The Hon’ble High Court of Jharkhand vide its order dated 18.08.2022 in the matter of Bluestar Malleable Pvt. Ltd. Vs. The State of Jharkhand & Ors. in W.P. (T) No. – 2043 of 2020 with W.P. (T) No. 2051 of 2020, held that liability of interest under Section 50 cannot be raised without initiating any adjudication proceedings under Section 73 or 74.

The Petitioner filed the Writ petition (No. 2043 of 2020) before the Hon’ble High Court challenging the letter dated 6^th November 2018 issued by the respondent authorities, where by the petitioner was asked to pay interest amounting to Rs. 72,49,126/- on account of alleged availment of irregular Input Tax Credit on 24^th August, 2017 and reversed on 13^th August 2018.  It was also prayed to quash letter dated 28^th January 2019 issued by the respondent authorities, whereby the objection of the petitioner against the demand of interest raised under Section 50 was rejected by the respondent authorities.

In Writ Petition (No. – 2051 of 2020), the petitioner has challenged the part of refund sanction order dated 9^th November 2018, pertaining to adjustment of refund against the demand of interest raised through letter dated 6^th November 2018 (impugned in WP (T) No. – 2051 of 2020).  The challenge has also been made to order dated 31^st January 2020 passed by the respondent authorities, whereby the appeal preferred by the petitioner against part of refund sanction order dated 9^th November 2018 was dismissed.

Facts: –

• The petitioner being eligible to claim transitional credit of ITC under the provisions of the JVAT Act, 2005, filed TRAN – 1 under Section 140 of the JGST Act, 2017, claiming credit of Rs. 3,11,43,255/- and the same was filed electronically on the common portal of Respondent Department.
• That the said claim of credit was inadvertently repeated in the GSTR – 3B of July 2017, for the same amount, however, the same was later on reversed in the GSTR – 3B filed for the month of July, 2018. Moreover, it is the case of the petitioner that the said amount of transitional credit wrongly mentioned in the GSTR – 3B, was never utilized for making payment of Output Tax liability relating to its business.
• That the department sought the clarification from the petitioner vide its letter dated 22.10.2018 regarding reversal of SGST credit amounting to Rs. 3,11,43,255/- and with respect to non-payment of interest on the said reversal. The Petitioner duly replied to it vide its letter dated 02.11.2018.  However, the respondent authority responded to the letter of the petitioner vide the impugned letter dated 06.11.2018 demanding interest amounting to Rs. 72,49,126 on the said reversal.
• That simultaneously a refund application dated 12.09.2018, filed by the petitioner seeking refund of the excess amount lying in the electronic cash ledger amounting to Rs. 26,45,301, was processed and refund sanction order dated 09.11.2018 was passed. However, the refund was allowed with an adjustment towards a sum of Rs. 72,49,126/-, demanded in the impugned letter dated 06.11.2018.  Later, the appeal preferred against the said order dated 09.11.2018 was also dismissed by the respondent authority.
• Thereafter, a detailed objections was submitted by the petitioner to the impugned letter dated 06.11.2018, through its letter dated 09.01.2019. However, the respondents refused to accept the request of the petitioner made through letter dated 02.11.2018 & 09.01.2019, and the petitioner was requested to pay the balance amount of Rs. 40,71,403/- after adjustment of refund amount sanctioned.

Petitioner’s Submissions: –

• It was submitted on the behalf of the petitioner that interest under Section 50 being compensatory in nature cannot be levied if the ITC has not been availed twice. Further when the objections have been raised by the petitioner through its letter dated 09.01.2019, the respondents should have followed the procedure prescribed for realization of interest. No intimation in the prescribed format or proceedings have been initiated for recovery of the interest in terms of Section 50(3) of the Act.

 Respondents’ Submissions: –

• It was submitted on the behalf of the respondents that the contention of the petitioner that it made it best efforts to reverse the said ITC, however could not do it due to shortcomings in the online facilitation procedure, so later was reversed in the month of July, 2018, is not tenable.
• The taxpayer himself said that they were ignorant of law and procedures related to CGST Act, 2017. It is established law that ignorance of law cannot be a n excuse for non-compliance of legal provisions. The petitioner trying to put their failure on online portal which is not correct and tenable.
• That the department correctly issued the letter to deposit the interest on wrong availment of ITC in terms of Section 50(3) and also took necessary instruction from the GSTN after receiving the instant writ petition, and made a categorical query from the GSTN “as to whether any feature of reversal of erroneous credit taken in GSTR-3B has been added in the system in the month of July, 2018, as claimed by the petitioner and as to when has the facility of reversal of erroneous entry of credit has been activated”, which was replied by GSTN as ‘GSTR-3B was enable on the GST Portal in August, 2017. The functionality for reversal of credit was also made available in Table 4(B)(2) in this deployment of FORM GSTR-3B’.
• Lastly, it was submitted that the procedure for matching, reversal and reclaim of Input Tax Credit has been laid down under Section 42 of CGST Act, 2017 and as per the procedure the irregularly taken SGST Credit was required to be reversed by adding the same to the output tax liability in the GSTR-3B return itself for the month of August, 2017 onwards. Thus, the above contention of the petitioner is not tenable and both the writ petitions deserve to be dismissed.

Held: –

• The Hon’ble Court after considering the submissions made, facts of the case and the perusal of the documents on record, found that the only question which falls for consideration is that “whether liability of interest under Section 50 of the JGST Act can be raised without initiating any adjudication proceeding either under Section 73 or 74 of the JGST Act in the event assessee has raised a dispute towards liability of interest”.
• The Hon’ble Court taking reference of the judgment in the case of Mahadeo Construction Co. Vs. Union of India reported in 2020 (33) GSTL 343 (Jhr.), wherein the similar issued was dealt with by the Hon’ble Court, found from the perusal of the aforesaid order of this Court that if any assessee disputes the liability of interest under Section 50 of the JGST Act then the revenue has to follow the procedure prescribed under Section 73 or 74 of the Act.
• Admittedly, in the instant matter a letter/notice dated 06.11.2018 was issued to the petitioner raising demand of interest, to which the petitioner duly replied raising its objections through its letter dated 09.01.2019. However, the respondent department through its letter dated 28.01.2019 repeated its earlier stand and refused to accept the request of the petitioner and directed the petitioner to pay the balance amount of Rs. 40,71,403/- after adjustment of amount of refund sanctioned in favour of the petitioner.  Thus, it is quite evident that the respondents have not followed the procedure prescribed under Section 73 or 74 of the JGST Act and the issue involved in the present matter is squarely covered by the decision of this Court in ‘Mahadeo Construction’.

The Hon’ble Court with the above findings set aside and quashed the letter dated 06.11.2018, where by the petitioner was called upon to pay the interest amounting to Rs. 72,49,126/- and the order dated 28.01.2019, whereby the objections raised by the petitioner against the demand of interest was rejected.  Further the appellate order was also set aside with the directions to the revenue to initiate a fresh proceeding with regard to liability towards interest under Section 50 of the JGST Act, in accordance with the law as provided in JGST Act.