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Bombay High Court Pursues Case Regarding Payment of Interest on Delayed Payment of Taxes, Says Interest To Be Levied on Net Cash Tax Liability

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KLT Automotive and Tubular Products Limited filed a writ petition with the primary contention that interest is to be levied only on the net tax liability and not on gross liability. The Court took into consideration the amendment made to Section 50 of the CGST Act and a press release issued by the Central Board of Indirect Taxes and Customs, in which it was clarified that interest on delayed payment of tax must be demanded only on net liability. Hence, the writ petition was allowed.

Brief Facts

The Petitioner (KLT Automotive and Tubular Products Limited) was a limited company, engaged in the business of manufacturing various automotive components. It was registered both under the Central Goods and Service Tax Act, 2017, and the Maharashtra Goods and Service Tax Act, 2017. 

The present issue arose when the Petitioner was intimated by the Respondents about the levy of interest on the Petitioner for late payment of GST, computed on gross liability. Proceedings were also initiated against the Petitioner and without following the due process, garnishee notices were issued to six of the customers of the Petitioner. Thereafter, the Petitioner made various submissions that the tax must be demanded on net tax liability. Hence, a writ petition was filed to sought reliefs in this case.

Petitioner’s Submissions

The Petitioner submitted that it had been availing input tax credit on the taxes charged by its suppliers. However, the Petitioner admitted that there was some delay in filing the monthly returns and when intimated about it, the Petitioner remitted the interest computed on net liability. But it was asserted that the Respondents had sent emails levying interest, compounded on gross liability for late payment of GST.

The present writ petition came to be filed with the main contention centring around Section 50 of the CGST Act, 2017, that interest could be demanded only on the net tax liability and not on gross liability.

Petitioner’s Prayers

Various reliefs had been sought by the Petitioner. It was prayed that this Hon’ble Court issue a writ of declaration or another such appropriate writ and declare the provisions of Section-50 of the CGST Act, 2017 as unconstitutional vide Articles 1419, and 265 of the Constitution. It was also prayed that the Court may issue a writ of certiorari to quash the proceedings for recovery as had been initiated by the respondents, as it was arbitrary, unreasonable and violated Articles 14/19/300A of the Constitution. Further, it had also been issued without following due process of law.

In the alternative, the relief sought for was that this Hon’ble Court may issue a writ of mandamus directing that the interest must be calculated on net liability basis and not on a gross liability basis. 

Respondent’s Submissions

The Respondents had filed several affidavits to hotly oppose the writ petition. The Respondents also contested the contentions of the Petitioner. With regards to the press release of the Board, it was contended by them that the same had not been officially communicated to the field formations.

Consideration by Court

From a perusal of the submissions by both the parties, the Court took into consideration various aspects related to ‘interest on delayed payment of GST’. A press release issued by the Central Board of Indirect Taxes and Customs on the same subject was considered. It was issued to respond to a lot of queries concerning notification dated 25.08.2020, which provided for amendment in Section 50  ,as introduced by Finance (No.2) Act, 2019 to charge interest on the net cash tax liability. 

A recommendation was made for amending Section 50 retrospectively with effect from 01.07.2017. For the period 01.07.2017 to 31.08.2020, field formations had been instructed to recover interest only on the net cash tax liability.

Court’s Directions

In light of the submissions put forth by both parties, the Court opined that no live issue survived for adjudication in the present case. Recovery notices issued by the Respondents were quashed. The Court directed that Respondents were to intimate the Petitioner about the amount of interest payable on account of a delayed payment of GST, as per the administrative instructions dated 18.09.2020. The Court stated the same was to be paid by the Petitioner. Accordingly, the writ petition was allowed. However, there was no order passed as regard to the costs.

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