Facts of the Case

The petitioner, Suryansh Broadcasting Pvt. Ltd., was common in both writ petitions and faced a substantial demand for payment of interest arising from belated payment of tax under the Goods and Services Tax Acts.

Considering the substantial nature of the demand, the petitioner had been granted permission, through the order marked as Ext. P6, to pay the amount in instalments under Section 80 of the Central Goods and Services Tax Act / State Goods and Services Tax Act (CGST/SGST Act).

However, the petitioner failed to comply with the timelines stipulated in Ext. P6. Consequent to such default, the GST authorities initiated garnishee proceedings against third parties from whom money was due to the petitioner.

The petitioner challenged those garnishee proceedings before the Kerala High Court through W.P.(C) No. 30855 of 2022 and W.P.(C) No. 29584 of 2022.

During the proceedings, the High Court had granted interim protection against the garnishee action after recording the petitioner’s undertaking that it would comply with the instalment conditions stipulated in Ext. P6 without any further default.

Subsequently, it was submitted before the Court that the instalments permitted under Ext. P6 had been brought up to date and that the petitioner would continue to discharge the remaining liability in accordance with the instalment order.

Issues Involved

The principal issues before the Kerala High Court were:

  1. Whether the GST Department was legally justified in initiating garnishee proceedings after the petitioner failed to adhere to the timelines fixed under the instalment facility granted under Section 80 of the CGST/SGST Act.
  2. Whether the garnishee proceedings could be quashed when the petitioner had subsequently paid the instalments up to date, though belatedly.
  3. Whether a default in complying with an instalment order under Section 80 could result in the entire outstanding balance becoming immediately due and recoverable.
  4. Whether the Court could grant relief as a matter of indulgence considering the petitioner’s subsequent compliance and undertaking to avoid any further default.

Petitioner’s Arguments

The petitioner’s case was that:

  • It had been permitted to discharge the substantial liability through instalments under Section 80 of the CGST/SGST Act.
  • Although there had been delay in complying with the timelines stipulated in Ext. P6, the instalments had subsequently been paid up to date.
  • The petitioner undertook to continue paying the balance amount strictly in accordance with Ext. P6 without committing any further default.
  • Considering the subsequent payment of the instalments and the commitment to continue compliance, the garnishee proceedings deserved to be interfered with.

The petitioner relied upon its updated payment position and its undertaking before the Court that the remaining liability would be discharged without any further default.

Respondent Department’s Arguments

The GST Department opposed the writ petitions and contended that there was no illegality whatsoever in the garnishee proceedings.

The Department specifically relied upon the proviso to Section 80 of the CGST/SGST Act and argued that:

  • Where permission is granted to pay an amount due in instalments, compliance with the terms and timelines of the instalment order is mandatory.
  • If the taxpayer defaults in payment of any one instalment on its due date, the entire outstanding balance becomes due and payable on the date of such default.
  • Once default occurred, the Department was legally entitled to recover the entire outstanding amount.
  • Therefore, considering Section 80 and particularly its proviso, the petitioner was not entitled to relief against the garnishee proceedings.

Court Order / Findings

The Kerala High Court, after hearing both sides, allowed the writ petitions purely as a matter of indulgence.

The Court took into consideration the following material circumstances:

  • All instalments had been paid up to date, although such payments were made belatedly.
  • The petitioner had submitted that the remaining amounts payable under Ext. P6 would be remitted without any further default.

In view of these circumstances, the High Court:

  • Allowed the writ petitions; and
  • Quashed the garnishee proceedings initiated against the petitioner.

However, the Court imposed a clear and significant condition regarding future compliance.

The Court expressly clarified that if the petitioner committed any further default, it would be open to the respondent Department to proceed against the petitioner for recovery of the entire amount in accordance with the proviso to Section 80 of the CGST/SGST Act.

Accordingly, both writ petitions were disposed of.

Important Clarification

This judgment must not be understood as laying down a general principle that every taxpayer who defaults under an instalment order granted under Section 80 is automatically entitled to protection against recovery proceedings.

The relief was granted by the Kerala High Court purely as a matter of indulgence based on the specific circumstances before it, particularly because:

  • the instalments had been brought up to date, though belatedly;
  • the petitioner undertook to pay the remaining liability without further default; and
  • the Court had earlier granted interim protection while recording the petitioner’s undertaking to comply with the instalment arrangement.

The Court simultaneously preserved the Department’s statutory right to recover the entire outstanding amount if the petitioner committed any further default.

Therefore, the judgment highlights an important distinction between:

(a) the statutory consequence of default under the proviso to Section 80; and
(b) discretionary judicial relief granted on the peculiar facts of a particular case.

Section Involved

Section 80 of the Central Goods and Services Tax Act, 2017 — Payment of Tax and Other Amount in Instalments

Section 80 empowers the Commissioner, on an application filed by a taxable person and for reasons to be recorded in writing, to extend the time for payment or permit payment of an amount due under the Act in monthly instalments, subject to the statutory conditions.

The crucial legal consequence arises from the proviso to Section 80. Where there is default in payment of any one instalment on its due date, the whole outstanding balance payable on that date becomes due and payable forthwith and may be recovered without further notice.

Section 80 of the SGST Act

The corresponding provision under the applicable State Goods and Services Tax law was also relevant because the instalment facility and consequences of default were considered in the context of the CGST/SGST Acts.

Link to Download the Order-https://mytaxexpert.co.in/uploads/1783489760_1431compressed.pdf

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