M/S Tirumala Cotton Ginning And Pressing Mills vs. The Commissioner Of Central Tax

Held

The High Court allowed the writ petitions. The Court noted that the grievance of the petitioners regarding the levy of interest on the gross returned income has been addressed by the amendment carried out by the Finance Act, 2021, which substituted Section 50 of the CGST Act 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 on that portion of the tax which is paid by debiting the electronic cash ledger. The Court directed the respondents to issue notices and hear the petitioners before quantifying the interest payable as per the amended provision. For the specific issue of the garnishee notice, the Court's decision is implicitly covered by the overall allowance of the petitions, suggesting the coercive steps taken without proper determination of liability were not upheld.

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, which they deem illegal and arbitrary. In one instance (WP No. 23006/2019), the petitioner sought a writ of mandamus directing a bank to release funds held pursuant to a garnishee notice issued by the tax authorities, arguing that no tax liability was determined for the petitioner before coercive steps were taken. The procedural history involves the issuance of notices and orders by various GST authorities, leading to the petitioners approaching the High Court.

Key Issues

1. Whether the interest on delayed payment of tax under Section 50 of the CGST Act, prior to its substitution by the Finance Act, 2021, was leviable on the gross tax liability or only on the portion paid through the electronic cash ledger? Petitioner's contention: The petitioners argued that interest should be levied only on the amount paid through the electronic cash ledger, as per the proviso to Section 50(1) of the CGST Act. They relied on the interpretation that the proviso clarified the manner of calculating interest. Revenue's contention: The revenue authorities contended that interest was leviable on the entire tax liability, irrespective of how it was paid, based on the main body of Section 50(1) as it originally stood. 2. Whether the garnishee notice issued by the tax authorities was valid without prior determination of the petitioner's tax liability and without issuing any notice to the petitioner? (Specific to WP No. 23006/2019) Petitioner's contention: The petitioner argued that the garnishee notice was arbitrary and violative of the CGST Act and principles of natural justice, as it was issued without determining their tax liability and without affording them an opportunity to be heard. Revenue's contention: Not explicitly recorded in the provided text.