Facts of the Case

M/s Narsingh Ispat Limited filed three connected writ petitions covering three financial years: W.P(T) No. 1261/2020 (FY 2017-18), W.P(T) No. 177/2021 (FY 2018-19), and W.P(T) No. 161/2021 (FY 2019-20). All three originally challenged a CBIC circular dated 10.02.2020 permitting recovery of interest on delayed tax payment under Section 79 read with Section 75(12) of the CGST Act, and garnishee notices in Form GST DRC-13 dated 26.02.2020. By the time of final hearing, the circular challenge had become redundant following insertion of a proviso to Section 50(1) by a Jharkhand Gazette notification dated 02.11.2021, and the DRC-13 notices stood withdrawn by the Revenue. The surviving challenge was confined to quashing the Summary of Order in Form GST DRC-07 dated 26.02.2020, and the demand notice in Form GST DRC-01 dated 28.01.2020, for each of the three tax periods.

Issues Involved

  1. Whether an adjudication order (DRC-07) could validly be passed without issuance of a proper show cause notice under Section 73 of the JGST Act.
  2. Whether interest under Section 50(1) is leviable for delay in filing GSTR-3B where the tax itself was credited to the Electronic Cash Ledger by the due date.
  3. Whether a disputed interest liability could be quantified unilaterally by the department without adjudication.

Petitioner's Arguments

  • No show cause notice under Section 73 or 74 of the JGST Act was issued despite Form GST DRC-01 itself indicating one was due, relying on Magadh Sugar & Energy Ltd. v. State of Bihar, Mahadeo Construction Co. v. Union of India, and Godavari Commodities Ltd. v. Union of India.
  • Interest under Section 50(1) is compensatory and attaches only to ‘unpaid’ tax; since tax stood credited in the Electronic Cash Ledger by the due date, no interest was chargeable for delay merely in filing GSTR-3B, for which late fee under Section 47 had already been paid.
  • The retrospective substitution of GSTR-3B in place of GSTR-3 did not make the interest levy retrospective, and absence of rules under Section 50(2) rendered the levy unenforceable.

Respondent's Arguments

  • Interest under Section 50 read with Section 75(12) is an automatic, self-assessed liability recoverable directly under Section 79 without the need for Section 73/74 adjudication.
  • The proviso to Section 50 clarifies that interest is payable on tax paid by debiting the Electronic Cash Ledger, relying on the Telangana High Court's ruling in Megha Engineering & Infrastructures Ltd. v. Commissioner of Central Tax that interest liability arises automatically on delayed filing.
  • Absence of rules under Section 50(2) does not invalidate the substantive levy, relying on Jantia Hill Truck Owner Association.

Court Order/Findings

  • The Court held that where an assessee disputes either the leviability or the quantum of interest, the only recourse for the department is to initiate proceedings under Section 73 or 74 for adjudication; quantification cannot be unilateral.
  • The petitioner had disputed the interest liability by reply, yet the Respondents issued the DRC-07 Summary of Order without following the procedure prescribed in law, in violation of natural justice.
  • The impugned Summary of Order in Form GST DRC-07 dated 26.02.2020, in each of the three writ petitions, was accordingly quashed.
  • Respondents were given liberty to issue a proper show cause notice under Section 73(1) with opportunity to the petitioner to respond, and the petitioner was left free to argue that no interest arises since tax was deposited by the due date, a plea on which the Court expressly declined to comment.

Important Clarification

  • Although liability to pay interest under Section 50 arises automatically by operation of law, its quantification is not automatic where the assessee disputes the period or amount involved.
  • A DRC-07 summary order for interest cannot be issued without first following the Section 73/74 show cause and adjudication process once the assessee has raised a dispute.

Sections Involved

  • Section 50, CGST/JGST Act, 2017 — interest on delayed payment of tax.
  • Section 73, CGST/JGST Act, 2017 — determination of tax/interest not paid, for reasons other than fraud.
  • Section 75(12), CGST Act, 2017 — recovery of self-assessed tax without issuance of notice.
  • Section 79, CGST Act, 2017 — modes of recovery of tax.
  • Section 47, CGST Act, 2017 — late fee for delayed filing of returns.

Decision – In Favour of

In favour of the Assessee. The DRC-07 interest demand orders in all three connected petitions were quashed for violation of natural justice, with liberty to the Revenue to proceed afresh under Section 73(1).

Related Case Laws

No related case laws are available on this site at present for cross-reference on this specific point.

Case Details

  • Court: High Court of Jharkhand at Ranchi
  • Case No.: W.P(T) No. 177 of 2021 with W.P(T) No. 1261 of 2020 and W.P(T) No. 161 of 2021
  • Coram: Hon'ble Mr. Justice Aparesh Kumar Singh and Hon'ble Mr. Justice Deepak Roshan
  • Date of Order: 22nd/23rd March 2022

Link to Download the Order

Download the full order

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.