Mahadeo Construction Co Through Its Partner Anil Kumar Singh vs. The Union Of INDIA Through The Commissioner Central Goods And Service Tax

Held

The Court held that while the liability to pay interest under Section 50 of the CGST Act is automatic, the quantification of such liability, especially when disputed by the assessee, requires an arithmetic exercise after considering the assessee's objections. The Court found that the term "automatic" does not exclude the need for an arithmetic calculation and consideration of objections. Therefore, the first issue was answered to the effect that quantification of interest liability requires an arithmetic exercise after considering objections, even if the liability itself arises automatically. Regarding the second issue, the Court held that garnishee proceedings under Section 79 of the CGST Act can only be initiated for an amount that is "payable" to the government. Since the interest amount was disputed and not yet adjudicated, it could not be considered "payable" for the purpose of initiating recovery proceedings under Section 79. Thus, the Court quashed the impugned demand letter and the garnishee notice. The respondents were granted liberty to initiate appropriate adjudication proceedings under Section 73 or 74 of the CGST Act to determine the interest liability after providing the petitioner with due opportunity of hearing.

Facts

The petitioner, Mahadeo Construction Co., filed its GSTR-3B returns for February and March 2018 on March 31, 2019, believing this to be the extended due date as reflected on the GSTN portal. The Superintendent of Goods and Services Tax, Daltonganj Range, issued a letter demanding interest of Rs. 19,59,721/- for the alleged delay in filing these returns. Subsequently, the revenue authorities initiated garnishee proceedings under Section 79 of the CGST Act to recover this interest amount by issuing a notice to the petitioner's banker. The petitioner challenged both the demand letter and the garnishee proceedings through a writ petition.

Key Issues

1. Whether interest liability under Section 50 of the CGST Act can be determined without initiating adjudication proceedings under Section 73 or 74 of the CGST Act, especially when the assessee disputes the liability? 2. Whether recovery proceedings under Section 79 of the CGST Act can be initiated for recovery of interest under Section 50 of the CGST Act without the completion of adjudication proceedings? Petitioner's arguments: The petitioner argued that the interest demand and recovery were unsustainable as they were made without initiating adjudication proceedings under Sections 73 or 74 of the CGST Act. They contended that the interest liability, not being admitted, required determination through adjudication. Furthermore, they argued that garnishee proceedings under Section 79 could not be initiated for an unadjudicated amount, especially when the petitioner disputed the delay and the resulting interest. Revenue's arguments: The revenue contended that the dispute was about delayed payment of tax, not delayed filing of returns. They argued that interest liability under Section 50 is automatic upon delayed payment of tax, requiring no separate adjudication. They further argued that Sections 73 and 74 were not applicable as they pertained to demand and recovery of tax not paid or short-paid due to fraud or misrepresentation, not automatic interest.