M/S. Sri Laxmi Tyre Company vs. Deputy Commissioner

Held

The Court allowed the writ petitions, following a common order passed in a batch of similar cases (W.P.No.44517 of 2018 and batch). The core issue revolved around the interpretation of Section 50 of the CGST Act concerning the levy of interest on delayed tax payments. The Court noted that Section 50(1) initially provided for interest on the entire unpaid tax. However, a proviso was substituted by the Finance Act, 2021, with retrospective effect from July 1, 2017. This amended proviso clarified that interest would be payable only on the portion of tax paid by debiting the electronic cash ledger, provided the return was furnished after the due date but before the commencement of proceedings under Section 73 or 74. The Court held that in view of this amendment, the petitioners' grievance was redressed. The Court directed the respondents to issue notice and hear the petitioners before quantifying the interest payable as per the amended provision of Section 50 of the CGST Act. The garnishee notices were implicitly set aside by allowing the petitions and directing a re-quantification of interest.

Facts

The petitioners, M/s. Sri Laxmi Tyre Company and M/s. Apollo Tyre Center, filed writ petitions challenging the garnishee notices issued by the Deputy Commissioner, Central Tax, Nalgonda GST Division. These notices were for the recovery of alleged tax dues, amounting to Rs. 8,04,983 and Rs. 8,92,488 respectively, by attaching funds from the petitioners' bank accounts held with the State Bank of India. The petitioners contended that the recovery action was initiated without considering the proviso to Section 50(1) of the CGST Act, as amended by the Finance (No. 2) Act, 2019, which they argued should govern the levy of interest on delayed tax payments. The petitions sought to declare the garnishee notices illegal and to set them aside.

Key Issues

1. Whether the action of the respondent in issuing a garnishee notice for recovery of tax demand, without considering the proviso to Section 50(1) of the CGST Act, inserted by the Finance (No. 2) Act, 2019, is illegal and arbitrary? Petitioner's arguments: The petitioners argued that the garnishee notices were issued illegally as they failed to consider the proviso to Section 50(1) of the CGST Act. This proviso, they contended, stipulated that interest on delayed tax payments should only be levied on the portion of tax paid by debiting the electronic cash ledger, not the gross returned income. They relied on the amendment to Section 50(1) which, they claimed, was retrospective and should have been applied. The petitioners also argued that the action violated principles of natural justice and constitutional provisions. Revenue's arguments: The judgment does not explicitly record arguments made by the revenue. However, their action of issuing garnishee notices implies a contention that the demand was valid and recoverable through coercive means.