Government Entitles to Interest when Tax Paid after Statutory Due Date but Return Filed within Time limit: Bombay HC [Read Order]

The Bombay High Court (Goa Bench) has held that the Government is entitled to levy interest where tax is paid after the statutory due date, even if the dealer has filed returns within the prescribed time limit.

With regards to the payment of tax, the court noted that “we find that the tax is due on 28th of every month and when return is filed, the Government is not unjustified in saying that the payment of tax must come at the relevant time and if the payment comes after the expiry of the period prescribed, then Government has every right to levy interest.”

In a writ petition filed by United Spirits Ltd., the petitioner challenged the levy of interest under Section 25(4) of the Goa Value Added TaxAct, 2005 (GVAT Act) on delayed payment of VAT relating to sales of Extra Neutral Alcohol (ENA)/ Rectified Spirit (RS)/ High Bouquet Spirit (HBS) for the financial year 2019-20.

The company filed its VAT returns for FY 2019-20 within the prescribed time and had also submitted audit reports and revised returns. However, while returns were filed on time, the actual VAT liability on HBS/ENA amounting to ₹1.63 crore was paid belatedly, much after the statutory due dates in 2019-20.

The department passed an assessment order under Section 29 of the GVAT Act and levied interest of ₹53.58 lakh at 18% under Section 25(4) for delayed payment of tax.

Though the tax itself was not disputed, the assessee challenged the levy of interest, challenging that there was confusion regarding the taxability of ENA/HBS in the post-GST and, therefore, the delay was bona fide and interest should not be charged.

The petitioner’s counsel Mr. Rohan Shah, Senior Advocate argued that after the introduction of GST from 1 July 2017, there was confusion across the country on whether ENA/RS/HBS were liable to VAT/CST or GST, especially since alcoholic liquor for human consumption was kept outside GST.

It also stated the GST Council discussions, opinions of the Attorney General, and judicial precedents to argue that the issue was unsettled until much later.

According to the petitioner, interest being compensatory in nature could not be levied unless there was a willful withholding of tax, and since the tax was eventually paid without being collected from buyers, the levy of interest was unjustified and unconstitutional.

However, the State contended that returns filed without payment of tax are not valid returns in the eyes of law under the GVAT Act.

It was argued that ENA/HBS continued to fall within the VAT after 1 July 2017 under the residuary entry at 12.5%, and that the assessee was fully aware of this. Additionally, the petitioner has collected VAT from buyers and has been assessed similarly in earlier years.

The Revenue also pointed out that interest under Section 25(4) is automatic and statutory, once tax due as per returns is not paid within the prescribed time, irrespective of subsequent payment or filing of returns.

After hearing all these submissions, Justice Ashish S. Chavan and Justice Bharati Dangre observed that the act clearly differentiates between filing of returns and payment of tax. It said that mere filing of returns does not clear the dealer from interest liability if tax is paid late.

The bench observed that under Section 25(4), interest becomes payable from the date the tax becomes due, whenever tax shown as payable in returns or revised returns is not paid or is paid belatedly.

The Court further held that confusion in law cannot postpone the due date of tax, especially when the dealer was conscious that the goods were taxable under VAT and had, in fact, collected the VAT.

The petitioner admittedly filed Return/Revised Return, but did not pay the tax and thus, according to us, there is no return in the eyes of law and though the tax has come to the Government belatedly, the interest is leviable, said the division bench.

Accordingly holding that interest leviable by the department is valid, the court dismissed the petition.

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