Interest under GST on delayed tax payment cannot be levied from the deposit date in electronic cash ledger until the return is filed, emphasizing compensatory nature over punitive interpretations.

JUDGMENT :

BHARGAV D. KARIA, J.

1. Heard learned Senior Advocate Mr. Kamal Trivedi with learned advocates Mr. Anuj Trivedi and Mr. Vinay Bairagra for the petitioners and learned advocate Mr. Ankit Shah for the respondents.

2. Both these petitions are arising out of the communications issued by the respondents for payment of interest under Section 79 of the Goods and Services Tax Act, 2017 (For Short “GST Act”).

3. In Special Civil Application No. 4464 of 2022, the petitioners have challenged the communication dated 17.11.2021 and 11.02.2022 (Annexure-B and Annexure-C respectively) and in Special Civil Application No. 821 of 2023, the petitioners have challenged the communications dated 24.08.2022, 12.09.2022 and 04.02.2023 (Annexure-C, Annexure-D and Annexure-E respectively).

4. Having regard to the controversy arising in these petitions which is in a narrow compass, with the consent of the learned advocates for the parties, the same is taken up for hearing.

5. Rule returnable forthwith. Learned advocate Mr. Ankit Shah waives service of notice of rule for and on behalf of the respondents.

6. The factual matrix giving rise to these petitions can be summarized as under:-

6.1. The brief facts of Special Civil Application No. 4464 of 2022 are that the petitioner no. 1 firm filed Form GSTR-3B return within the extended period of limitation. It is the case of the petitioner that with a view to avoid complication with regard to payment of taxes on total advances received during the month of July, 2017 the petitioner Company, at various places where it is registered, took a decision to make the payment of applicable taxes along with interest at the rate of 18% per annum as provided under Section 50 of the GST Act where the same were payable.

6.2 It appears that on 31.07.2018 the premises of the petitioner Company came to be searched by the officers of the Directorate General of GST Intelligence, Lucknow Zonal Unit, Lucknow and in spite of making the payment of applicable taxes along with interest at applicable rate, the communication dated 02.08.2018 was received to the effect that there was a mismatch between Forms GSTR-1 and GSTR - 3B returns filed by the petitioner Company with regard to GST liability shown/paid.

6.3. By reply dated 16.08.2018, the petitioner Company provided the details of the payment made and stated that there was no difference as alleged between the two Forms of returns. Thereafter by letter dated 18.12.2018, the petitioner Company was requested to pay the remaining interest amount up to the actual date of debiting the electronic cash ledger.

6.4. Being aggrieved by the letters dated 02.08.2018 and 18.12.2018, the petitioner preferred Special Civil Application No. 6322 of 2019 which was disposed of by this Court vide order dated 23.07.2021 on the submission made on behalf of the respondents that the department would issue show cause notice prior to raising any demand on the petitioner Company.

6.5. It is the case of the petitioner that the respondent no. 2 thereafter issued letter dated 17.11.2021 whereby the petitioner Company was directed to deposit the interest amount to the tune of Rs.58,97,120/-, failing which a show cause notice would be issued.

6.6. By reply dated 02.12.2021 the petitioner Company disputed such liability reiterating that the amount of tax payable by the petitioner Company was already paid on 19.09.2017 along with interest and requested to drop the proceedings. However, the respondent no. 2 by letter dated 11.01.2022 intimated the petitioner Company that pre show cause notice consultation would be convened on 20.01.2022. After pre - consultation hearing, the respondent no. 2 issued another letter dated 11.02.2022 calling upon the petitioner Company to deposit the amount of interest of Rs.58,97,120/- as per Section 50 of the GST Act, failing which recovery proceedings would be initiated under Section 79 of the GST Act.

7. So far as Special Civil Application No. 821 of 2023 is concerned, after the letter