M/S Padmavathi Cotton Industries vs. The Commissioner Of Central Tax And 3 Others

Held

The Court allowed all the writ petitions. It noted that Section 50 of the CGST Act was amended by the Finance Act, 2021, with retrospective effect from July 1, 2017. The amended proviso clarifies that interest on tax payable in respect of supplies made during a tax period and declared in the return furnished after the due date shall be levied only on that portion of the tax which is paid by debiting the electronic cash ledger. The Court found that this amendment addresses the grievance of the petitioners. Consequently, the Court directed the respondents to issue notices and provide an opportunity to the petitioners to be heard before quantifying the interest payable as per the amended provision of Section 50 of the CGST Act. Miscellaneous applications pending were also closed.

Facts

This batch of writ petitions, filed by various entities including Raghava Constructions and M/s. Standard Automobiles, primarily challenges the levy of interest on the gross returned income rather than the net cash amount under the GST regime. The petitioners are aggrieved by orders and notices demanding interest, and in some cases, coercive steps like garnishee notices have been issued against their bank accounts. The core of the dispute revolves around the interpretation and application of Section 50 of the Central Goods and Services Tax Act, 2017, concerning the calculation of interest on delayed payment of tax. The petitioners contend that interest should be calculated on the net amount paid from the electronic cash ledger, not the entire tax liability.

Key Issues

1. Whether the interest on delayed payment of tax under Section 50 of the CGST Act, 2017, is to be levied on the gross returned income or on the net amount paid by debiting the electronic cash ledger? (Question of law) Petitioner's Arguments: - The petitioners argued that interest should be calculated only on the portion of tax paid by debiting the electronic cash ledger, as per the proviso to Section 50(1) of the CGST Act. They contended that levying interest on the entire tax liability, including amounts paid through the electronic credit ledger, is arbitrary and unjust. Revenue's Arguments: - The revenue contended that prior to the amendment, interest was leviable on the entire tax liability that remained unpaid after the due date. They relied on the original wording of Section 50(1) of the CGST Act.