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No Interest Recovery Without Show Cause Notice & Adjudication Under GST: Jharkhand HC

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The Jharkhand High Court has held that the process of recovery of interest cannot be initiated against businesses under GST Laws without a prior show cause notice and adjudication proceedings

A Division Bench comprising of Justice HC Mishra and Justice Deepak Roshan set aside an order issued by the GST Department to a partnership firm for recovery of interest on unpaid taxes and quashes the garnishee order for attachment of accounts of the firm as authorities failed to follow the prescribed procedure under the GST Act.

A partnership firm, Mahadeo Construction, had filed a petition before the Jharkhand High Court and had challenged an order passed by the GST authorities asking him to pay an interest amount since he had delayed in filing his monthly GST returns. The firm was directed to pay an interest of 19 lakhs since there was a monthly delay in filing of monthly returns in form GSTR-3B for February and March 2018 

However, according to the firm, the tax liability that was imposed was not initiated by following any adjudication process and was therefore not sustainable.

On the other hand, the department contended once there is any delay in payment of tax, it automatically sets off the interest liability. Interest recovery notices were issued to the firm, but the taxes were not paid. The department had then attached the bank accounts and started garnishee proceedings.

The Court dismissing the department’s contentions noted that the department did not follow the procedure that has been provided under the Central Goods and Services Tax Act, according to which if a tax has not been paid, or less amount has been paid, the tax officer is required to send a notice stating that the payment has been delayed and the amount of interest that is recoverable. 

The proceedings for recovery of interest cannot be initiated by the revenue department unless such notice for delay in payment is issued first. It is true that the liability to pay interest arises automatically but if that liability is disputed, adjudication proceedings must be initiated first by the department.

The Court also added that garnishee orders can also be issued only when the process of adjudication process is finished, and if the results of the proceedings  are contested by the party, the recovery process can still not be started.

-India Legal Bureau

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