Interest would be on net cash tax liability prior to amendment in Section 50 of CGST Act, 2017: Bombay High Court quashes recovery notices [Read Judgment]

The Bombay High Court while quashing the recovery notices issued by the respondent authority held that interest would be on net cash tax liability prior to amendment in Section 50 of the CGST Act, 2017.

The petitioner, KLT Automotive, and Tubular Products Limited is a limited company having its registered office at Andheri (East), Mumbai. It is engaged in the business of the manufacture of automotive components. It is registered under the Central Goods and Service Tax Act, 2017 as well as under the Maharashtra Goods and Service Tax Act, 2017.

The petitioner has stated that it has been availing ITC of the taxes charged by the suppliers and remitting goods and service tax (GST) on its output supplies after deducting the input tax credit.

However, it has been admitted by the petitioner that there was some delay in filing the monthly returns in form GSTR-3B and GSTR-1.

When the petitioner was intimated about the payment of interest on delayed payment of taxes for certain periods, it remitted the interest computed on net tax liability.

The respondent authority sent an email levying interest of Rs.5,06,06,060for late payment of GST for the months from July, 2017 to December, 2019.

The interest was computed on gross liability. By another email respondent revised the demand of interest to Rs.7,62,15,267 for late payment of GST for the months from July 2017 to March, 2020 and the interest was computed on the gross liability.

The proceedings were initiated against the petitioner whereafter recovery (garnishee) notices were issued to various customers of the petitioner, in all 6 garnishee notices, all despite the fact that petitioner had remitted the interest liability as computed on the basis of net GST liability upto January, 2020.

The central issue raised in the writ petition was whether interest under section 50 of the Central Goods and Service Tax Act, 2017 is to be levied on the gross tax liability or on the next tax liability.

The division bench of Justice Abhay Ahuja and Ujjal Bhuyan clarified that the issue has been answered by the Board in the administrative instructions dated September 18, 2020, by categorically stating that the interest would be on the net cash tax liability for the period prior to the amendment i.e., from July 1, 2017 to August 31, 2020.

“Recovery (garnishee) notices issued by the respondents on 16.07.2020 are hereby quashed. Respondents to intimate the petitioner about the quantum of interest payable on account of delayed payment of GST for the period under consideration in terms of the administrative instructions dated 18.09.2020 and the same shall be paid by the petitioner, if not already paid,” the Court said.