Facts of the Case

The petitioner, Abis Export India Private Limited, was engaged in the production of various commodities, including pet food. Pet food was classified under HSN Code 2309 after implementation of the GST regime. According to the petitioner, there was initially a lack of clarity regarding the tax treatment of animal feed and pet food falling under Chapter 23 and HSN 2309. Consequently, animal feed and pet food were sold to distributors without charging GST, and returns were filed accordingly. Subsequently, it emerged that animal feed was exempt except for pet food.

The petitioner approached the authorities regarding the difference between GSTR-1 and GSTR-3B and sought a mechanism for rectification. According to the petitioner, no effective mechanism was available to rectify the return. The petitioner maintained that it had neither availed input tax credit specifically with regard to pet food nor charged GST from customers on such sales, but later set off the tax liability in the return filed in March 2018 in relation to the period July 2017 to September 2017.

The authorities sought interest on account of differences in returns for the relevant period. The record referred to an aggregate interest demand of Rs. 73,52,955 comprising CGST of Rs. 41,490, SGST of Rs. 41,490 and IGST of Rs. 72,69,975. The order dated 03.08.2018 directed payment of interest, and the petitioner’s appeal was rejected by order dated 11.09.2018 on the ground of non-compliance with the statutory payment requirement under Section 107(6) of the CGST Act.

The petitioner thereafter approached the High Court, challenging the impugned orders and consequential recovery action, including GST DRC-13. The petitioner also pointed out that although a further remedy was contemplated under the GST framework, the Appellate Tribunal had not been constituted at the relevant time.

Issues Involved

The principal issues before the High Court were:

  1. Whether the amendment to Section 50 of the CGST Act, restricting interest liability to the portion of tax paid by debiting the electronic cash ledger, had retrospective application from 01.07.2017.
  2. Whether the petitioner could claim the benefit of the retrospective amendment to Section 50 in the facts and circumstances of the case.
  3. Whether such benefit could affect or enable the petitioner to overcome the statutory condition under Section 107(6) for maintainability of the GST appeal.
  4. Whether the appellate order dated 11.09.2018 rejecting the appeal for failure to satisfy the statutory payment requirement should continue despite the subsequent retrospective amendment.
  5. Whether the interest demand based upon delayed payment and differences between GSTR-1 and GSTR-3B required reconsideration in light of the amended Section 50.

Petitioner’s Arguments

The petitioner argued that there was genuine uncertainty regarding the GST treatment of goods falling under HSN 2309. It relied upon communications indicating a nil rate for HSN Code 23091000 and contended that clarity subsequently emerged that all relevant animal-feed items were exempt except pet food. By that stage, pet food had already been sold without charging GST and GSTR-3B returns had been filed.

The petitioner submitted that after learning that pet food was taxable, it disclosed the taxable supplies in GSTR-1. It argued that the matter was essentially one of correction and set-off of liability rather than deliberate non-payment of tax. The petitioner stated that in March 2018 it created additional tax liability pertaining to July 2017 to September 2017 and set it off through available input tax credit.

It was further argued that as on 31.12.2017, input tax credit of approximately Rs. 8.58 crore was available in its electronic credit position, which was sufficient to cover the additional tax liability. The petitioner asserted that there was no intention to evade tax and that the discrepancy remained unresolved because no mechanism was available for rectification of GSTR-3B.

The petitioner also contended that it had responded to departmental notices, yet the order dated 03.08.2018 allegedly proceeded on the basis that no reply had been filed and imposed interest without properly considering its response or granting an adequate opportunity of hearing.

During pendency of the writ petition, the petitioner relied upon the retrospective amendment to Section 50 and sought reconsideration of its case on the basis that interest should be payable only on that portion of tax discharged by debiting the electronic cash ledger. It requested liberty to approach the appellate authority for fresh adjudication after considering the benefit of the amendment effective from 01.07.2017.

The petitioner also referred to Hansraj & Son vs State of Jammu & Kashmir & Others and Commissioner of Central Excise, Meerut vs Kisan Sahkari Chinni Mills Ltd. in support of its submissions.

Respondents’ Arguments

The State contended that the GST legislation specifically prescribed the manner of furnishing returns and disclosure of tax liability. Section 39 required registered persons to correctly furnish details of inward and outward supplies, input tax credit availed, tax payable and tax paid. The respondents emphasized the statutory return architecture involving GSTR-1, inward-supply details and the return contemplated under Section 39, together with GSTR-3B introduced for reporting and payment purposes.

According to the State, the petitioner had submitted GSTR-3B returns without correctly disclosing amounts relating to pet food sales. It was argued that even if the petitioner was uncertain about taxability, it ought to have correctly shown the tax payable in GSTR-3B. Therefore, the dispute was characterized not merely as an incorrect-return case but as delayed payment of tax.

The State argued that Section 50 empowered levy of interest on delayed payment of tax. Since, according to the respondents, tax for the relevant months was paid belatedly on 21.05.2018, interest of Rs. 73,52,955 was lawfully levied at 18%. The respondents maintained that the demand notices were legal and proper.

The State further relied upon Section 41 governing input tax credit and opposed the petitioner’s claim for automatic benefit of the amended Section 50, contending that the petitioner was not entitled to such benefit in the facts of the case.

Court Order / Findings

The High Court examined the legislative and administrative developments concerning Section 50. It noted the GST Council’s recommendations concerning levy of interest on net cash tax liability, the subsequent notifications and press releases, and the eventual retrospective effect given to the amendment from 01.07.2017.

The Court held that the amendment had retrospective applicability. The amended position contemplated that, in respect of supplies declared in a return furnished after the due date under Section 39, interest would be payable on the portion of tax paid by debiting the electronic cash ledger, except where the return was furnished after commencement of proceedings under Sections 73 or 74 for the relevant period.

The High Court relied upon the reasoning in M/s Maansarovar Motors Private Limited vs The Assistant Commissioner & Others, where the Madras High Court had examined the retrospective character of the proviso to Section 50. The Chhattisgarh High Court considered the sequence of GST Council recommendations, press releases, notifications and legislative amendment in concluding that retrospective application had to be recognized.

However, the High Court expressly clarified that it was deciding only the issue of retrospective applicability of the amendment. It did not finally decide whether the petitioner, on the particular facts of the case, was actually entitled to take advantage of the amendment so as to overcome the condition under Section 107(6). That question was left for determination by the appellate authority in accordance with law after granting an opportunity of hearing.

Accordingly, the High Court:

  • set aside the appellate order dated 11.09.2018;
  • remitted the matter to the appellate authority;
  • directed the appellate authority to decide the appeal afresh;
  • required examination of the effect of the amendment to Section 50;
  • directed completion of the exercise within four months from receipt of the High Court’s order; and
  • partly allowed the writ petition.

Important Clarification

The most important clarification from the judgment is that the High Court recognized the retrospective applicability of the amendment to Section 50 from 01.07.2017, but did not grant the petitioner an unconditional or automatic substantive benefit.

The appellate authority was required to independently examine whether, on the specific facts and circumstances, the petitioner could claim the benefit of the amended provision and whether such benefit could enable it to overcome the statutory rider under Section 107(6) for maintaining the appeal.

The judgment therefore should not be read as laying down that every taxpayer having sufficient input tax credit is automatically exempt from interest. The operative consequence depends upon the statutory conditions, the portion of tax actually discharged through the electronic cash ledger, the timing and manner of return filing, and the exception concerning proceedings under Sections 73 or 74.

Sections Involved

Section 50, CGST Act, 2017 — Interest on delayed payment of tax; central provision in dispute and subject to retrospective amendment concerning net cash liability.

Section 39, CGST Act, 2017 — Furnishing of returns and payment of tax due as per return; relevant to GSTR-3B and delayed declaration/payment.

Section 107(6), CGST Act, 2017 — Mandatory statutory payment/pre-deposit condition for filing and maintaining an appeal before the Appellate Authority.

Section 107(7), CGST Act, 2017 — Statutory stay of recovery proceedings for the balance amount upon compliance with the payment requirement under Section 107(6).

Section 109, CGST Act, 2017 — Appellate Tribunal framework, referred to in the context of non-constitution of the Tribunal at the relevant time.

Section 41, CGST Act, 2017 — Input tax credit mechanism, relied upon by the respondents.

Sections 73 and 74, CGST Act, 2017 — Relevant to the statutory exception in the amended proviso to Section 50 where the return is furnished after commencement of proceedings for the relevant period.

Link to download the order -https://www.mytaxexpert.co.in/uploads/1783334238_1275compressed.pdf

Disclaimer
This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.