GST Update on landmark decision that interest cannot be recovered without adjudication proceedings

The delay in retrospective amendment regarding computation of interest liability under GST regime has led to flood of writ petitions in High Courts seeking relief from recovery proceedings initiated by the government. The revenue authorities have consistently held that interest liability gets automatically attracted as soon as there is delay in payment of taxes on part of the assessee and the revenue authorities can recover the interest amount without following the adjudication procedure prescribed in law. The present update seeks to discuss the landmark decision given by the Hon’ble Jharkhand High Court in the case of MAHADEO CONSTRUCTION CO. VERSUS UNION OF INDIA wherein the issue involved was whether recovery proceedings under section 79 of the CGST Act, 2017 can be initiated without initiation and completion of adjudication proceedings under the Act?  

It is observed that the assessee has to suffer on account of various technical problems on the GST portal and this decision also depicts the same. In the present case, the petitioner stated that the due date for filing GSTR-3B return for the month of February, 2018 and March, 2018 was reflecting as 31st March, 2019 and so the petitioner filed the said returns before 31st March, 2019. However, the petitioner was served with a letter directing to the petitioner to pay interest of Rs. 19,59,721/- on the ground of delay in filing of GSTR-3B for the month of February, 2018 and March, 2018. Not only this, garnishee proceedings for recovery of interest were also initiated against the petitioner. After pursuing the provisions contained in section 73 of the CGST Act, 2017, it was held that revenue authorities are bound to issue show cause notice even for recovery of interest under section 50 of the CGST Act, 2017. In this respect, Hon’ble High Court placed reliance on the decision given in the case of GODAVARI COMMODITIES LTD. VERSUS UNION OF INDIA AND ORS. [2019 SCC ONLINE JHAR 1839] wherein it was held that the assessee who has already paid tax would also fall within the expression “tax not being paid or short paid”.   

The Hon’ble High Court also placed reliance on the Madras High Court decision in the case of THE ASSISTANT COMMISSIONER OF CGST & CE AND OTHERS VS DAEJUNG MOPARTS PVT. LTD. AND ORS wherein it was held that although the liability of interest is automatic but its determination cannot be done without following the principles of natural justice. Consequently, it was held that adjudication proceedings is pre-requisite even for confirming interest liability against the assessee and the initiation of recovery proceedings without adjudication as prescribed in law is not permissible. 

In our opinion, the above decision is landmark decision as it lays down that adjudication is essential even with respect to interest demand. It is pertinent to mention that even in the Central Excise Laws, there were many decisions wherein it was held that the time limit to issue show cause notice also applies for interest demand thereby meaning that adjudication proceedings is to be carried for interest demand also. Reference may be made to decision given by the Hon’ble Punjab & Haryana High Court in the case of COMMISSIONER OF CENTRAL EXCISE VERSUS VAE VKN INDUSTRIES PVT LTD [2015 (322) E.L.T. 269 (P & H)] wherein it was held that period of limitation prescribed for demand of duty is also applicable for demand of interest. Hence, the decision given by Hon’ble Jharkhand High Court will be of immense help to the assessees against whom recovery proceedings for interest have been initiated without initiation of adjudication proceedings.