Facts of the Case

M/s Sugoi Motors Pvt Ltd challenged an order dated 12.02.2020 passed by the Superintendent (CGST), Range 98, New Delhi, and a Notification dated 10.02.2020 issued by the CBIC, concerning recovery of interest under Section 50 of the CGST Act, 2017 computed on the gross tax payable rather than the net cash tax liability for the period from 01.07.2017. At the hearing, counsel for both sides jointly submitted that the grievance stood addressed by the CBIC's Administrative Instruction dated 18.09.2020, issued pursuant to the GST Council's 39th meeting recommendation to amend Section 50 retrospectively. The instruction directed field formations to recover interest for 01.07.2017–31.08.2020 only on the net cash tax liability (the portion paid by debiting the electronic cash ledger), and to keep any show cause notices raised on gross tax payable in the Call Book pending the retrospective amendment.

Issues Involved

  1. Whether interest under Section 50 for the period from 01.07.2017 could be recovered on the gross tax liability or only on the net cash tax liability, pending the retrospective amendment.
  2. Whether the impugned order and notification survived in light of CBIC's Administrative Instruction dated 18.09.2020.

Petitioner's Arguments

  • The recovery order and notification were contrary to the GST Council's decision that Section 50 interest should be charged only on the net cash tax liability, not the gross tax payable.
  • Pending the promised retrospective amendment to Section 50, the demand for interest on gross liability was unsustainable.

Respondent's Arguments

  • Conceded, jointly with the petitioner, that CBIC's Administrative Instruction dated 18.09.2020 addressed the very grievance raised in the writ petition.
  • The instruction directs recovery of interest only on the net cash tax liability for 01.07.2017–31.08.2020, with gross-liability SCNs kept in the Call Book pending the retrospective amendment.

Court Order / Findings

  • Recorded the joint submission that, in view of CBIC's Administrative Instruction dated 18.09.2020, the grievance in the writ petition no longer survived.
  • Held that interest under Section 50 is recoverable only on the net cash tax liability for 01.07.2017 to 31.08.2020, per the Administrative Instruction, with gross-liability SCNs to be parked in the Call Book pending the retrospective amendment.
  • Disposed of the writ petition and pending application in terms of the Administrative Instruction, without separately adjudicating the underlying legal question on merits.

Important Clarification

  • For the period 01.07.2017 to 31.08.2020, interest under Section 50 of the CGST Act is recoverable only on the net cash tax liability — the portion of tax paid through the electronic cash ledger — not on the gross tax payable, per CBIC's Administrative Instruction dated 18.09.2020.
  • Where an SCN or demand for interest has been raised on gross tax payable for this period, field formations are directed to keep such proceedings in the Call Book pending the retrospective amendment to Section 50 (given prospective effect from 01.09.2020 via Notification No. 63/2020-Central Tax).
  • Taxpayers facing pre-01.09.2020 interest demands computed on gross liability may rely on this administrative instruction to have demands recomputed on the net cash liability basis, without needing adjudication on merits.

Sections Involved

  • Section 50, CGST Act, 2017 — interest on delayed payment of tax, amended to provide for interest on net cash tax liability.
  • Section 100, Finance (No. 2) Act, 2019 — inserted the amendment to Section 50.
  • Notification No. 63/2020-Central Tax — notified 01.09.2020 as the effective date for the amended Section 50.

Decision – In Favour of

Disposed of in favour of the Assessee — the grievance stood resolved administratively, with interest for the disputed period to be recomputed on the net cash tax liability rather than the gross tax payable.

Related Case Laws

  • Megha Engineering & Infrastructures Ltd. v. Commissioner of Central Tax (Telangana High Court) — on interest liability under Section 50 on gross versus net tax liability.
  • Refex Industries Ltd. v. Assistant Commissioner of CGST & Central Excise (Madras High Court) — on retrospective application of the net-liability interest principle.

Case Details

  • Court: High Court of Delhi at New Delhi
  • Case No.: W.P.(C) 2163/2020 & CM APPL. 7617/2020
  • Coram: Hon'ble Mr. Justice Manmohan and Hon'ble Mr. Justice Sudhir Kumar Jain
  • Date of Order: 07.03.2022

Link to Download the Order

https://mytaxexpert.co.in/uploads/1787073827_4580compressed.pdf

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