Karnataka HC Sets Aside Order Waiving GST Interest and Penalty for Sadguru Infratech [Read Order]

The Division Bench of the Karnataka High Court headed by Chief Justice Vibhu Bakhru and Justice K.S. Hemalekha has overruled an earlier single-judge order allowing contractors to submit updated GST reports without levy of interest or penalty. The Court held that there is no option for waiver under the mandatory assessment of interest under Section 50 of the CGST Act.

The Commissioner of Central Tax and other authorities opposing the order dated 11.04.2023 given in W.P. No. 10163 of 2020 prefer the present appeal. The respondent M/s Sadguru Infratech Pvt Ltd, a sub-contractor for Basaveshwar Lift Irrigation Scheme, had contested the department’s demand for interest for delayed payment of tax for the years 2017-18 to 2019-20. The contract was awarded before the commencement of the GST regime and there was a disagreement on repayment of differential tax burden between the contracting parties.

In a batch of petitions, the Single Judge had made a common decision holding that petitioners might file amended returns without insisting on interest, penalty or limitation. The judgement has also prohibited the GST authorities from pursuing any coercive measures. The Revenue maintained that the orders were against the statutory design of the GST Acts, as the imposition of interest is required and does not allow any discretion.

The Division Bench concurred with the contentions of Revenue. The Court held that the issue as to who would shoulder the incremental tax burden is basically a civil dispute between the parties to the contract and does not affect the statutory responsibility to pay tax under the GST framework.

“The liability to pay interest on delayed payment of tax under a fiscal statute is well settled to arise by operation of law and the authority has no discretion to waive the interest or reduce the same if the statute makes no such provision (See Pratibha Processors v. Union of India, (1996) 11 SCC 101),” the Court said.

Thus, the Court found that the orders allowing submission of updated forms in contravention of statutory provisions and blanket waiving of penalty and interest were not sustainable. The Division bench quashed assailed order to the extent it relates to Sadguru Infratech and clarified that any instruction for reimbursement of tax has to be made by the contracting employer and not by the tax authorities.

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