Interest on late filing of GSTR-3B cannot be demanded without adjudication- says Jharkhand High Court
Interest Under Section 50 Cannot Be Demanded Without Adjudication When Liability Is Disputed
Date & Year of Judgment
13 March 2024
The Jharkhand High Court reaffirmed that although liability to pay interest under Section 50 may arise automatically, its quantification and recovery cannot be done unilaterally without adjudication under Section 73 or 74.
Case Reference
M/s East India Udyog Ltd. v. State of Jharkhand & Ors.W.P.(T) Nos. 2853, 2854 & 2855 of 2023High Court of Jharkhand at Ranchi
Other similar cases
M/s. Kesoram Industries Ltd. Versus The Commissioner of Central Tax, Medchal, GST Commissionerate, Medchal, GST Bhavan, Redhills, Lakdikapul, Hyderabad and others
WRIT PETITION NO. 23431 OF 2023 dated 20/09/2023
Telangana High Court
1. Main Issue Involved
Whether the GST department can directly demand interest under Section 50 for delayed filing of GSTR-3B returns without conducting adjudication proceedings under Section 73 or 74 when the assessee disputes the liability.
The judgment clarifies that automatic liability does not mean automatic recovery without adjudication.
2. Sections and Rules Discussed
Section 50 – Interest on delayed payment of tax
Section 39 – Filing of returns (GSTR-3B)
Section 73 – Determination of tax not paid/short paid (non-fraud cases)
The Court examined the procedural safeguards required before enforcing interest liability.
3. Facts of the Case
Petitioner company engaged in manufacturing transformers, conductors and cables.
Delay occurred in filing GSTR-3B returns for June 2018 to March 2019.
Department demanded interest under Section 50.
Demand of ₹92,96,042.91 raised through DRC-07.
No proper adjudication proceedings conducted before raising the demand.
Appeals filed by the assessee were dismissed.
Petitioner approached the High Court challenging the demand.
The demand was raised directly through DRC-07 without adjudicating the dispute.
4. Petitioner’s Submissions
The petitioner argued:
Interest demand was raised without adjudication.
Liability under Section 50 was disputed.
Department must initiate proceedings under Section 73 or 74.
Relied on earlier Jharkhand High Court decisions including:
Mahadeo Construction Co.
R.K. Transport Pvt. Ltd.
Godavari Commodities Ltd.
Petitioner relied heavily on the consistent Jharkhand High Court precedent requiring adjudication.
5. Department’s Submissions
The State argued:
Interest liability arises automatically when tax is paid late.
Petitioner admitted delay in filing returns.
Therefore demand of interest was justified.
Revenue attempted to treat interest liability as self-executing.
6. Analysis and Findings of the Court
The Court examined the legal position regarding interest under Section 50.
A. Automatic Liability vs Quantification
The Court clarified that although interest liability may arise automatically, quantification cannot be unilateral where liability is disputed.
B. Adjudication Is Mandatory in Disputed Cases
Where the assessee disputes either:
the quantum of interest, or
the period of delay,
the department must initiate proceedings under Section 73 or 74.
C. Binding Judicial Precedents
The Court followed earlier coordinate bench decisions which had already settled this issue.
D. Judicial Discipline
The Court emphasized that coordinate benches must follow earlier decisions unless referred to a larger bench.
Important Observations of the Court
(Para 12 – Principle of Adjudication Requirement)
“without initiating any adjudication proceedings under section 73 or 74 of the CGST Act 2017, where the liability has been disputed, the Department cannot raise a demand for the payment of interest.”
(Para 13 – Following Earlier Precedent)
“despite disputing the liability towards interest, the revenue has raised a demand for payment of interest… without initiating any adjudication proceedings under Section 73 or 74 of the CGST Act.”
(Para 14 – Automatic Liability vs Quantification- Reference of the case of Narsingh Ispat Limited)
“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 unilateral action…quantification of such liability shall have to be made… after considering the objections of the assessee.”
(Para 15 – Judicial Discipline)
“This is a well accepted norm of judicial discipline that a Bench of co-equal strength must follow the decision of another Bench of co-equal strength.”
The Court made a crucial distinction between automatic accrual of interest and procedural requirement of adjudication before recovery.
7. Judgment of the Court
The High Court held:
Interest demand raised through DRC-07 without adjudication is unsustainable.
Appellate order and demand notices set aside.
Department given liberty to initiate proper adjudication proceedings under law.
The Court protected procedural safeguards while leaving liberty for lawful adjudication.
8. Similar / Related Judgments
Jharkhand HC – Mahadeo Construction Co. v. Union of India
Jharkhand HC – R.K. Transport Pvt. Ltd.
Jharkhand HC – Godavari Commodities Ltd.
Jharkhand HC- Narsingh Ispat
Madras HC – Assistant Commissioner v. Daejung Moparts Pvt. Ltd.
Emerging Principle:Interest may arise automatically but cannot be recovered without adjudication when disputed.
9. CA BTA Insights
This judgment is extremely important in GST interest disputes.
Key Legal Principles
Interest liability under Section 50 may arise automatically.
However recovery requires adjudication when liability is disputed.
Department cannot directly issue DRC-07 demand.
Proper procedure under Section 73/74 must be followed.
Assessee must be given opportunity to dispute computation.
Litigation Strategy
Challenge direct interest demands issued via DRC-07.
Argue absence of adjudication under Section 73/74.
Emphasize dispute regarding computation or period.
Cite Mahadeo Construction line of cases.
This judgment reinforces that procedural fairness cannot be bypassed even for statutory interest liabilities under GST.