TOPIC: PROSPECTUS AND DOCTRINE OF

DISCLOSURE- REGULATIONS VS SELF

REGULATIONS: A CRITICAL STUDY

SUBJECT: CORPORATE LAW

FACULTY: DR. DAYANAND MURTHY C.P.

BY: ANUSHA RAO THOTA

ROLL NUMBER: 2017099
SEMESTER – VI

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 TABLE OF CONTENTS

Section 79 of Central Goods and Services Act 2017 - Recovery of Tax...............................8

M/s V.N. Mehta & Company Vs Assistant Commissioner (Madras High Court)...............12
Recovery Proceedings under Section 79 cannot be initiated directly without
determination of tax liability............................................................................................13
Refex Industries Ltd. Vs Assistant Commissioner of CGST & Central Excise (Madras
High Court)..........................................................................................................................14
M/s. Megha Engineering & Infrastructures Ltd. Vs  Commissioner of Central Tax
(Telangana High Court).......................................................................................................15

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Introduction:

Before implementation of GST, government was planning to collect good fund through it but
it remains the dream and actual fund collection continuously remain short from the budgeted
value. Now, government is planning to collect approx. 46000 crore through interest on
delayed payment of tax. Notices has started to the assesse and it makes a dent on unexpected
cash outflow for the companies in this struggling economy.

Legal provisions: 

As per Sec 50(1) of CGST Act 2017, Every person who is liable to pay tax in accordance
with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any
part thereof to the Government within the period prescribed, shall, for the period for which
the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not
exceeding eighteen per cent, as may be notified by the Government, on the recommendation
of the Council.

Further, as per Sec 50(2), The interest under sub-section (1) shall be calculated, in such
manner as may be prescribed, from the day succeeding the day on which tax was due to be
paid. 

However, no such rules are prescribed till now for calculation of interest. Now, in absence of
rules, calculation of interest in the notice sent by the department are illegal and void.

Issues and implications:

The main issue arises due to the calculation method adopted by the department. It is
calculating interest on gross liability payable from the due date of return till the date of filing
of return without considering input tax credit and cash payment made.

For Example:

Company ABC ltd gross liability for the month of Jan 2020 is Rs.1 crore, ITC available to
him Rs.80 lakh and cash liability will come to Rs.20 lakh. Due date of filing return is 20 th Feb
2020. ABC ltd deposited cash and filed his return on 28th Feb 2020.

Now, as per department interest will be calculated as : (1 crore * 18% * 8/365 = Rs.39452)

But, it should be calculated as below :  (20 lakh * 18% * 8/365 = Rs.7890)

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It can be clearly seen from the above, extra burden of Rs.31562 has to be borne by the
company.

Other Considerations:

The Act with respect to the filing of the returns as contained u/s 39 of the CGST Act, 2017
merely link the due date for payment of tax with the due date for the filing of the return but
does not provide that the return can be filed only after paying the entire tax. Attention is also
draw to the definition of “valid return” u/s 2(117) of the CGST Act, 2017 which considers a
return on which entire tax has been paid as a valid return (which would have been considered
for matching if the GSTR – 2/3 would not have been suspended). Therefore a return filed on
the due date reflecting the tax paid by way of utilizing the input tax credit and showing the
balance tax as payable, although not a valid return for matching, would still remain a return
filed u/s 39.

However, the GSTN portal does not permit filing of the return showing the tax payable by
cash as outstanding. The same is thus contrary to the legal provisions cited above. Said
proposition has also been acknowledged by the GST Council at their 31st meeting.
Relevant agenda note reads as under:

“A perusal of above provisions indicate that the law permits furnishing of a return without
payment of full tax as self-assessed as per the said return but the said return would be
regarded as an invalid return. The said return, however, would not be used for the purposes
of matching of ITC and settlement of funds. Thus, although the law permits part payment of
tax but no such facility has been yet made available on the common portal. This being the
case, a registered person cannot even avail his eligible ITC as he cannot furnish his return
unless he is in a position to deposit his entire tax liability as self-assessed by him. This
inflexibility of the system increases the interest burden.”

Further, GST Council at their 31st meeting acknowledged the fact that GST is a tax on value
addition. Relevant extract of the agenda is as under:

“It is also pertinent to mention that the liability of any registered person is related to the
value addition made by him since GST is leviable only on value addition. Accordingly, input
tax credit is allowed to the registered person in respect of the tax paid by him on his inward
supplies. And, while making the outward supplies, the input tax credit so allowed is permitted
to be utilized for discharging his output tax liability. The remaining part which is generally

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equivalent to the tax on value addition is discharged through electronic cash ledger. Hence,
by this mechanism the registered person effectively pays tax only on the value addition made
by him. If this concept is applied for interest payable, then, it appears that the interest should
also be charged on the tax payable on the value addition only, i.e. the amount of tax which is
required to be paid through electronic cash ledger.”

Considering the demand from the trade that interest should be charged on net tax liability
after adjusting the input tax credit and the recommendation of GST council as mentioned
above, the Govt moved the amendment to Section 50 of the CGST Act vide Finance Bill
2019 by inserting proviso to Section 50(1) which will come into effect from the date of
notification. The proviso reads as below:

“Provided that the interest on tax payable in respect of supplies made during a tax period
and declared in the return for the said period furnished after the due date in accordance with
the provisions of  section 39, except where such return is furnished after commencement of
any proceedings under section 73 or section 74 in respect of the said period, shall be levied
on that portion of the tax that is paid by debiting the electronic cash ledger”

Now Government has notified that interest will be applicable on net amount with effect
from 1st day of September, 2020 vide Notification No. 63/2020-Central Tax, dated. 25th
August, 2020.

Now, government has again started battle by notifying it prospectively rather than
retrospectively.

Arguments ‘for’ and ‘against’

The case for the government is Since ITC/Credit in balance in the ‘Electronic Credit Ledger’
cannot be treated as the Tax paid, unless it is debited in the said credit ledger while filing the
return for off-setting the amount in the ‘Liability Ledger’, the interest liability under Sec. 50
is mandatorily attracted on the entire Tax remained unpaid beyond the due date prescribed.
The ITC in balance as on the due date for filing the return has no relevance with regard to the
interest liability u/Sec.50. It is immaterial whether the self-assessed tax is paid through the
Credit/ITC or the Cash. Once the payment is beyond the prescribed date, interest liability is
attracted on the entire Tax amount.

Also, CBIC, in its series of tweet, has justifies the same on the ground that, pending the
notification, GST laws permits the calculation of interest in case of delayed payment on gross

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tax liability and also relied on the judgement of Telangana High Court decision in case of
Megha Engineering & Infrastructure Limited where in it was held that interest u/s. 50(1)
was chargeable on the gross tax liability. The said judgement was pronounced before proviso
to Sec 50(1) was inserted by Finance (no. 2) Act, 2019.

The case for trade is different it emphasis that starting from the MODVAT of excise regime
since 1989 and thereafter introduction of CENVAT in Cenvat Credit Rules, 2004 and in GST
Law since 01st July 2017, consideration of ITC must be taken even before the same was
shown in the Electronic Credit Ledger because only after which assesse can file the GSTR-
3B and can reflect the figure of ITC in Electronic Credit Ledger.

Recently, Madras High Court in its judgement pronounced on 06.01.2020 in case of Reflex
Industries Limited (TS-89-HC-2020(MAD)-NT), has held that interest u/s. 50(1) is
chargeable on net tax liability i.e on tax payment in cash after the netting of the ITC available
and not on Gross Tax liability.

Further, Stay Order of Delhi High Court and Gujarat High Court in the case of M/s
Landmark Lifestyle Vs Union of India and Bharatbhai Manilal Patel vs. State of Gujarat
respectively, wherein the Court has granted a stay from recovery of interest on gross liability.

Further, Hon’ble Supreme Court in the case of Eicher Motors Ltd. v. Union of India 1999
(106) E.L.T. 3 (S.C.) has held that that the credit is as good as the tax paid. Said principle
was also reiterated in the case of Collector of Excise v. Dai Ichi Karkaria Ltd. 1999 (112)
E.L.T. 353 (S.C.) 

1) Madras High Court held in the case of M/s. V.N. Mehta & Company Vs Assistant
Commissioner

Facts:

1. The present writ challenges the proceedings initiated against the petitioner directing
recovery of certain amount from the account maintained by the petitioner.

2. Such recovery was ordered on account of tax, cess, interest & penalty payable by the
petitioner as it had failed to pay the same. The petitioned claimed that the proceedings had
been initiated straightaway, without framing assessment or initiating proceedings to
determine the tax, cess, interest or penalty as claimed.

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3. It was claimed that Section 79 of the CGST Act cannot be invoked to recover the sum if
such sum is an arrear payable by the petitioner. It was also claimed that though a statement
had been obtained from the petitioner to the effect that it had availed ITC on the strength of
invoices issued by fake units, such statement had later been retracted.

Decision of the High Court

1. It is seen that except issuing proceedings u/s 79, no other proceedings were ever
initiated against the petitioner determining its tax liability as was sought to be recovered.

2. Section 79 of the Act contemplates that any amount payable by a person to the Govt under
any of the provisions of the Act and Rules made thereunder is not paid, the proper officer
could recover the amount by one or more modes. Hence, it is evident that the term amount
payable by a person is to mean that such liability arises only after determining such amount in
a manner known to law.

3. In this case, the relevant authority relied on the so-called admission made by the petitioner
in its statement. Considering relevant excerpts from the petitioner’s statement, it is seen that
some parts of the statement contradict each other. Besides, the statement was retracted as
well. Hence such statement which purports to be an admission is not available to the
Revenue.

4. It is also for the Revenue to determine the tax liability by resorting to procedures as per
law rather than issuing the proceedings straightaway u/s 79, based on such statement later
retracted. Hence the proceedings initiated u/s 79 is unsustainable.

5. Moreover, provisional attachment u/s 83 can be resorted to only if proceedings are pending
u/s 62, 63, 64, 67, 73 & 74. No proceedings are pending under any such provisions. Hence
Section 83 is of no avail to the Revenue. Thus the proceedings are not maintainable and merit
being set aside.

SECTION 79 OF CENTRAL GOODS AND SERVICES ACT

2017 - RECOVERY OF TAX

i. Where any amount payable by a person to the Government under any of the
provisions of this Act or the rules made thereunder is not paid, the proper officer shall
proceed to recover the amount by one or more of the following modes, namely:-

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 the proper officer may deduct or may require any other specified officer to deduct the
amount so payable from any money owing to such person which may be under the
control of the proper officer or such other specified officer;
the proper officer may recover or may require any other specified officer to recover
the amount so payable by detaining and selling any goods belonging to such person
which are under the control of the proper officer or such other specified officer; the
proper officer may, by a notice in writing, require any other person from whom
money is due or may become due to such person or who holds or may subsequently
hold money for or on account of such person, to pay to the Government either
forthwith upon the money becoming due or being held, or within the time specified in
the notice not being before the money becomes due or is held, so much of the money
as is sufficient to pay the amount due from such person or the whole of the money
when it is equal to or less than that amount;

ii. every person to whom the notice is issued under sub-clause (i) shall be bound to
comply with such notice, and in particular, where any such notice is issued to a post
office, banking company or an insurer, it shall not be necessary to produce any pass
book, deposit receipt, policy or any other document for the purpose of any entry,
endorsement or the like being made before payment is made, notwithstanding any
rule, practice or requirement to the contrary;

iii. in case the person to whom a notice under sub-clause (i) has been issued, fails to
make the payment in pursuance thereof to the Government, he shall be deemed to be a
defaulter in respect of the amount specified in the notice and all the consequences of
this Act or the rules made thereunder shall follow;

iv. the officer issuing a notice under sub-clause (i) may, at any time, amend or revoke
such notice or extend the time for making any payment in pursuance of the notice;

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 v. any person making any payment in compliance with a notice issued under sub-clause
(i) shall be deemed to have made the payment under the authority of the person in
default and such payment being credited to the Government shall be deemed to
constitute a good and sufficient discharge of the liability of such person to the person
in default to the extent of the amount specified in the receipt;

vi. any person discharging any liability to the person in default after service on him of the
notice issued under sub-clause (i) shall be personally liable to the Government to the
extent of the liability discharged or to the extent of the liability of the person in
default for tax, interest and penalty, whichever is less;

(vii) where a person on whom a notice is served under sub-clause (i) proves to the
satisfaction of the officer issuing the notice that the money demanded or any part
thereof was not due to the person in default or that he did not hold any money for or
on account of the person in default, at the time the notice was served on him, nor is
the money demanded or any part thereof, likely to become due to the said person or
be held for or on account of such person, nothing contained in this section shall be
deemed to require the person on whom the notice has been served to pay to the
Government any such money or part thereof;

the proper officer may, in accordance with the rules to be made in this behalf, distrain any
movable or immovable property belonging to or under the control of such person, and detain
the same until the amount payable is paid; and in case, any part of the said amount payable or
of the cost of the distress or keeping of the property, remains unpaid for a period of thirty
days next after any such distress, may cause the said property to be sold and with the
proceeds of such sale, may satisfy the amount payable and the costs including cost of sale
remaining unpaid and shall render the surplus amount, if any, to such person;

the proper officer may prepare a certificate signed by him specifying the amount due from
such person and send it to the Collector of the district in which such person owns any
property or resides or carries on his business or to any officer authorised by the Government
and the said Collector or the said officer, on receipt of such certificate, shall proceed to

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recover from such person the amount specified thereunder as if it were an arrear of land
revenue;

Notwithstanding anything contained in the Code of Criminal Procedure, 1973, the proper
officer may file an application to the appropriate Magistrate and such Magistrate shall
proceed to recover from such person the amount specified thereunder as if it were a fine
imposed by him.

(2) Where the terms of any bond or other instrument executed under this Act or any rules or
regulations made thereunder provide that any amount due under such instrument may be
recovered in the manner laid down in sub-section (1), the amount may, without prejudice to
any other mode of recovery, be recovered in accordance with the provisions of that sub-
section.

(3) Where any amount of tax, interest or penalty is payable by a person to the Government
under any of the provisions of this Act or the rules made thereunder and which remains
unpaid, the proper officer of State tax or Union territory tax, during the course of recovery of
said tax arrears, may recover the amount from the said person as if it were an arrear of State
tax or Union territory tax and credit the amount so recovered to the account of the
Government.

(4) Where the amount recovered under sub-section (3) is less than the amount due to the
Central Government and State Government, the amount to be credited to the account of the
respective Governments shall be in proportion to the amount due to each such Government.

Recovery proceedings under Section 79 of CGST Act, 2017 is justified without determination
of tax under Section 73 of the said Act in cases wherein such tax has been determined on self
assessment basis under GSTR 1 filed by the Appellant.–Madhya Pradesh High Court
dismissed writ filed by the Appellant.

Facts of the case

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The Company is owner of a commercial building and is having various tenants in respect of
the building. The Company is registered for carrying on business of renting immovable
property and also provides allied services and is a taxable person. An order was passed earlier
in respect of recovery of service tax dues by Deputy Commissioner, CGST directing the
tenants to deposit the rent with the State Exchequer, however, after recovery of entire dues
along with penalty, the notice was withdrawn. Department has again issued a notice to the
tenants of the Company under Section 79(1)(c) of CGST Act 2017 initiating recovery against
them  on account of tax, cess, interest etc. payable under the provisions of Section 79 of
CGST Act 2017. The Company has submitted a reply and their grievance is that the
notice/order is illegal and has been issued contrary to the statutoryprovisions of the CGST
Act 2019. 

Contention of the Company

It is the contention of the Appellant that in absence of determination of tax under Section 73
of the CGST Act 2019, no recovery can be made against thepetitioner, as no notice of
demand was ever issued to the Company.The petitioner has also stated that the action of
respondents is contrary to the statutory provision as contained under Section 79 of the CGST
Actof 2017, hence the impugned order deserves to be quashed.

Contention of Department
Department contends that the petitioner has issued invoices to itsclients and filed  GSTR-1
return and self assessed GST liability by filing statutory GSTR-1return under Section 37 of
the CGST Act of 2017. This does not mean that the petitioner is not required to file GSTR-3B
and no GST is to be paid on self assessed transaction value shown in GSTR-1. Since the
petitioner hasfailed to file GSTR-3B and failed to deposit the self assessed legitimate tax to
the Government accountthey are served notice under section 79 of the CGST Act 2017. 
Absence of tax determination under section 73 of CGST Act, 2017 is an erroneous contention
of the petitioner as they self assessed the same.

Holding of the Maharashtra Hon’ble Court

The undisputed facts reveal that the petitioner is aggrieved by the demand order/notice issued
by theDeputy Commissioner, CGST & Central Excise.The petitioner has filed GSTR-1 return
under Section 37 of the CGST Act of 2017, however, the petitionerhas not filed GSTR-3B
returns.. It is noteworthy to mention that GSTR-1 is declaration of tax liability and GSTR-3B

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isevidence of actual payment. The petitioner has stated that GSTR-1 cannot be termed or
classified as self assessed liability, it is only adeclaration made for limited purpose. The said
issued stands concluded on account of notification wherein an amendment has been made in
Rule 61 of the GST Rules with retrospective effect and filing of GSTR-3B has been
madecompulsory. 
The aforesaid statutory provision of law makes it very clear that it was mandatory for the
petitioner to file GSTR-3B return.Statutory provision as contained under Section 79 of the
CGST Act of 2017 procedure adopted by the department has rightly been taken.
Thepetitioner's contention is certainly erroneous, as there is no dispute about the quantum of
tax liability. Revenue is simply pressing upon for actual payment as being declared by the
petitioner itself under GSTR-1.The petitioner has to pay the tax liability assessed by himself. 

In the present case, there is no necessity to determine the taxable person, as the liability has
been self assessed by the petitioner itself. Sofar as the determination of taxable person in the
present case is concerned, the case of revenue rests on the GSTR declaration made by
thepetitioner itself, and therefore, there was no need of determination of taxable person. 

The petitionercannot escape his liability of payment of GST under CGST Act of 2017,
especially when he has filed GSTR-1 and has quantified the tax payable byhim while
submitting the GSTR-1.Thus the present writ petition stands dismissed.

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 Kabeer Reality Pvt Ltd Vs Union of India and othersbefore Madhya Pradesh High Court

3) M/S V.N. MEHTA & COMPANY VS ASSISTANT COMMISSIONER (MADRAS HIGH

COURT)

It is seen that except issuing the proceedings under Section 79, no other proceedings was ever
issued against the petitioner determining their tax etc., liability, amounting to Rs.53,28,645/-
as claimed in the impugned proceedings. Section 79 of the CGST Act, 2017 contemplates
that any amount payable by a person to the Government under any of the provisions of the
said Act or the Rules made there under is not paid, the proper officer shall proceed to recover
the amount by one or more of the modes referred to therein. Therefore, it is evident that the
term “amount payable by a person” is to mean that such liability arises only after
determination of such amount in a manner known to law.

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It is evident that the statement said to have been given on 19.06.2019 claims to be so called
admission by the petitioner, is not available before the Revenue anymore and on the other
hand, it is for them to determine the tax liability by resorting to the procedures in accordance
with law, instead of issuing the impugned proceedings straightaway under Section 79 based
on the so called admission which is subsequently retracted.

Therefore, I find that the impugned proceedings issued under Section 79 is not sustainable.
No doubt, the first respondent sought to rely upon Section 83 to contend that the first
respondent is entitled to make the provisional attachment.

Perusal of Section 83 would show that the such provisional attachment can be resorted to
only when proceedings are pending under any of the provisions viz., Section 62, 63, 64, 67,
73 and 74.

In this case, as admitted by the learned counsel appearing for the first respondent, no such
proceedings are pending as on today under any of the above provisions. Therefore, I am of
the view that Section 83 also would not come to the rescue of the respondent to sustain the
impugned proceedings.

Thus, I find that the impugned proceedings are not maintainable. Accordingly, the writ
petition is allowed and the impugned proceedings is set aside.

Recovery Proceedings under Section 79 cannot be initiated directly without determination of

tax liability

The present writ challenges the proceedings initiated against the petitioner directing recovery
of certain amount from the account maintained by the petitioner. Such recovery was ordered
on account of tax, cess, interest & penalty payable by the petitioner as it had failed to pay the
same. The petitioner claimed that the proceedings had been initiated straightaway, without
framing assessment or initiating proceedings to determine the tax, cess, interest or penalty as
claimed. It was claimed that Section 79 of the CGST Act cannot be invoked to recover the
sum if such sum is an arrear payable by the petitioner. It was also claimed that though a
statement had been obtained from the petitioner to the effect that it had availed ITC on the
strength of invoices issued by fake units, such statement had later been retracted.

Decision of the High Court

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It is seen that except issuing proceedings u/s 79, no other proceedings were ever initiated
against the petitioner determining its tax liability as was sought to be recovered – Section 79
of the Act contemplates that any amount payable by a person to the Govt under any of the
provisions of the Act and Rules made there under is not paid, the proper officer could recover
the amount by one or more modes. Hence, it is evident that the term amount payable by a
person is to mean that such liability arises only after determining such amount in a manner
known to law. In this case, the relevant authority relied on the so-called admission made by
the petitioner in its statement. Considering relevant excerpts from the petitioner’s statement,
it is seen that some parts of the statement contradict each other. Besides, the statement was
retracted as well. Hence such statement which purports to be an admission is not available to
the Revenue – It is also for the Revenue to determine the tax liability by resorting to
procedures as per law rather than issuing the proceedings straightaway u/s 79, based on such
statement later retracted. Hence the proceedings initiated u/s 79 is unsustainable. Moreover,
provisional attachment u/s 83 can be resorted to only if proceedings are pending u/s 62, 63,
64, 67, 73 & 74. No proceedings are pending under any such provisions. Hence Section 83 is
of no avail to the Revenue. Thus the proceedings are not maintainable and merit being set
aside.

4) REFEX INDUSTRIES LTD. VS ASSISTANT COMMISSIONER OF CGST & CENTRAL

EXCISE (MADRAS HIGH COURT)

According to the petitioners, Section 50 that provides for levy of interest on belated payments
would apply only to payments of tax by cash, belatedly, and would not stand triggered in the
case of available ITC, since such ITC represents credit due to an assessee by the Department
held as such.

The specific question for resolution before me is as to whether in a case such as the present,
where credit is due to an assessee, payment by way of adjustment can still be termed
‘belated’ or ‘delayed’. The use of the word ‘delayed’ connotes a situation of deprival, where
the State has been deprived of the funds representing tax component till such time the Return
is filed accompanied by the remittance of tax. The availability of ITC runs counter to this, as
it connotes the enrichment of the State, to this extent. Thus, Section 50 which is specifically
intended to apply to a state of deprival cannot apply in a situation where the State is
possessed of sufficient funds to the credit of the assessee. In my considered view, the proper
application of Section 50 is one where interest is levied on a belated cash payment but not on

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ITC available all the while with the Department to the credit of the assessee. The latter being
available with the Department is, in my view, neither belated nor delayed.

The argument that ITC is liable to be reversed if it is found to have been erroneously claimed,
and that it may be invalidated in some situations, does not militate with my conclusion as
aforesaid. The availment and utilization of ITC are two separate events. Both are subject to
the satisfaction of statutory conditions and it is always possible for an Officer to reverse the
claim (of availment or utilization) if they are found untenable or not in line with the statutory
prescription. Credit will be valid till such time it is invalidated by recourse to the mechanisms
provided under the Statute and Rules.

I am supported in my view by a recently inserted proviso to Section 50(1) reading as below:

Provided that the interest on tax payable in respect of supplies made during a tax period and
declared in the return for the said period furnished after the due date in accordance with the
provisions of section 39, except where such return is furnished after commencement of any
proceedings under section 73 or section 74 in respect of the said period, shall be levied on
that portion of the tax that is paid by debiting the electronic cash ledger.

The above proviso, as per which interest shall be levied only on that part of the tax which is
paid in cash, has been inserted with effect from 01.08.2019, but clearly seeks to correct an
anomaly in the provision as it existed prior to such insertion. It should thus, in my view, be
read as clarificatory and operative retrospectively.

5) M/S. MEGHA ENGINEERING & INFRASTRUCTURES LTD. VS   COMMISSIONER OF

CENTRAL TAX (TELANGANA HIGH COURT)

No input tax credit if GST returns not filed, and Interest mandatorily payable on gross
tax liability on delayed payment of GST- In the case of M/s. Megha Engineering &
Infrastructures Ltd. (Writ Petition Number 44517 of 2018), the High Court of Telangana has
ruled that no input tax credit (ITC) is available unless GST returns are filed and a taxpayer is
liable to pay penalty on the entire liability. Accordingly, the court held that interest was
payable on the gross amount of the goods and services tax (GST) liability.

Case of the petitioner is that the GST portal is designed in such a manner that unless the
entire tax liability is discharged, the system will not accept the return in Form GSTR-3B;
that, for example, even if an assessee was entitled to set off to the extent of 95% by utilizing
ITC, the return cannot be filed unless the remaining 5% is also paid – There was an delay on

15
the part of the petitioner in filing the return for the period October 2017 to May 2018 and
which was due to shortage of ITC available to offset the entire tax liability – total tax liability
of the petitioner for the period July 2017 to May 2018 was Rs.1014,02,89,385/- and the ITC
available during this period was Rs.968,58,86,133/- and the shortfall to the extent of
Rs.45,44,03,252/- was required to be paid by way of cash-however, due to certain restraints
they could not make the payment and file return within the due date but the entire liability
was discharged in May 2018-Consequently, the dept demanded interest @18% in terms of
s.50 of the CGST Act, 2017.

Petitioner replied that interest is to be calculated only on the net tax liability after deducting
ITC from the total tax liability and thereafter they paid an amount of Rs.30,92,522/- towards
interest on their net tax liability. However, since the department has demanded interest on the
total tax liability, the petitioner is before the High Court.

Decision of the Hon’ble High Court

There can be no doubt about the fact that even in respect of input tax credit available in the
electronic credit ledger, there is a necessity to make payment. Once it is statutorily prescribed
that payment can be made either by way of cash or from out of the credit available in the
electronic credit ledger, the date of payment in respect of both assumes significance for
determining the liability to pay interest.

In view of s.50(1), the liability to pay interest arises automatically, when a person who is
liable to pay tax fails to pay the tax to the Government within the prescribed period – liability
to pay interest is in respect of the period for which the tax remains unpaid. Moreover, liability
to pay interest u/s 50(1) arises even without any assessment as the person is required to pay
such interest on his own. It is, therefore, clear that liability to pay interest u/s 50(1) is self-
imposed and also automatic without any determination by any one. Stand taken by the
department that the liability is compensatory in nature appears to be correct. In terms of
s.39(1) and s. 3 9(7), period prescribed for payment of tax in respect of every month is on or
before the 20th day of the succeeding calendar month – in the entire scheme of the Act, three
things are of importance viz. entitlement of a person to take credit of eligible input tax as
assessed in his return, the credit of such eligible input tax in his electronic credit ledger on a
provisional/regular basis and the utilisation of credit so available in the electronic credit
ledger for making payment of tax, interest and penalty etc. until a return is filed as self-
assessed, no entitlement to credit and no actual entry of credit in the electronic credit ledger

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takes place. It is only after a claim is made in the return that the same gets credited in the
electronic credit leger and it is only after a credit is entered in the electronic ledger that a
payment could be made even though the payment is only by way of paper entries -for
example, an amount available in the account of a person, though available with the bank
itself, is not taken to be the money available for the benefit of the bank – money available
with the bank is different from money available for the bank till the bank is allowed to
appropriate it to itself – similarly, the tax already paid on the inputs of supplies of goods and
services available somewhere in the air should be tapped and brought in the form of credit
entry in the electronic credit ledger and payment has to be made from out of the same if no
payment is made, the mere availability of the same will not tantamount to actual payment –
as the payment of the tax liability, partly in cash and partly in the form of claim for ITC was
made beyond the period prescribed, the liability to pay interest u/s 50(1) arises automatically
and the petitioner cannot escape from this liability. Only when the payment is made, the
Government gets a right over the money available in the ledger.

Since ownership of such money is with the dealer till the time of actual payment, the
Government becomes entitled to interest up to the date of their entitlement to appropriate it.
Recommendations of the GST Council in its 31st meeting that interest should be charged
only on the net tax liability of the taxpayer after taking into account the admissible input tax
credit as communicated in the Press Release of the Ministry of Finance are still on paper and,
therefore, High Court cannot interpret section 50 of the CGST Act in the light of the
proposed amendment. The claim made by the respondent for interest on the ITC portion of
the tax cannot be found fault with – Writ Petition is dismissed.

CASE ANALYSIS

1) Saha Hospitality vs State of Maharashtra

Facts of the Case: The Petitioner has fled the above Writ Petition challenging the orders
th th
dated 17 February, 2020 and 19 June, 2020 issued by Respondent No.2 The Deputy
Commissioner of State Tax, D.C. E-634, L.T.U.-3 (impugned orders).

According to the Petitioner, by the impugned orders, Respondent No. 2 seeks to directly
recover interest under Section 50 of the GST Act through coercive recovery provisions of
Section 79. This is clearly in contravention of Section 78 of the GST Act, which provides for
a three-month breathing period after the passing of any order, before the coercive recovery

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provisions of Section 79 can be invoked. It is further submitted by the Petitioner that the
impugned orders are passed without issuing any show cause notice and without giving a
hearing to the Petitioner. The Petitioner is not aware of how the interest calculation has been
arrived at. The Petitioner has also submitted that Respondent No.2 is threatening to initiate
coercive recovery proceedings under Section 79 of the GST Act if the amount is not paid
within a period of 7 days.

Ratio and Judgement: In view of the above statements made in paragraph 18 of the Afdavit
th
in Reply dated 27 July, 2020 fled by Respondent No.2, the Learned Advocate appearing for
the Petitioner is not pressing for reliefs sought in the Writ Petition. The Writ Petition is
accordingly disposed of. 7. This order will be digitally signed by the Private Secretary of this
Court. All concerned will act on production by fax or email of a digitally signed copy of this
order.

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