GST Interest Liability is Automatic, Leviable only after Completion of Adjudication Proceedings

The Jharkhand High Court has held that interest liability under Section 50 of the Central Goods and Services Tax Act, 2017 is automatic. It is computation, and demand can be raised only after the adjudication proceedings are complete. This case came to light after a petitioner who had filed GSTR3B approached the High Court after a letter was sent to the business entity demanding payment of interest on the grounds of delay in filing of GSTR-3B return for the months of February and March 2018. GST authorities simultaneously exercised authority under Section 79 of the CGST Act by initiating garnishee proceedings for recovery of the amount of interest by issuing notice to the petitioner’s banker. The petitioner approached the High Court claiming that the letter is not sustainable under law, as the said amount of interest has been determined without initiating any adjudication process under Sections 73 or 74 of the CGST Act. Presently, GSTR3B is an auto-populated return, and on the basis of details of inward and outward supply generated under this return, the taxpayer is required to pay the appropriate amount of tax. But because of a nationwide issue on the GST Portal, several taxpayers have faced the problem where the details are not auto-populated by the portal. As such, a stop-gap provision was incorporated for filing of GSTR-3B Return in terms of Rule 61(5) read with Rule 61(6) of the Central Goods and Services Tax Rules, 2017.

The Jharkhand High Court has quashed the letter sent by GST authorities and held that even though the liability of interest is automatic, the same is required to be adjudicated in the event of a dispute. By initiation of adjudication proceedings under Section 73 or 74 of the CGST Act, the amount of interest cannot be termed as an amount payable under the CGST Act unless adjudication is completed by the proper authorities.