If Assessee Disputes Interest Liability Then Dept. Has To Follow Procedure Laid Down u/s 73 or 74 of the CGST Act: Jharkhand High Court

The division bench of Justice Aparesh Kumar Singh and Justice Deepak Roshan has observed that the department failed to follow the procedure as enshrined in Section 73 or 74 of the JGST Act.

The petitioner/assessee found itself entitled to claim transitional credit from ITC under the provisions of the JVAT Act 2005. The petitioner submitted a declaration in form TRAN-1 as per section 140 of the JGST Act, 2017 with a claim of credit for a sum of Rs.3,11,43,255, which was filed electronically on the common portal of the department. The accountant of the petitioner company repeated the claim of transitional credit in the GSTR-3B furnished in July, 2017. The repetition was caused by human error and a lack of adequate practice/familiarity with the new concept of Goods and Services Tax laws, which were introduced in 2017.Immediately, in July 2018, the petitioner took steps to reverse the entry to rectify the error. In GSTR-3B of July 2018, the sum of Rs. 3,11,43,255 was reversed towards the Input Tax Credit of SGST. The amount of transitional credit mistakenly mentioned in form GSTR-3B for July 2017 was never utilised by the petitioner company against the output tax liabilities arising out of daily business transactions.

The petitioner filed an application seeking a refund of the excess amount lying in the electronic cash ledger of the petitioner for a sum of Rs. 26,45,301. The refund was sanctioned by the competent authority vide the refund sanction order. But the refund was allowed with an adjustment towards a sum of Rs. The petitioner challenged the part of the refund order in appeal. The adjustment of the refundable amount also contained the liability of interest.

The grivance of the petitioner was that though it submitted a detailed objection before the respondent, the respondent repeated its earlier stand and refused to accept the request made by the petitioner. The petitioner was requested to pay the balance of Rs.40,71,403 towards interest payment after adjustment of the refund amount sanctioned in favour of the petitioner.

The petitioner submitted that interest under Section 50 of the JGST Act, 2017, which was primarily compensatory in nature, cannot be levied upon the petitioner if the ITC has not been availed twice. When the dispute taking objection to the notice for payment of interest in terms of Section 50(3) of the JGST Act was made through a reply by the petitioner, the respondent should have followed the procedure prescribed for realisation of the interest.

The respondent contended that the claim of the taxpayer that it made all best efforts to rectify the error by reversal of the ITC, but due to shortcomings in the online facilitation procedures of the department, the reversal of the ITC was not tenable.

The procedure for matching, reversal and reclaiming of input tax credit has been laid down under Section 42 of the CGST Act, 2017. As per the procedure, the irregularly taken SGST credit was required to be reversed by adding it to the output tax liability in the GSTR-3B return for the month of August, 2017. So, an additional column for reversal of irregularly taken SGST credit was not required in the GSTR-3B. While filing the GSTR-3B for the month of July 2017, the taxpayer again took the ITC, which the taxpayer had already transferred into the electronic credit ledger through TRAN-1. The taxpayer was able to file GSTR-3B returns on the online portal and the facility to reversal was available in the GSTR-3B return itself.

The issue raised was whether liability of interest under Section 50 of the JGST Act can be raised without initiating any adjudication proceeding either under Section 73 or 74 of the JGST Act in the event the assessee has raised a dispute towards liability of interest.

The court remanded the matter back to the revenue to initiate a fresh proceeding with regard to the liability towards interest under Section 50 of JGST Act in accordance with the law as stipulated in the JGST Act.

Case Title: Bluestar Malleable Pvt. Ltd. Versus The State of Jharkhand

Citation :2022 LiveLaw (Jha) 82

Case No: W.P.(T) No. 2043 of 2020

Dated: 18.08.2022

Counsel For Petitioner: Advocate Atanu Banerjee

Counsel For Respondent: Advocate Amit Kumar

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