HC directs adjudicating authority to construe intimation letter demanding interest as SCN and give an opportunity of being heard

Facts:

Godavari Commodities Ltd. (“the Petitioner”) is aggrieved by the letter of intimation for payment of interest on delayed payment of GST, dated February 6, 2019, issued by the Superintendent of CGST (“the Respondent”). 

By the said letter, the Petitioner was asked to make the payment of the aforesaid amount in the Government account and submit the payment details within three days of the receipt of the letter. Admittedly, pursuant to the issuance of this demand, the bank account of the Petitioner was freezed and upon the payment of the aforesaid amount, the account was defreezed.

Issue involved:
Whether such letter of intimation is legal?

Held:

The Hon’ble HC, Jharkhand in W.P.(T) No.1786 of 2019 decided on December 3, 2019 held as under:

•  Rejected the Respondents contention that since the tax was paid, Section 73(1) of the CGST Act, 2017 (“CGST Act”) shall not be attracted in the case of the Petitioner and, therefore, show cause notice was not required. 

•  Held that tax was not paid by the Petitioner in the Government account within the due date, and accordingly it is a case of tax not being paid, within the period prescribed, or when due.

•  The amount of ₹ 11,58,643/-, i.e., the amount of short paid interest has already been realised from the Petitioner, after freezing the bank account of the Petitioner, and after the payment of the said amount, the bank account has also been defreezed. 

•  Thus, the letter of intimation is to be treated as a show cause notice issued under Section 73(1) of the CGST Act. Even otherwise, if any penal action is taken against the Petitioner, irrespective of the fact whether there is provision under the Act or not, the minimum requirement is that the principles of natural justice must be followed.

•  Further held that the Petitioner shall be given an opportunity of being heard by the adjudicating authority, who shall give a hearing to the Petitioner on whether the Petitioner was liable to pay the short-paid interest amount or not.

•  In case, upon adjudication, it is found that the Petitioner was not liable to make the payment of interest short paid, the said amount shall be refunded to the Petitioner with statutory interest thereon.

Relevant provisions:
Section 50(1) of the CGST Act

“50. Interest on delayed payment on tax. - 

(1) Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent., as may be notified by the Government on the recommendations of the Council.”

Section 73(1) of the CGST Act

“73. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful misstatement or suppression of facts. - 

(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason, other than the reason of fraud or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty leviable under the provisions of this Act or the rules made thereunder.”