GST Interest Demand Quashed: Proper Adjudication Must Precede Interest Recovery

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Case Name

Bluestar Malleable Pvt. Ltd. vs. The State of Jharkhand & Others

Case No.: W.P.(T) No. 2043 of 2020 (with connected W.P.(T) No. 2051 of 2020)

Court Name: High Court of Jharkhand at Ranchi

Date of Order: 8th/18th August 2022

Coram: Hon’ble Mr. Justice Aparesh Kumar Singh & Hon’ble Mr. Justice Deepak Roshan

Key Takeaways

1. Interest under Section 50 of the JGST Act is NOT automatically recoverable without following due process when the taxpayer raises a dispute.

2. When a taxpayer disputes interest liability, the revenue authorities are legally obligated to initiate adjudication proceedings under Section 73 or 74 of the JGST Act — they cannot simply issue a letter demanding payment.

3. Unilateral quantification of interest is not permissible, especially when the assessee has raised objections. The arithmetic exercise of calculating interest must consider the taxpayer’s objections.

4. A genuine human error in the early days of GST implementation (2017), where the same ITC was inadvertently claimed twice, does not automatically attract interest if the credit was never actually utilized against output tax liability.

5. Adjusting a legitimate refund against a disputed interest demand without following proper procedure is also not permissible.

6. The court quashed the interest demand letters dated 6.11.2018 and 28.1.2019, as well as the appellate order, and remitted the matter back to the revenue for fresh proceedings.

Issue

The central legal question the court had to answer was:

"Can the revenue department raise a liability of interest under Section 50 of the JGST Act, 2017 without initiating any adjudication proceeding under Section 73 or 74 of the JGST Act, in a situation where the assessee has already raised a dispute regarding that interest liability?"

In simpler terms: Can the tax department just send a letter demanding interest, or must it go through a formal legal process when the taxpayer says “I disagree”?

Facts

Step 1 — The Transition to GST (2017)

When GST was introduced in India in 2017, Bluestar Malleable Pvt. Ltd. was entitled to carry forward its existing tax credits (ITC) from the old VAT regime (JVAT Act 2005) into the new GST system. They correctly filed Form GSTR TRAN-1 under Section 140 of the JGST Act, 2017, claiming transitional credit of Rs. 3,11,43,255/-.

Step 2 — The Honest Mistake (July 2017)

Here’s where the problem started. The company’s accountant, who was still getting familiar with the brand-new and complex GST system, accidentally claimed the same transitional credit again in the GSTR-3B return for July 2017. So the same Rs. 3,11,43,255/- was now reflected twice in the system. The company maintains this was a pure human error due to unfamiliarity with the new GST laws.

Step 3 — Self-Correction (July 2018)

To their credit, the company proactively identified the error and reversed the duplicate entry in GSTR-3B for July 2018 — about a year after the mistake. Importantly, the company’s position was that the mistakenly claimed credit was never actually used to pay any output tax liability.

Step 4 — Department’s Clarification & Interest Demand (October–November 2018)

The department sent a clarification letter (No. 225 dated 22.10.2018) asking about the reversal and why no interest was paid. The company replied (letter no. BSMPL/245 dated 2.11.2018). Then, the department issued the impugned letter No. 249 dated 06.11.2018, demanding interest of Rs. 72,49,126/- on the irregularly taken credit of Rs. 3,11,43,255/-.

Step 5 — Refund Adjusted Against Interest (November 2018)

Meanwhile, the company had separately applied for a refund of Rs. 26,45,301/- (excess amount in its electronic cash ledger). The refund was sanctioned on 09.11.2018, but the department adjusted it against the disputed interest demand of Rs. 72,49,126/- — effectively using the company’s legitimate refund to partially recover the disputed interest.

Step 6 — Petitioner’s Objection Rejected (January 2019)

The company filed a detailed objection (letter no. 351 dated 09.01.2019) against the interest demand. The department rejected it vide letter no. 309 dated 28.01.2019 and asked the company to pay the remaining balance of Rs. 40,71,403/- (after adjusting the refund).

Step 7 — Appeal Dismissed (January 2020)

The company appealed against the part of the refund order that adjusted the refund against the interest. The Additional Commissioner (Appeals) dismissed the appeal vide order dated 31.01.2020 in Appeal No. 01/CGST/JSR/2020.

Step 8 — High Court Writ Petitions (2020)

The company then filed two writ petitions before the High Court of Jharkhand:

• W.P.(T) No. 2043 of 2020: Challenging the interest demand letters
• W.P.(T) No. 2051 of 2020: Challenging the refund adjustment and the appellate order

Arguments

Petitioner’s Arguments (Bluestar Malleable Pvt. Ltd.)

1. Interest under Section 50 of the JGST Act is compensatory in nature and cannot be levied if the ITC was not actually availed (used) twice. The credit was claimed by mistake but never utilized against output tax liability.

2. The department did not follow proper procedure: When the petitioner raised a dispute about the interest liability, the department was obligated to initiate formal adjudication proceedings under Section 50(3) of the JGST Act. Simply issuing letters demanding payment is not the prescribed procedure.

3. No intimation in the prescribed format was issued, and no formal recovery proceedings were initiated under Section 50(3) of the Act.

4. The error was a genuine human mistake — the accountant was unfamiliar with the newly introduced GST system in 2017, and the company took steps to correct it as soon as it was identified.

5. The online portal had shortcomings that made it difficult to reverse the erroneous credit entry promptly.

Respondent’s Arguments (CGST Department)

1. Ignorance of law is no excuse: The taxpayer itself admitted the error was due to “absence of adequate practice and confidence in the working of the new concept of Goods and Service Tax laws.” This is essentially admitting ignorance of law, which cannot be a valid defense.

2. The online portal excuse is not tenable: The facility to reverse ITC was available in Table 4(B)(2) of GSTR-3B from August 2017 itself. The GSTN confirmed this in its response to the department’s query.

3. Section 42 of CGST Act, 2017 lays down the procedure for matching, reversal, and reclaim of ITC. The irregularly taken SGST credit should have been reversed by adding it to the output tax liability in the GSTR-3B return for August 2017 — no additional column was needed.

4. Section 50(3) of the CGST Act, 2017 clearly stipulates that a taxable person who makes an undue or excess claim of ITC under Sub-section (10) of Section 42 shall pay interest at a rate not exceeding 24%. The department correctly issued the interest demand.

5. The GSTN confirmed that the user manual on the GST portal also covered the ITC reversal functionality in Table 4(B)(2), so the petitioner’s claim of portal shortcomings is incorrect.

Key Legal Precedents

1. Mahadeo Construction Co. vs. Union of India — 2020 (33) GSTL 343 (Jhr.)

This is the most critical precedent in this case, decided by the same High Court of Jharkhand. The court in Mahadeo Construction laid down a very important principle:

“It is not true that liability of interest under Section 50 of the CGST Act is automatic, but the said amount of interest is required to be calculated and intimated to an assessee. If an assessee disputes the liability of interest i.e. either disputes its calculation or even the leviability of interest, then the only option left for the Assessing Officer is to initiate proceedings either under Section 73 or 74 of the Act for adjudication of the liability of interest.”

How it was applied: The court in the present case found that the facts were “squarely covered” by Mahadeo Construction. Since Bluestar had clearly disputed the interest liability and the department had not initiated proceedings under Section 73 or 74, the department’s action was illegal.

2. The Assistant Commissioner of CGST & Central Excise and others vs. Daejung Moparts Pvt. Ltd. and ors — Madras High Court, Judgment dated 19th December 2019

This Madras High Court case was cited within the Mahadeo Construction judgment. It involved a two-judge bench that had divergent views, which were then resolved by a Third Judge. The Third Judge held:

• Under Section 50(1), interest liability is indeed automatic — the taxpayer must pay on their own for the period tax remains unpaid.
• However, under Sub-sections (2) and (3) of Section 50, while the liability is automatic, the quantification of that liability cannot be unilateral, especially when the assessee disputes the period or quantum.
• The term “automatic” does not mean excluding the “arithmetic exercise.” The quantum of interest must be determined after considering the assessee’s objections.
• Whether an undue or excess claim of ITC was made is a question of fact that needs to be decided after hearing the assessee’s objections.

How it was applied: This case reinforced the principle that even if interest liability exists in theory, its quantification requires a fair hearing — it cannot be done unilaterally by the department.

Key Statutory Provisions Referenced:

Section 50: JGST Act, 2017 / CGST Act, 2017 - Interest on delayed payment of tax

Section 50(1): CGST Act, 2017 - Automatic interest liability on unpaid tax

Section 50(2): CGST Act, 2017 - Calculation of interest

Section 50(3): JGST Act / CGST Act, 2017 - Interest on undue/excess ITC claim (max 24%)

Section 42: CGST Act, 2017 - Matching, reversal and reclaim of ITC

Section 42(10): CGST Act, 2017 - Undue/excess ITC claim

Section 43(10): CGST Act, 2017 - Undue/excess reduction in output tax liability

Section 73: JGST Act, 2017 - Adjudication for non-fraud cases

Section 74: JGST Act, 2017 - Adjudication for fraud/suppression cases

Section 140: JGST Act, 2017 - Transitional credit provisions

Judgment

The Petitioner (Bluestar Malleable Pvt. Ltd.) WON

The Core Legal Reasoning:

The court focused on one key question: Can the department demand interest through mere letters without following formal adjudication procedure when the taxpayer has disputed the liability?

The answer was a clear NO.

The court relied heavily on its own earlier decision in Mahadeo Construction Co. vs. Union of India [2020 (33) GSTL 343 (Jhr.)] and held that:

• Once the petitioner raised a dispute about the interest liability (through its reply dated 09.01.2019), the department was legally bound to initiate proceedings under Section 73 or 74 of the JGST Act.
• Instead, the department simply reiterated its demand through letter dated 28.01.2019 — this was not the prescribed procedure under law.
• The issue in this case was “squarely covered” by the Mahadeo Construction precedent.

Orders Passed by the Court:

1. Quashed and set aside — Letter dated 6.11.2018 (Annexure-6) demanding interest of Rs. 72,49,126/-

2. Quashed and set aside — Letter dated 28.1.2019 (Annexure-10) rejecting the petitioner’s objection

3. Quashed and set aside — The Appellate Order passed by the Additional Commissioner (Appeals)

4. Remitted back — The matter is sent back to the revenue department to initiate fresh proceedings regarding interest liability under Section 50 of the JGST Act, following the proper legal procedure as stipulated in the JGST Act

5. Fresh Refund Order — After following the proper procedure, a fresh refund order must be issued in accordance with law

6. Both writ petitions — W.P.(T) No. 2043 of 2020 and W.P.(T) No. 2051 of 2020 — stand ALLOWED.

FAQs

Q1: Does this mean Bluestar Malleable doesn’t have to pay any interest at all?

Not necessarily. The court hasn’t said the company owes zero interest. What it said is that the department cannot demand interest through informal letters when the taxpayer disputes it. The department must now go through the proper legal process (under Section 73 or 74 of the JGST Act), give the company a fair hearing, and then determine whether interest is actually payable and how much.

Q2: What is the difference between Section 73 and Section 74 of the JGST Act?

In simple terms:

• Section 73 is used for cases where there is no fraud or wilful misstatement — basically honest mistakes
• Section 74 is used for cases involving fraud, suppression, or wilful misstatement

Given that this was an admitted honest mistake, Section 73 would likely be the applicable provision for fresh proceedings.

Q3: Why did the court not decide on whether interest was actually payable or not?

The court took a procedural approach — it found that the department had not followed the correct legal process. Rather than deciding the substantive question of whether interest was payable (which would require examining facts and evidence), the court sent the matter back to the department to decide it properly, with a fair hearing.

Q4: What happens to the refund amount that was adjusted against the interest demand?

The court directed that after following the proper procedure, a fresh refund order must be issued in accordance with law. So the refund adjustment will also be reconsidered as part of the fresh proceedings.

Q5: Is it really a valid defense that the accountant was unfamiliar with GST?

The department argued that ignorance of law is no excuse. However, the court didn’t actually decide this question on merits — it decided the case on the procedural ground that the department must follow Section 73/74 before recovering interest. So the “unfamiliarity” argument may still be raised in the fresh proceedings.

Q6: What is the broader significance of this judgment for other GST taxpayers?

This judgment is very significant! It establishes that:

• The GST department cannot unilaterally demand and recover interest through mere letters
• When a taxpayer disputes an interest demand, the department must initiate formal adjudication under Section 73 or 74
• Taxpayers have the right to be heard before interest is quantified and recovered
• This is especially relevant for the early days of GST (2017-18) when many genuine errors were made due to unfamiliarity with the new system

Q7: What is transitional credit (TRAN-1) and why was it relevant here?

When GST replaced the old indirect tax system (like VAT) in July 2017, businesses were allowed to carry forward their existing tax credits into the new GST system. This was done through Form GSTR TRAN-1 under Section 140 of the JGST Act, 2017. Bluestar correctly filed this form claiming Rs. 3,11,43,255/- as transitional credit. The problem arose when the accountant also claimed the same amount again in the regular GSTR-3B return — essentially claiming the same credit twice.

Since both these writ applications are interconnected as such both are heard together and being disposed of by this common order.

2. W.P. (T) No.2043 of 2020 has been preferred by the petitioner challenging the letter dated 6th November 2018 (Annexure-6) issued by the respondent no.3-Superintendent, CGST & Central Excise, Jamshedpur; whereby the petitioner has been called upon to pay interest for a sum of Rs.72,49,126/- on account of alleged irregular input tax credit taken by it on 24th August 2017 and reverted on 13th August 2018. Petitioner has also sought quashing of letter dated 28th January 2019 (Annexure-10) issued by the respondent no.3 whereby the objection of the petitioner against raising of the demand of interest under Section 50 of the Jharkhand Goods & Service Tax Act, 2017 (herein after to be referred as JGST Act) has been rejected. Petitioner has further sought declaration that it is not liable to pay interest for such mistake in filing GSTR-3B for the month of July 2017 wherein inadvertently he had included the transitional credit amount of Rs.3,11,43,255/- again though it was filed in GSTR TRAN-1 as transitional credit in terms of Section 140 of the Act. Petitioner has sought a protection from taking coercive action against it.

In W.P.(T) No.2051 of 2020, petitioner has challenged the part of

refund sanction order dated 9th November 2018 (Annexure-3), so far it

relates to adjustment of refund against the demand of interest made in

terms of letter dated 6th November 2018 impugned in W.P.(T)

No.2043/2020. Petitioner has also laid challenge to the order dated 31st

January 2020 (Annexure-5) passed by the Additional Commissioner

(Appeals) whereby the appeal preferred by him against part of the refund

sanction order dated 9th November 2018 has been rejected.

3. Brief facts of the case is that the petitioner found itself entitled to

claim transitional credit of ITC under the provisions of the JVAT Act

2005 and submitted a declaration in form TRAN-1 as per section 140 of

the JGST Act, 2017 with a claim of credit for a sum of Rs.3,11,43,255/-

which was filed electronically on the common portal of the respondent

department. The accountant of the petitioner company repeated the said

claim of transitional credit for the same amount in the GSTR-3B

furnished in July, 2017. The said repetition being due to human error,

absence of adequate practice/familiarity in the working of the new

concept of Goods and Services Tax laws, which had been introduced in

2017 itself. Immediately, in July, 2018 petitioner took step to reverse the

said entry to rectify the error. In GSTR-3B of July 2018, the sum of

Rs.3,11,43,255/- has been reversed towards Input Tax Credit of SGST. It

is specific case of the petitioner that the said amount of transitional credit mistakenly mentioned in form GSTR-3B for July 2017 was never

utilized by the petitioner company against the output tax liabilities

arising out of daily business transactions.

A clarification was sought by the department vide letter No.225

dated 22.10.2018 regarding reversal of SGST Credit amounting to

Rs.3,11,43,255. A clarification was also sought as to why no interest was

paid on the said reversal of ITC. Petitioner responded to the said

clarification vide letter no. BSMPL /245 dated 2.11.2018. The

Respondent authority vide letter No.249 dated 06.11.2018 (impugned

letter) responded to the petitioner’s letter. The impugned letter pertains to direction for payment of interest for Rs.72,49,126/- in respect of

irregularly taken credit of Rs.3,11,43,255/-.

In the meanwhile, the petitioner filed an application on

12.09.2018 (with an acknowledgment delivered by the system on

26.09.2018) seeking refund of excess amount lying in the electronic cash

ledger of the petitioner for a sum of Rs.26,45,301/-. Pursuant thereto; the

refund was sanctioned by the competent authority vide the refund

sanction order dated 09.11.2018. But the said refund was allowed with an

adjustment towards a sum of Rs.72,49,126/- in light of the impugned

letter dated 06.11.2018. Petitioner challenged the part of refund order in

appeal. The above mentioned adjustment of the refundable amount also

contains the liability of interest. The appeal was dismissed vide order

dated 31.01.2020 passed in appeal no.01/CGST/JSR/2020.

4. The grivance of the Petitioner is that though it submitted a

detailed objection to the impugned letter dated 06.11.2018 before the

respondent vide letter no.351 dated 09.01.2019; the Respondents vide

letter no.309 dated 28.01.2019 (impugned letter) repeated its earlier

stand and refused to accept the request made by the petitioner vide letter

dated 02.11.2018 and 09.01.2019. The petitioner was requested to pay

the balance of Rs.40,71,403/- towards interest payment after adjustment

of the refund amount sanctioned in favour of the petitioner.

5. Learned counsel for the petitioner submits that interest under

Section 50 of the JGST Act, 2017 which is primarily compensatory in

nature cannot be levied upon the petitioner if the ITC has not been

availed twice. Learned counsel further contended that when the dispute

taking objection to the notice at Annexure-6 for payment of interest in

terms of Section 50(3) of the JGST Act was made through reply dated

09.01.2019 (Annexure-9) by the petitioner; the respondent should have

followed the procedure prescribed for realization of the interest.

The issue raised by the petitioner has been incorporated in the

order dated 18.04.2022 which reads as under:-

1. Whether interest under Section 50 of the JGST Act,

2017 primarily being compensatory in nature can be

levied upon the petitioner, if the I.T.C. has not been

availed twice through mistaken filing of GSTR-3B after the

same had earlier been carried forward as transitional

credit through GSTR TRAN-1 and also the same got

reversed in July 2018 at the behest of the petitioner. It is

the petitioner’s case that no tax dues remained unpaid

during this period.

2. Learned counsel for the petitioner submits that

despite taking an objection to the notice at Annexure-6

dated 06.11.2019 for payment of interest in term of Section

50(3) of the JGST Act through reply dated 09.01.2019

(Annexure-9) by the petitioner, the respondents have not

followed the procedure prescribed for realization of the

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.

6. Learned counsel for the respondent reiterated the stand made in

the counter affidavit and submits that the claim of the taxpayer that it

made all best efforts to rectify the said error by reversal of the said Input Tax Credit but due to shortcomings in the online facilitation procedures of the respondent department, the reversal of the said Input Tax Credit facilitated in the month of July, 2018; is not tenable.

The procedure for matching, reversal and reclaim of Input Tax

Credit has been laid down under Section 42 of CGST Act, 2017. 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 for the month of August, 2017. So, additional column for reversal

of irregularly taken SGST credit was not required in the GSTR-3B.

Further, while filing the GSTR-3B for the month July, 2017 the taxpayer

again took the Input Tax Credit which the taxpayer already transferred

into the electronic credit ledger through TRAN-1. The taxpayer was able

to file GSTR-3B returns on the online portal and the facility to reversal

was available in the GSTR-3B return itself, therefore the plea of taxpayer

that the online portal had shortcomings is not tenable.

Further, the taxpayer itself said that it was just on account of

error of understanding and absence of adequate practice and confidence

in the working of the new concept of Goods and Service Tax laws

introduced for the first time in the year 2017 that the concerned

accountant of the petitioner company repeated the said claim of

transition credit for the same amount in the return furnished in the month

of July, 2017. 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 an excuse for non-compliance of legal

provisions. The petitioner try to put their failure on online portal which is not correct and tenable.

The department correctly issued letter to deposit interest on input

Tax Credit wrongly availed by the petitioner. Section 50(3) of the CGST

Act, 2017 stipulates that ‘A taxable person who makes an undue or

excess claim of Input Tax Credit under Sub-section (10) of Section 42 or

undue or excess reduction in Output Tax liability under Sub-section (10)

of Section 43, shall pay interest on such undue or excess claim or on

such undue or excess reduction, as the case may be, at such rate not

exceeding twenty four percent, as may be notified by the Government on

the recommendation of the council’. Accordingly, the department issued

letter to deposit interest on the suo-moto reversal of ineligible Input Tax

Credit by the taxpayer. The department 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”.

The said queries of the department were replied by the GSTN which is as

under:-

“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. The user

manual deployed on the GST portal, for explaining this

functionality to the taxpayers, also covers the part pertaining to

ITC reversed in Table -4(B)(2), which demonstrates that this

functionality was also there on the GST portal”.

Learned counsel concluded his argument by submitting that the

procedure for matching, reversal and reclaim of Input Tax Credit has

been laid down under Section 42 of CGST Act, 2017. 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. There is a provision in the

GSTR-3B return itself to reverse the credit at column 4(B) under the

head ‘ITC Reversed’. In view of the above, the contention of the

petitioner is not tenable and both writ applications deserve to be

dismissed.

7. Having heard learned counsel for the parties and after going

through the documents available on record and the averments made in

the respective affidavit, 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”. In this regard, reference may be

made to the case of Mahadeo Construction Co. Vs. Union of India

reported in 2020 (33) GSTL 343(Jhr.) wherein this Court has laid down

the law as under:-

“21. It is not a true that liability of interest under Section

50 of the CGST Act is automatic, but the said amount of

interest is required to be calculated and intimated to an

assesse. If an assesse disputes the liability of interest i.e.

either disputes its calculation or even the leviability of

interest, then the only option left for the Assessing Officer

is to initiate proceedings either under Section 73 or 74 of

the Act for adjudication of the liability of interest. Recently,

the Hon’ble Madras High Court, in its decision dated 19th

December, 2019 rendered in Writ Appeals in the case of

The Assistant Commissioner of CGST & Central Excise

and others Vs. Daejung Moparts Pvt. Ltd. and ors, has

taken similar view. The said Writ Appeals were initially

decided by a Two Judges Bench of the Hon’ble Madras

High Court and divergent views were taken by the Hon’ble

Judges on the issue of initiation of adjudication

proceedings before imposing liability of interest under

Section 50 of the Act. The matter was, thus, referred to

learned Third 12 Judge, which was decided vide Judgment

dated 19th December 2019 in the following terms:-

“27. A careful perusal of the above said provision

would show that every person who is liable to pay

tax, but fails to pay the same or any part thereof

within the period prescribed shall, on his own, pay

interest at such rate not exceeding 18% for the

period for which the tax or any part thereof remains

unpaid. Thus, sub clause (1) of Section 50 clearly

mandates the assesse to pay the interest on his own

for the period for which the tax or any part thereof

remains unpaid. The liability to pay interest is

evidently fastened on the assesse and the same has to

be discharged on his own. Thus, there cannot be any

two view on the liability to pay interest under Section

50(1) of the said Act. In other words, such liability is

undoubtedly an automatic liability fastened on the

assesse to pay on his own for the period for which

tax or any part thereof remains unpaid.

28. Sub-section (2) of Section 50 contemplates that

the interest under Sub-section (1) shall be calculated

in such manner as prescribed from the day

succeeding the day on which such tax was due to be

paid. Sub-section (3) of Section 50 further

contemplates that a taxable person who makes an

undue or excess claim of input tax credit under

Section 42(10) or undue or excess reduction in

output tax liability under Section 43 (10) shall have

to pay interest on undue or excess claim or such

undue or excess reduction, at the rate not exceeding

24 percent.

29. A careful perusal of sub Sections (2) and (3) of

Section 50 thus would show that though the liability

to pay interest under Section 50 is an automatic

liability, still the quantification of such liability,

certainly, cannot be by way of an unilateral action,

more particularly, when the assesse disputes with

regard to the period for which the tax alleged to

have not been paid or quantum of tax allegedly

remains unpaid. Likewise, whether an undue or

excess claim of input tax credit or reduction in

output tax liability was made, is also a question of

fact which needs to be considered and decided after

hearing the objections of the assesse, if any.

Therefore, in my considered view, though the liability

fastened on the assesse to pay interest is an

automatic liability, quantification of such liability

certainly needs an arithmetic exercise after

considering the objections if any, raised by the

assesse. It is to be noted that the term “automatic”

does not mean or to be construed as excluding “the

arithmetic exercise”. In other words, though liability

to pay interest arises under Section 50 of the said

Act, it does not mean that fixing the quantum of such

liability can be unilateral, especially, when the

assesse disputes the quantum as well as the period of

liability. Therefore, in my considered view, though

the liability of interest under section 50 is automatic,

quantification of such liability shall have to be made

by doing the arithmetic exercise, after considering

the objections of the assessee. Thus I answer the first

issue accordingly.

31. It is to be noted at this juncture that in both the

writ petitions, the respective writ petitioners are not

disputing their liability to pay the interest on the

delayed payment of tax. On the other hand, they are

disputing the quantum of interest claimed by the

Revenue by contending that the interest liability was

worked out on the entire tax liability instead of

restricting the liability to the extent of tax unpaid. It

is further seen that the writ petitioners have placed

some worksheets, wherein they have claimed some

ITC credit for every month as well. Their grievance

before the Writ Court was that the impugned bank

attachment ought not to have been resorted to

without determining the actual quantum of liability.

32. Therefore, it is evident that the dispute between

the parties to the litigation is not with regard to the

very liability to pay interest itself but only on the

quantum of such liability. In order to decide and

determine such quantum, the objections raised by

each petitioners shall have to be, certainly,

considered. Undoubtedly unilateral quantification of

interest liability cannot be justified especially when

the assesse has something to say on such quantum.

The Writ Court, thus, in the above line, has disposed

the writ petitions, that too, on a condition that the

petitioner in each case should pay the admitted

liability of interest.

33. A careful perusal of the direction issued by the

Writ Court does not indicate anywhere as to how the

Revenue is prejudiced by the said order, especially

when the Revenue is given liberty to pass an order in

a manner known to law and communicate the same

to the petitioners, after considering their objections.

Thus, I find that the Writ Appeals preferred against

the said orders of the Writ Court, as observed by Dr.

Vineet Kothari, J, are wholly unnecessary. Therefore,

I am in agreement with the view expressed by Dr.

Vineet Kothari, J., as I find that entertaining the writ

appeal is not warranted, since the Writ Court has not

determined the interest liability of each petitioners

against the interest of the Revenue in any manner

and on the other hand, it only remitted the matter

back to the concerned Officer to determine the

quantum of such liability. Thus, the second question

with regard to the maintainability of the writ appeals

is answered accordingly.”

8. After going through the aforesaid order passed by this Court in

the case of Mahadeo Construction (supra) it appears that if any assessee

disputes the liability of interest under Section 50 of the JGST Act then

the revenue will have to follow the specific procedure as stipulated under

Section 73 or 74 of the JGST Act. In the instant case, admittedly; a notice

was issued to the petitioner dated 6.11.2018 (Annexure-6 to W.P.T

No.2043/20) thereafter, the petitioner duly replied in form of objection

with regard to non-payment of interest vide its reply dated 9.1.2019

(Annexure-9 to W.P.T No.2043/20). However the respondent-department

vide letter dated 28.1.2019 repeated its earlier stand and refused to accept

the petitioner’s stand and the petitioner was directed to pay the balance

amount of Rs.40,71,403/- towards interest payment after adjustment of

refund amount sanctioned in favour of the petitioner (Annexure-10 to

W.P.T No.2043/20). Thus, it clearly transpires that the respondents have

not followed the procedure as enshrined in Section 73 or 74 of the JGST

Act. Thus, the issue involved in the writ applications is squarely covered

by the decision passed by this Court in the case of Mahadeo

Construction (Supra).

9. Having regard to the facts of the case and the discussions made

hereinabove and the law laid down by this Court, both these writ

applications requires interference. Consequently, letter dated 6.11.2018

(Annexure-6) issued by the respondent No.3 whereby the petitioner was

called upon to pay interest for the sum of Rs.72,49,126/- on account of

alleged irregular Input Tax Credit as well as the impugned order dated

28.1.2019 (Annexure-10) whereby the objection filed by the petitioner

towards payment of interest under Section 50 of JGST Act has been

negated, are hereby, quashed and set aside. The appellate order is also

quashed and set aside.

The matter is remitted back to the revenue to initiate a fresh

proceeding with regard to the liability towards interest under Section 50

of JGST Act in accordance with law as stipulated in JGST Act. It goes

without saying that after following the procedure and dependant on the

proceedings, fresh refund order be issued in accordance with law.

10. With the aforesaid observations and directions made

hereinabove, both these writ applications stand allowed.

(Aparesh Kumar Singh, J.)

(Deepak Roshan, J.)