Facts of the Case

The petitioner, M/s. Hilton Garden Inn, a unit of MPG Hotels and Infrastructure Ventures Pvt. Ltd., holding GSTIN 32AAECM1840M3ZI granted on 28.06.2017, challenged an order directing it to remit interest under Section 50(1) of the CGST/SGST Act, 2017 amounting to Rs. 5,30,919/- for the period July 2017 to March 2018, failing which recovery under Section 79 was threatened. Due to a technical error, the same GSTIN was also issued to another entity, The Muthoot Skychef (Airline Catering Unit), which was later granted a fresh GSTIN on 02.08.2017. The petitioner paid GST of Rs. 29,24,100/- for July 2017 on 21.08.2017, the last date for filing its GSTR-3B return, but a technical glitch prevented the payment from reflecting in its cash ledger, and the return could not be e-filed. On following up, the petitioner discovered that its GSTIN had been cancelled on 24.08.2017 without any prior notice. Despite representations dated 30.08.2017 and 26.09.2017, the registration was not restored, compelling the petitioner to file W.P.(C) No. 41314 of 2017, in which an interim order dated 21.12.2017 directed restoration of the registration within a week. The GST portal was actually made available to the petitioner only on 26.12.2017, following which returns for July to November 2017 were filed between 01.01.2018 and 18.01.2018, with only minor delays (two and four days) recorded for the January and March 2018 returns.

Issues Involved

  1. Whether interest under Section 50(1) of the CGST/SGST Act could be levied on the petitioner for delayed payment of tax during the period its GSTIN stood erroneously cancelled without notice.
  2. Whether the petitioner could be held liable for interest for delays attributable solely to the department's own action in cancelling the registration.
  3. What relief, if any, was due to the petitioner in respect of the demand raised for the entire period July 2017 to March 2018.

Petitioner's Arguments

  • The petitioner argued that its GSTIN was cancelled on 24.08.2017 without any due process or notice, and was restored only pursuant to the interim order of the High Court dated 21.12.2017 in W.P.(C) No.41314 of 2017.
  • Since filing of returns and remittance of tax is possible only online against a valid GSTIN, the petitioner contended it had no means of remitting tax or filing returns while its registration remained cancelled.
  • It was submitted that the petitioner ought to be held liable for interest, if any, only from the twentieth day after restoration of the GSTIN (i.e., after 26.12.2017), and not for the period during which the GSTIN itself was unavailable.
  • Accordingly, the petitioner contended that the interest demand for the entire period from July 2017 to March 2018 was wholly unjustified and liable to be set aside.

Respondent's Arguments

  • The Standing Counsel relied on Section 50 of the CGST/SGST Act to submit that any person liable to pay tax who fails to pay it within the prescribed period is liable to pay interest at up to 18% for the delay period.
  • It was contended that the petitioner had collected tax from its customers but did not remit it to the Government, instead using the amount for its own business purposes, and was therefore liable to pay interest for the delayed remittance.

Court Order/Findings

  • The Court accepted, on the respondents' own admission, that the GSTIN was cancelled on 24.08.2017 and restored only on 26.12.2017, and that the petitioner could not have paid tax or filed returns without a valid GSTIN.
  • The Court found the petitioner could not be held responsible for the cancellation, having promptly notified the authorities on the same day and pursued the matter until compelled to seek judicial intervention.
  • The Court held it was highly inequitable to impose interest under Section 50 for the period during which the petitioner's GSTIN stood cancelled through no fault of its own, but clarified that interest would be payable for any delay in remitting tax beyond twenty days from the date of restoration (26.12.2017), and for ordinary delays in subsequent months.
  • The impugned order (Exhibit P-14) was set aside, with liberty to the authorities to levy interest strictly in accordance with this formula, on a fresh notice to be issued to the petitioner.

Important Clarification

  • Interest under Section 50(1) of the CGST/SGST Act is compensatory in nature for delay attributable to the taxpayer; it cannot be mechanically levied for a period during which the taxpayer was unable to pay tax or file returns because its GSTIN was erroneously cancelled by the department without notice.
  • Where a registration is restored only pursuant to a court order, the taxpayer is entitled to a reasonable window (here, twenty days) from the date of restoration to regularise past compliance before interest liability revives.
  • Taxpayers facing interest demands rooted in departmental errors — erroneous cancellation, portal glitches, non-reflection of tax paid in the cash ledger — should specifically plead and document the timeline of departmental fault, as courts will apportion interest liability accordingly rather than granting a blanket waiver or blanket demand.

Sections Involved

  • Section 50(1), CGST/SGST Act, 2017 — levies interest on tax paid after the due date, up to a prescribed rate.
  • Section 79, CGST/SGST Act, 2017 — provides for recovery of tax (and interest) as arrears, invoked as a threatened coercive measure in the impugned notice.

Decision – In Favour of

Disposed of with directions, in part in favour of the Assessee — the interest demand as raised was set aside, and interest was held not payable for the period the GSTIN remained cancelled, though the petitioner was held liable for interest on any genuine delay beyond twenty days of restoration and for ordinary delays in subsequent months, on a fresh notice to be issued.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court of Kerala at Ernakulam
  • Case No.: WP(C) No.25069 of 2023
  • CNR: Not available on record
  • Coram: Hon'ble Mr. Justice Dinesh Kumar Singh
  • Decision Date: 23 November 2023
  • Disposal Nature: Disposed of; impugned interest demand order set aside with modified directions

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