand for interest, as per the revised computation, was confirmed. The court emphasized the importance of filing returns and debiting electronic ledgers for tax payments to be considered complete, thereby rejecting the petitioner's argument that mere availability of credit suffices to avoid interest. The connected miscellaneous petition was closed with no costs.

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